Home Buyers

Home buyer is finally king: How Real Estate Act protects you

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Home buyer is finally king: How Real Estate Act protects you

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The Real Estate (Regulation and Development) Act, which protects the interest of home buyers has finally started seeing light of the day though slowly.

Keeping up with the deadline to operationalise it from November 1, the Central government has notified it for the five Union Territories - Andaman and Nicobar Islands, Dadra and Nagar Haveli, Daman and Diu, Lakshadweep and Chandigarh. None of the states except Gujarat has met the deadline.

Even though your state may not have implemented the Act; it will be similar to the one notified for the union territories and looking at the finer points covered can give you a sense of things to come.

The rules apply to all on-going projects that have not received completion certificate. Here’s how the Act protect buyers’ interest: 

No misuse of funds

A common practice among developers was to raise money from buyers for one project but not use it to complete that one. They diverted the money would use the money to buy land which would enable them to launch another project and raise more money from a new set of buyers. This inevitably led to delays in delivery and hassles for buyers.

For buyers this lead to multitude of problems. They had to bear the burden of monthly instalment and rent simultaneously. They even lost the tax benefits on home loan if the project got delayed beyond three years.

The Act makes it mandatory for developers to keep 70 per cent of unused funds collected for a particular project in a separate bank account within three months of applying for registration of a project with the Real Estate Regulatory Authority. This will disallow him to use it for any other purpose than for construction of the particular project.

No lopsided penalties

Developers usually keep lopsided penalties in the agreement. If there’s a delay from the developer’s side, they either don’t mention the penalty they will give to the flat buyer or keep it as low as one-two per cent a year. At the same time, the penalty levied on the buyer for delay of payment ranges between 18 per cent and 24 per cent. Even the national consumer court has taken cognisance of such disparity in penalties in the recent cases buyers have filed against developers in the National Capital Region.

Suppose a person purchased a 2-BHK flat of 1,100 sq ft for Rs 50 lakh. If he delayed payment, the interest would be as high as 18-24 per cent per year. At 18 per cent, this translated into Rs 75,000 per month. For developer, it works out to be mere Rs 4,166 – 8,333 a month.

The Act puts an end to such practices. It has standardised and defined the interest rate both parties would get in case of delays. It’s kept at two per cent above the State Bank of India’s Marginal Cost Lending Rate. At present it works out to be 11.05 per cent.

No false promises

It’s has been a common practice that developers show one sanctioned plan to the buyer. Buyers pay according to the plan shown to them. Later, the developer changes the plan. He may reduce the area, change certain amenities, change configuration, and so on. Many buyers ended with lower area than they paid for or found that the promised amenities are missing when the project is finally delivered. The developer usually blames the government agencies for the changes and gets away with it.

But now, the developer will need list the project with the real estate regulator providing details of the original sanctioned plan. He will need to report every time he makes any changes to the plan and also give a fresh deadline for completion of the project post the changes. He will also need to declare thee total amount collected from buyers and the actually money used. All this needs to be certified by an engineer, architect and practicing chartered accountant. With a public record, the buyers can easily take the developer to task and claim refund based on the changes made.

Even when registering the project with the regulator, the developer needs to submit authenticated copy of PAN Card, annual report comprising audited profit and loss account, balance sheet, cash flow statement and auditors report of the promoter for the immediate three preceding years, authenticated copy of legal title deed, copy of collaboration agreement if the promoter is not the owner of the plot. Promoter also has to declare information regarding the number of open and closed parking areas in the project.

A buyer can also visit the regulator’s website to get information relating to profile and track record of developer, details of litigations, advertisement and prospectus issued about the project, details of apartments, plots and garages, registered agents and consultants, development plan, financial details of the promoters, status of approvals and projects, etc.

Transparent project progress report

Buyers will no longer need to rely on the word of the developer on the progress of construction. Potential buyers can also look at progress of the project before buying a flat there. The Act requires developers to make a whole host of information public and report quarterly progress on the project. Within 15 days of a quarter ending, the developer will need to report information regarding number and type of apartments or plots, garages booked, status of the project with photographs floor-wise, status of construction of internal infrastructure and common areas with photos, status of approvals received and expected date of receipt, modifications in sanctioned plans and specifications approved by the competent authority.

Disputes resolution: If there’s a dispute, the buyer can make an appeal to the Real Estate Appellate Tribunal by paying a fees of Rs 5,000 and for every complaint made to the regulator the fee will be Rs 1,000.

The buyer and developer needs to comply with the order of the tribunal. If they fail to do so, the tribunal has the power to compound the penalty or even send the developer (or buyer) to jail. For a developer, the punishment for disobeying the order is 10 per cent of the project cost and for buyer it’s 10 per cent for the price paid to acquire the property. The Act also covers agents, who need to be registered with the regulator and any misdeed done by them. The rules also prohibit any discrimination in sale of properties on any ground. Finally now, even in case of real estate, the consumer will be the king.

Key Highlights :-

  • 70 per cent of unused amounts collected for ongoing projects to be kept in a separate bank account
  • Developer needs to declare original sanctioned plans, changes made later, fresh timeline for completion of ongoing projects
  • The interest paid by both, developers and buyers, is pegged to SBI Marginal Cost Lending Rate plus 2 per cent
  • Developers will need to make a host of information public and report quarterly progress on the project to enable informed decisions by buyers
  • The rules apply to all on-going projects that have not received completion certificate

Source :- Business Standard

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