Apr 142016

Real Estate Regulatory Bill: Major Changes, Benefits and All That You Should Know

It’s not hidden from anyone that Indian real estate market is a maze that can baffle anyone. Almost every Indian who doesn’t own a house knows this. Buyers are almost always on the mercy of private real estate builders. Those builders, as you may know already, put their interests first and their customers’ interests nowhere. There’s no shortage of cases where builders imposed extra charges or unnecessary documentation requirements on property registrants. In some worst cases, they also flew away with the money of registrants. It’s just not an easy task to buy property in India.

Fortunately, a ray of hope has been shown by the Central government. Real Estate Bill of 2016 aims to standardize the process of registering a property across the country and put some harmony between the interests of builders and customers both.  In this article we’ll try to take a detailed look at this ambitious bill recently presented by the government.

Real Estate Regulatory Bill

What Real Estate Bill Is All About?

A home is one of the most basic requirements for one to survive and thrive in this world. It’s not hidden from anyone, including those wealthy real estate builders. And unfortunately, they leave no chance to take advantage of this basic requirement.

Some people also see property as a means of investment, but the problem with this investment method is that it’s not regulated. While other financial products like stocks, mutual funds, FDs and insurance etc. are regulated directly by at least one regulatory body, real estate industry is not! Those who were conned by some maliciously intended real estate builder years ago are still waiting for justice.

Looking at these problems, Law and Justice Ministry had suggested a centralized law to regulate the real estate industry in 2011. That law, dubbed Real Estate Regulatory Bill, has been approved by both houses (Lok Sabha and Rajya Sabha) last month. It aims to regulate the business and promotional activities of real estate builders and bring some clarity in their operations. The primary aim of bill is to secure the interests of buyers, but it doesn’t completely put aside the interests of builders as well, which has made it acceptable to both. It’s applicable to the properties of whole country,  except for the properties of Jammu and Kashmir.

Timeline of Real Estate Regulatory Bill

Let’s take a brief look at events that led to the passing of this historic bill:

  • July 2011 – Law and Justice Ministry first suggested the bill.
  • July 2012 – A paper published by Finance Ministry talked about the possibility of under-reported transactions and black money in real estate.
  • June 2013 –Real Estate Regulatory Authority (RERA) Bill was approved by UPA cabinet.
  • September 2013 – Cabinet approved RERA bill passed on to standing committee.
  • February 2014 – Standing committee submitted its report in Rajya Sabha and Lok Sabha.
  • December 2015 – Union Cabinet of India approved 20 amendments to the bill and passed them to committee again for review.
  • July 2015 – The committee submitted its report after reviewing the amendments. However, Congress and AIADMK expressed their dissent regarding the changes and listed the bill for further consideration.
  • March 2016 – The bill was passed in Rajya Sabha and Lok Sabha.

Changes Suggested in Bill

As you may know already, this bill is being called the biggest ever reform to the real estate industry. Let’s see the changes that it’ll bring at a glance:

#1. Establishment of State-Level Regulatory Bodies

  • For timely redressal of real estate related grievances this bill suggests establishment of State-Level Real Estate Regulatory Authorities.
  • The state governments will have complete control over any affairs related to the usage of land. For example, they’ll be able to bifurcate any part of land into commercial or residential land, and so on.
  • The authority will grade the real estate projects going on in various cities of their states.
  • Grievance redressal mechanism will also work faster and smoother than ever. With 644 consumer courts in service of RERAs, it’ll become easier to resolve any issues within 2 months of being raised. Civil Courts won’t be allowed to hear the cases related to real estate.
  • If a party is not satisfied with the judgement of consumer court, it’ll have the liberty of filing an appeal in High Court within 60 days of judgement.

#2. Registration of Projects

  • All builders will have to register their projects with RERAs of states where they plan to develop them.
  • There’s major emphasis on transparency in registration process, which requires the builders to disclose all details related to the project like promoters of the company, land status, layout plan, agreements, approvals provided, partner agents, contractors involved, architects and structural engineers involved and so on. All this information will be furnished on the websites of RERAs for being publicly accessible.
  • Real estate agents also need to register themselves with RERAs of their states. Registration of projects along with agents will ensure that customers deal with authentic brokers and companies.
  • The builders will also have to provide information about the projects that they’ve initiated in last five years, whether they’re finished or not. Just like other information provided by developers, this info too will be available on the websites of RERAs. Consumers will be able to assess the quality of companies they deal with by having a look at this information.

#3. Fine on violating registration rules

  • If any builder doesn’t register any of his projects with respective RERAs, he’ll be liable to pay up to 10% of projects’ value as fine. Failing to pay the fine within required time may lead to imprisonment of up to 3 years or additional fine up to 10% of project cost or both.
  • And finally, the fine for real estate agents who violate any of the registration rules is Rs. 10,000 per day for the period during which violation continues.

#4. Regulation on usage of funds

The builders will have to park at least 70% of money collected by registrants of any particular project in a separate account to finance the development of that project. This will ensure that money that you pay to the builders for your home is used only for the development of project in which your home will be based. The builders will no longer be able to use money collected from customers anywhere they wish. However, there’s a catch with this rule: State governments will be able to change the cap of funds from 70% to whatever they wish. Let’s hope that this power isn’t abused by them.

#5. Possession of Property

  • Once occupancy certificate has been issued by the developer, allottees will have to take possession of their houses within 60 days.
  • If builder fails to give the possession of property on time, he’ll have to payback the amount that he received from the buyer with interest (as EMI). The rate of interest will be same as the interest that he charges to the customer for late payment.

#6. Payment on the basis of Carpet Area

  • The bill mandates clearly that cost of any house will be based solely on its carpet area – that is, the net usable area of the house. This will not include the area covered by thickness of external walls, balcony, veranda, open terrace or area covered under service shafts. The area covered by inner walls, however, will be a part of it.
  • The price that buyers pay for their house will be based on this carpet area only – not for super-built up area.
  • The loading factor is an important thing, as it establishes the relationship between carpet area and super-built up area. The formula to calculate super-built up area with the help of loading factor is: Super built-up area = Carpet area (1+ loading factor)

#7. Regulation on advertisements

  • Often real-estate builders provide images of spacious, beautiful properties in their advertisements. However, the actual site turns out to be less than 20% of what was shown in the advertisement. Now after this bill builders won’t be able to do that.
  • If developer plans any structural change to the project, he’ll have to obtain the consent of 2/3rd of his customers who have registered properties in that project.
  • Advertisements inviting the customer to pay advances or deposits are not allowed.
  • And lastly, in cases of mismatch between information provide to customer and actual development, the developer will have to refund whole amount to the customer.

#8. After-sales servicing

  • Builders using low-quality material for the projects isn’t a new thing. Real Estate bill plans to put a full-stop to this issue as well. Now builders won’t be able to run away as soon as they provide you the possession of home – they’ll have to provide after-sales service for the material used in house (including all the fittings) for one year from the date of providing possession to the buyer. So if they use low quality material in the buildings, they’ll be liable to get things fixed if they show the signs of sub-standard quality within an year.
  • If builder doesn’t follow this rule, he’ll have to pay up to 5% of estimated project cost as fine.

#9. Discrimination Free Policy

It’s well-known that societies we live in are almost always built around particular religions, castes, income groups or other identifiers of social status. Often minorities like SCs, STs, Muslims etc. face unnecessary hurdles in finding a house only because societies don’t allow their stay. Bachelors and single mothers also suffer from the same experience.

Real Estate Regulatory Bill prohibits such discrimination and aims to provide a non-discriminatory environment to all buyers. It mandates that no person can be denied a property on the basis of caste, creed, religion, relationship status or gender. It has got provisions for strict legal actions against societies that break this rule.

Real Estate Bill: Benefits to Buyers

So that was an introduction to major changes that this bill will bring to the process of purchasing properties. Now let’s have a look at how these changes will benefit customers:

  1. The bill makes it very easy to identify authentic real estate builders as well as agents. All information about genuine builders and agents will be available on the website of your state’s RERA. If information about a builder or agent isn’t available on RERA’s website, there’s a good chance that he’s a fraud.
  2. Second, you won’t have to pay any unnecessary charges as it has been clarified in the bill that you need to pay according to carpet area only.
  3. Since builders are bound to pay for not providing the possession of property on time and are bound to keep at least 70% of money paid by customers for development of projects, you’ll see projects being completed quicker than ever. Timely possession of property will become more common.
  4. Cases of false advertisement will decrease, which will provide you a more accurate imagination of what your future home may look like.
  5. If still any issue arises with your purchase, RERA will ensure that a judgement is taken within 60 days.
  6. And lastly, you’ll be able to save a lot of money too. Until now properties have been sold on the basis of ambiguous super-built up areas, but now they’ll be sold on the basis of actually usable carpet areas. This will decrease their costs by some serious margin for obvious reason – the lack of area. Plus, standardization of process will also save you from many unnecessary hassles and charges that were previously imposed by developers. Therefore, you my end up saving some serious sum on the purchase of your property.

Real Estate Bill: Benefits to Builders

While majority of benefits in the bill are aimed at customers, the government has not entirely forgotten the interests of developers too. Given below are major benefits that builders will receive from the bill:

  1. Increased Sales: As of now whole real estate market is in a state of distrust. Acts of some fraudulent builders have led to buyers being more wary than ever about their dealings with real estate agents or builders. Home sales declined about 4% in 2015, and more than 7 lakh properties remained unsold. Those things may change with this bill. When customers will find transparency in whole process and it’ll become easier to identify authentic brokers and builders, their trust will in builders and agents will increase. After all, if broker or agent is registered with RERA and information about him is available on RERA’s website, the question of authenticity receives a satisfactory answer itself. As you may expect, this will encourage the buyers to buy properties more confidently.
  2. Increased Investment: Transparency and boom of market will also give boost to foreign investors, which may lead to flow of more outside investments into real estate market.

Collectively these factors will give a boost to the earnings of real estate builders. And while selling your property on the basis of carpet area may seem to be a disappointment at first, you can actually deal with it easily by increasing the per sq. ft. rate. After all, when you’ll provide more transparent and better services, why can’t you increase the rates of property? Majority of builders will actually do this and you’ll see the market rates going up.

Will Builders Comply With It?

As of now they don’t have any other options rather than complying with it. The bill has got strict punishments and penalties for violation of its rules, which extend as far as cancellation and demolition of project. Therefore, violating the rules is not an easy choice.

However, builders may get certain provisions of the bill tweaked according to their requirements from their respective state governments. There’re many provisions in the bill that’re causing some apprehension among builders. For example:

  • The provision of parking 70% funds received from customers in a separate escrow account may work in places where land prices are not high, but it may not work in metro cities where majority of development takes place and where land prices and construction costs are touching the skies. In cities where purchasing land as soon as it’s available on best prices is important, this rule won’t work and builders will have to use the funds, no matter where they came from. The developers wish this rule would’ve been made region specific or its ceiling would’ve been left over the market. But this shouldn’t bother them much, because as said above, changing this ceiling is in the hands of state governments.
  • Another provision that’s bothering developers is that of advertising. The act has barred the builders from inviting customers to pay any advances. This may significantly drop the number of inquiries that come in after publishing an advertisement.
  • Developers are also worried about the fact that once RERAs start to appear, they’ll have to register their projects with them, which may delay the completion of under-construction projects. However, lawyers have suggested that registration doesn’t require the builder to stop the construction work. The bill has nowhere stated that builders will have to stop the construction and wait until their project is registered with RERA, so they submit the details of registration and continue the construction work.
  • But perhaps the biggest issue with this bill from perspective of builders is exclusion of authorities from the coverage of bill. Yes, the authorities and departments that provide various permissions to builders are not covered under the umbrella of this bill, while in reality many projects are delayed only because of them. Now if any project is delayed due to slow-processing of any government department, why would the builder want to pay its price to customers?

Provisions like the ones given above may be changed slightly before or after the implementation of bill to meet the requirements of builders. What developers want is single window clearance for all the permissions that they need to start the development of any project. Maharashtra government is already working in this direction, after which realtors won’t have to shunt 50 different offices to get 50 – 70 different permissions for their projects. They’ll be able to do all of that via an online portal in one go. Builders of other states also want something similar. Had it been introduced as a part of this bill, it would have led to a much stronger revival of real estate sector. But still, it’s much better than the current scene.

To a large extent everything in the bill is just fine, and developers don’t really have any major reason to oppose it. It has closed all loopholes that were previously exploited by the builders, so there’s no other choice than complying with rules of the bill.

When Will This Bill be Implemented?

While it has been passed by both houses it’s still at least 9 – 24 months away from being implemented. Moreover, since its implementation will be done by the states, the implementation period may vary on a state-by-state basis. But once it’s implemented, it’ll wipe out a large number of scammers from the market and only genuine folks will be able to survive. It’s a ray of hope for everyone – buyers who’ve repeatedly been exploited by fraudulent developers, and genuine developers who have been suffering because of the sins of other scammers. It’ll make the real estate market mature, transparent and trustworthy for everyone.


In a nutshell, the real estate bill will provide following benefits to buyers and builders:

Benefits to Consumers Benefits to Builders
Faster redressal of grievances Easier selling of property due to increased trust of buyers
More transparency
Easier authentication checks More outside investments
Freedom from unnecessary charges
Minimal probability of frauds Increased market prices
And finally, savings!

If there’re six benefits to consumers, three major ones are to buyers as well. After all, by the end of day every business exists to make more money, which is what this bill will bring to the developers. So we can safely assume that it is aimed at benefiting builders and buyers both. Therefore, all of us should support it for its faster implementation. Because the quicker its implementation, the better it’ll be for declining real estate market.

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  One Response to “Real Estate Regulatory Bill: Major Changes”

  1. we have purchased our first plot in Mathura on instalments but after paying 70% amount of plot we missed 2 or 3 instalments may be in rupees 30000, but Now he is demanding for 200000 again to avail our plot. so I am not able to get our plot return or money.

    Please suggest us what I do………..

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