This blog will discuss the improvements required in the Real Estate Regulation Authority(i.e. RERA) which addresses the issues of home buyers. These days home buyers are referred to as “investors” in contractual documents. Why so? If you know the answer, please write down in the comments.
You must have heard from real estate brokers and experts that RERA needs improvements but they never point out the improvements which are necessary. In my opinion they do not bother about the rights and convenience of home buyers. Actually, they are not even aware about the challenges that homebuyers face during the construction period. Are you in touch with your real estate broker after six months of your transactions? In most cases the answer is No, unless you are looking to purchase another property. They have targets to meet without having long term vision. Which is in sync with the builder’s target. But what about the homebuyers and their rights? No one except RERA can address it.
I appreciate the MAHA RERA, they recently passed an order which requires every broker to pass an exam which will test their knowledge on Sections of RERA. If they pass this exam then only RERA will issue/renew the brokerage license. This should be followed by other RER authorities as well.
What could be the other improvements which every state RERA should implement. Let’s discuss this in detail:
Cancellation of Allotment:
The current policy allows the builder to forfeit 10% of total consideration value if a homebuyer wants to cancel the unit. This figure can vary state to state but it is unreasonable. Builders cannot claim the loss of 10% if a homebuyer signs the application form of the builder. The cancellation policy should be in favor of the homebuyer, if a homebuyer wants to cancel the allotment due to any reason, he should be allowed after paying a time linked penalty. Only the application fee should be forfeited and there should be a cap on how much a builder can charge for the application fee. This could not be unreasonably high. As per my analysis anything between 5000 INR to 25000 INR is enough, looking at the expenses and the loss which the builder makes. Or there could be fixed cancellation charges of the same value as application fee along with time linked penalty.
Following could be the time linked penalty scheme:
- 0% of total consideration value should be forfeited if cancellation is requested formally within 14 days of issuing the allotment letter.
- 1% if cancellation is requested within 6 weeks. For example, if the unit cost is 1cr then the builder should be allowed to forfeit 1L only.
- 2% if cancellation is requested after 6 weeks or unit BBA is registered. Whichever is earlier.
- After BBA, as per the agreement. BBA penalty should be in sync with proforma BBA.
Amendments in Layouts and Master Plan:
It’s a general practice of builders to change the unit layout or master plan. They reach each homebuyer one by one and ask for no objection to changes. These communications are builder centric, something like “if you don’t reply with your objection within 15 days, it will automatically be considered as your NoC”. Generally they require 50-66% of such NoCs to pass the case from RERA. But what about the remaining half or one third? Additionally, are there any quality checks of NoC which builder is claiming? The clear-cut answer is no. Going one step ahead, builders don’t want homebuyers of a particular project to know and communicate with each other. These are the standard practices which builders follow. In order to tackle such situations once for all, I propose exit for the homebuyers with the following benefits:
Trivial Changes: If the changes are trivial, not impacting the end user experience, then the exit shouldn’t be offered to homebuyers. Even though, if they want to cancel the allotment, the penalties should be charged as per the agreement
Minor Changes: If the changes do impact the living experience of homebuyers, like minor changes in carpet area or common area or clubhouse or any amenities etc. Then homebuyers should be offered a full refund of earnest money deposited to the builder till date.
Major Changes: If the changes impact the livability of homebuyers like major changes in unit layout & carpet area, addition of units in the project, change in the possession date, change in clubhouse and amenities etc. In this case homebuyers should be offered with the refund of earnest money deposited along with the compensation of SBI+2% on total EMD.
Penalty on the Delay of Construction:
If you examine the data of delivered projects in the last five years, you will see actual delays that an under construction project incurs. In the average case it is around 2 years. Almost every under construction project is running behind its schedule. RERA authorities have offered COVID extension for 6-12 months(force majeure clause depending on state) but even after considering this extension, most of the projects are still far away from delivery. RERA keeps extending the license expiry dates based on the excuses of the builder. You will be shocked to know that this license expiry date is not a project completion date. Anyways, I will talk about it in some blog. In most of the cases RERA does impose a penalty but on what basis, is this penalty considered? As far as I know, it just covers the operational cost of authority. RERA is not bothered about the loss which a homebuyer faces. I am yet to see an order where RERA has instructed builders to compensate homebuyers while approving the extension. Homebuyers will have to fight all the way again to get the compensation. That too hardly any as they are misguided by the builders and real estate experts based on the RERA extension approval.
The builders shouldn’t compensate homebuyers under the guidance of RERA. And such compensation should be mentioned in agreements. I will connect this upcoming point.
Model BBA & Application form:
The RERA act was passed in 2016 by Rajya Sabha and Lok Sabha which is intended to protect the rights of homebuyers. All the states were liable to establish its RERA after making necessary amendments. One of the important clauses was to have a Model Agreement( or proforma BBA) which will be directly controlled by state owned RERA. Builders and Buyers were not expected to modify this agreement. They just need to fill the variables, like carpet area, price etc. But the states allowed builders to draft the agreement and get it approved by RERA. This approval by RERA doesn’t protect the rights of buyers. Let me explain it by an example. If a homebuyer delays the payment to the builder then he/she is liable to pay a 14% penalty to the builder. But there is no mention of a penalty if the fault is at the builders side like delay in delivery of the project? The agreement is filled with such inequalities.
The agreement should be balanced. After all, it is the responsibility of RERA and RERA is expected to protect the rights of buyers as well. These agreements are still drafted by law firms of builders. They do each and every possible thing to protect their rights.
Every state RERA should introduce model agreement, application form or any agreement and builders shouldn’t be allowed to make any changes.
Quality Checks and Progress Monitoring:
RERA should be responsible to check the construction quality of any project. Based on the construction quality it should release a score card of that project which will help home buyers to judge a builder and project.
RERA should monitor progress of each and every project quarterly. Builders are expected to share the progress report quarterly. But I didn’t find quarterly progress reports of projects on RERA websites except a couple of. That clearly states RERA is not checking progress of under construction projects.I am not sure how RERA will protect the rights of homebuyers.
Audit of Project Documents:
In my research of newly launched projects, I follow the documents which the builder is expected to submit to TCP and RERA like floor layout, master plan, land ownership related document, license information, project completion date etc. I don’t get these on the RERA’s website. Most of the documents which are uploaded are irrelevant or it says “to be provided”. Which clearly states RERA is not checking documents which builder is submitting to RERA.
Each and every project related to the document should be available on RERA as soon as it gets the license.
One Project One RERA:
Recently MAHA RERA has asked builders to submit undertakings for one land parcel and one project. Builders prefer launching their project in multiple phases. This is followed by multiple misselings, like distribution of common areas and amenities. The homebuyers who have brought their unit in earlier phases got to know later that their park will be used by buyers of subsequent phases. To avoid this mis-selling RERA should approve only one project at one land parcel.
Regulating Brokers:
RERA should regulate the brokers strictly like SEBI does. Homebuyers are risking their hard earned money and builders are taking the risk of construction but the brokers have no risk involved in transactions. They miss guide homebuyers on builder’s behalf just to meet their sales targets. Uneducated, unaware about the rights and RERA sections, to meet their targets they miss-sell. In many cases builders have taken exit routes through brokers as they are not strictly regulated.
Suspension and De-Registration:
If RERA suspends the license of any project due to any reason, the homebuyer should be allowed to exit from the project and the builder should refund the amount deposited by the homebuyer and if the project is de-registered, then builder should offer compensation of SBI+2% along with the full refund as the builder is not trustworthy with the time limit of 180 days.
Homebuyers invest in real estate for a secure future, but tossing their hard-earned money can impact our economy. Such improvements will ensure that homebuyers’ rights are protected and they will definitely get a roof to live under. This will minimize the execution risk of any under-construction project. The returns wouldn’t be as high, but such investments will be comparatively secure. The repercussions will be that real estate investors may lose interest in real estate investment, which will further give more chances to homebuyers.
This list of improvements is not comprehensive. Please feel free to add any additional points in the comments that you would like RERA to implement.