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New Real Estate Law to Come to the Rescue of the Hapless Buyer

By: Prachi Ojha and Mansi Singh

The Real Estate (Regulation and Development) Act, 2016

The Real Estate (Regulation and Development) Act, 2016 (“Act”) received the assent of the President of India on 25th March 2016. The Act seeks to establish the Real Estate Regulatory Authority (“RERA”) for the regulation and promotion of the real estate sector and to protect the interests of the buyers. The Act is a significant step towards bringing in accountability and transparency in the real estate sector, which has so far been a story of delays, overpricing and exploitation. While the Act brings some respite to the buyers, property developers have been concerned about the provisions being too stringent and, in some cases, operating retrospectively.

Under the Constitution, “land” falls under the State List (where the state legislature has the exclusive power to make laws) while “acquisition and requisitioning of property” comes under the Concurrent List, empowering the Centre as well as the States to legislate on the matter. The implementation of the Act is likely to trigger a Centre-State skirmish as most states already have their real estate legislations that now have to be amended to be consistent with the provisions of the Act.

The Hits and the Misses

Registration: Registration with RERA has been made mandatory for all the real estate projects (including ongoing projects) where the total area of land proposed to be developed exceeds 500 square meters or where more than 8 apartments are proposed to be developed inclusive of all phases. Without registration, the promoter cannot introduce projects by advertisement, sale or offer for sale.

Such an embargo on the promoters from advertising before registering the projects will protect the buyers from false and misleading advertisements and will enable the prospective buyers to make an informed decision as only the genuine details of all the projects will be available in public domain. Mandatory public disclosure will lead to enhanced transparency and give a boost to competition in the real estate sector.

Expectedly, promoters are not celebrating this provision as it hampers the scope for garnering pre-launch sales, a tactic often used by the promoters to create hype around the projects and convince the buyers to invest in the projects without making proper disclosures.

Ring-fencing the receivables: The Act mandates the promoters to deposit 70% of the amount realized from the buyers in an account maintained in a scheduled bank that can be used only for construction cost and payment for land.

This provision makes it difficult for the promoters to defraud the buyers by diverting their money for purposes other than the project for which the money has been deposited. It is expected keep in check the delays in completion of projects that are rampant due to such diversion of funds.

While the Act has brought a smile to the faces of the buyers, promoters are finding this provision restrictive as the movement of funds will now be monitored and restricted, giving rise to possible liquidity crunch. At the same time, critics argue that as the withdrawal from the account can be made by the promoters upon certification by an engineer, architect and chartered accountant in practice stating that such withdrawal is necessary for the project, it may lead to conflict of interest. The engineer, architect and chartered accountant who are paid for the project by the promoters are unlikely to certify against the interest of the promoters and this provision opens up windows for corruption and nepotism.

Level Playing Field: Currently, most of the rights and obligations of the promoters and the buyers are set out in the sale deed executed between the parties. More often than not, these sale deeds are one-sided in favour of the promoters. The Act prescribes that in case the promoter is unable to hand over possession to the buyer in accordance with the terms of the agreement of sale, the promoter will be liable, on demand, to return the amount received by him from the buyer with interest and compensation or in cases where the buyer does not want to withdraw, the promoter will be liable to pay interest to the buyer for the delayed period.

Promoters will now be compelled to augment their project management skills for timely completion and delivery of projects. Unfortunately, the Act does not prescribe timelines for the grant of various approvals to the promoters by regulatory authorities. In cases where the delay in completion of a project is caused due to delayed regulatory approvals, the promoter may be penalized for no fault of his.  This provision also brings with it the threat that the promoters may compromise the quality of the work in their anxiety to meet delivery deadlines.

The Act also prescribes a defect liability period of 5 years for structural defects. This will improve promoter accountability and quality of construction.

Multiple Fora: The Act ousts the jurisdiction of civil courts but fails to provide a single forum to address all the disputes arising in the real estate avenue. RERA, consumer courts and the Competition Commission of India will have jurisdiction over various contentious aspects of the real estate transaction and this leaves scope for forum shopping, multiplicity of proceedings and the possibility of setting conflicting precedents.

Rules: On 31st October 2016, the Real Estate (Regulation and Development) (General) Rules, 2016 were brought into effect for the Union Territories of India. These are the model rules on the basis of which states are expected to draft their respective rules within a timeline of 6 months. While the states of Gujarat and Uttar Pradesh have notified their rules, the others still haven’t. The adherence to the stipulated timelines by the states looks doubtful as most states already have their real estate legislations that may now have to be substantially amended to mirror the model law.

Demonetisation and the Real Estate sector

The recent bold move by the Central Government to demonetise high value currency notes to curb black money and the significant reforms attempted by the Act as also the Benami Transactions (Prohibition) Act, 2016 are expected to bring a revolutionary change in the Indian real estate market in the medium term.

More than 30% of the real estate transactions in India involve unaccounted monies.  With the demonitisation move and the advent of the Act, the real estate sector is expected to see improved efficiency, transparency and a systematic approach leading to the path of sustainable growth.


Though it appears that the promoters have got a raw deal, the Act has been applauded by many as a landmark piece of legislation that provides regulatory oversight in the real estate sector. The Act will offer respite to buyers from fly-by-night promoters as buyer protection can be said to be the cornerstone of the Act. The Act is expected to boost the much needed domestic and foreign investment in the real estate sector by achieving the objective of greater transparency, stringent regulations and timely completions.


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