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10 Things You Need To Know About RERA - Outside View by PersonalFN

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10 Things You Need To Know About RERA
Apr 26, 2017

Are you sick and tired of the heavy-handed tactics of builders?

Don't worry!

From May 1, 2017 onwards, consumers will have more bargaining power.

These are the problems usually real estate buyers face...

  • The deals are not transparent. Buyers are often charged as per the super-built-up area.
  • Property buyers can't do much if there's a deficiency in the construction or in the amenities provided.
  • Projects are often delayed. Consumers are not compensated when builders fail to keep deadlines, but if their payments are delayed, they are usually charged penalties.
  • Funds are sometimes siphoned off and projects are permanently terminated. In such cases, recovering money from the builder becomes a herculean task for the individual home buyers.

The Rajya Sabha cleared the way for Real Estate Regulation and Development Act (RERA Act) in March 2016. The Government is now planning to implement it from May 1, 2017, after completing all formalities associated with the implementation of the law.

What will change for the developers and the real estate buyers?

  1. Every project with the proposal of developing 8 flats or acquiring 500 square meters of the plot will have to be registered with the regulator. If the project is to be completed in phases, each phase needs to be registered separately. If the developer fails to do so, he will have to pay a penalty of upto 10% of the project cost, and if he /she becomes a habitual offender, he/she can be jailed for 3 years.
  2. The developers are expected to maintain minimum 70% of the money collected from potential buyers in an escrow account opened with a bank, to be utilised exclusively to meet the cost of that project.
  3. Developers will have to sell flats on the basis of carpet-area. Selling apartments at built-up and super-built up rates is prohibited under RERA.
  4. The builder would be held responsible for structural defects in the first 5 years.
  5. If the project is delayed, the developer will have to pay the interest to the customer.
  6. The developer needs permission from a minimum of 2/3rd of allottees to make changes to the original plan.
  7. Availing insurance for the land titles would become possible.
  8. Appellate Tribunals and Regulatory Authorities will have to dispose of complaints within a stipulated time period.
  9. Even property brokers will also have to register themselves under RERA. Furthermore, they can advise their clients only about registered projects. They shall operate only within the specified territory or state. If they are found violating any of the provisions, they can be penalised. In other words, brokers can't scuffle shrug off their responsibility and accountability towards their clients.
  10. Buyers will have to ensure that they take possession of property within 2 months of project receiving the Occupancy Certificate (OC).

Although RERA is a comprehensive law, implementation is the key. It fails to fix the accountability of the Government departments involved in sanctioning the projects. There is no provision of single-window clearance system for obtaining approvals. This might cause inconvenience to genuine developers.

If RERA is implemented effectively, real estate buyers can hope to become the King of their castle someday soon. But as prudent customers you need to be cautious while dealing with the real estate developers. So, your property search may start with identifying...

  • Who is the builder?
  • What has been his track record?
  • Has he completed the construction of his projects as per schedule?
  • Visit the site and inspect the quality of construction
  • The rate which he is offering for the amenities offered
  • You may also visit other sites developed by the same builder just to check whether he has fulfilled all promises made and offered amenities as promise
  • Title of the property on which the construction is taking place or has taken place (to ensure that it free from any encumbrances and litigations)
  • Has he obtained all statutory permissions
  • In case of a ready property - i.e. newly constructed or a resale property, has a society being formed
  • Is the builder listed or recognised by the housing finance company (in case if you want to avail a home loan facility)

Also keep a check on your affordability while you are exploring a property. One must assess the available options on some predetermined parameters given below, but shouldn't restrict to these...

  • Locality
  • Time lag for getting the possession (in case of on-going construction)
  • Age of the property (in case of already constructed properties)
  • Quality of Construction
  • Maintenance cost

PersonalFN believes that if you are buying a house for dwelling, anytime might be a good time to invest (assuming you have assessed the affordability). But if you want to buy a house for the purpose of investment then you should take a holistic view of your portfolio. You must assess whether your current financial circumstances allow you to purchase property.

PersonalFN is of the view that investments should be made keeping your goals in mind. Real estate as an asset class is illiquid.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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