Deciphering the legal and commercial aspects of RERA

March 2016
Deciphering the legal and
commercial aspects of RERA

2 Deciphering the legal and commercial aspects of RERA
Contents

Deciphering the legal and commercial aspects of RERA 3
Major short term
implications of RERA at
a glance
What RERA entails for
different stakeholders
• Industry
• Buyers
• Developers
Soundbytes of significant
stakeholders
Conclusions and
unanswered questions
• Impact on prices
• Impact on government agencies
• Financial institutions
• Retail investors/ Apartment funds
• Brokers
• Redressal system

Major short term
implications of
RERA at a glance

JLL Transparency Index 2014
20% reduction
in the number of
new launches
of residential
projects
10% increase in
sales pan-India in
residential sector
20% more funding
from FDI into
Indian realty
Retail
speculator
participation to
go down
India set to
improve its
position on
transparency
Market
2008 2010 2012 2014 2016
Score Rank Score Rank Score Rank Score Rank
India tier-I 3.34 50 3.11 41 3.07 48 2.86 40
Watch
this
space
India tier-II 3.38 52 3.17 49 3.08 49 2.9 42
India tier-III 3.65 62 3.39 55 3.15 50 3.14 50

What RERA
will entail
for different
stakeholders?

The important Real Estate (Regulation and Development) Act 2016, was recently passed in the Parliament and it received the assent of the
President of India on 25 March 2016. It has paved the way to setting up of a real estate regulator, which is proposed to be set up within one
year from the date of coming into force of the Act, to deal with commercial and residential realty. In the interim, the appropriate government (i.e.
the central or state govt) shall designate any other regulatory authority or any officer, preferably the secretary of the department dealing with
housing, as the regulatory authority.
This is a major reform, which promises to bring in the much-needed transparency and accountability in
the real estate sector. It will enhance consumer protection by facilitating that the consumer gets the product
and on time as promised, thereby increasing consumer confidence as well as helping to create lasting
developer brands strong on quality and timely delivery of their projects.
Once it is implemented, RERA will reduce the contrast seen in this sector in form of piling unsold inventory
generally faced by fly-by night developers and price rise in projects by reputed developers since they have
relatively less unsold inventory and build the trust back from its current situation of trust deficit between
the two most important stakeholders – builders and buyers. RERA will provide a positive impetus towards
achieving the “housing for all” vision while ensuring a level-playing field for developers and buyers.
As there will be strict punishment for errant developers as well as fines for project delays and faster
redressal to consumer complaints, the problem of over structuring as is rampantly prevalent in the industry
will be addressed. All in all, it will help make this sector more mature.
JLL India and KHAITAN & CO attempt to
pre-empt implications of RERA on different
stakeholders
Industry
It will disallow the common practice among many developers of pre-launching projects without getting
requisite approvals from the local authorities and it will make mandatory project registration with the
regulator. Developers will also have to disclose approval status, project layout and timeframe for completion
to the regulator as well as customers.
The developer will now have to deposit 70% of the project funds in a separate account, which can only be
used for the earmarked project. Diversion of funds to other projects was a major reason for project delays
and this will address it effectively.
Now, the buyers and developers will be liable to interest at the same overriding their agreement clauses.
Buyers would also have the option to continue with compensation or to exit from a project that is delayed.
Buyer will also have the benefit of security regarding title of the land and building in which the units they are
interested in is being constructed which is required to be insured by the developer without prejudice to the
continuing obligation of the developer to be liable to the buyer for defect in title of the land.
Buyers

The developer has to register their project (residential as well as commercial) with the Regulatory
Authority before starting the sale process in such projects. In case a project is to be promoted in phases,
then each phase shall be considered as a standalone project, and the promoter shall obtain registration for
each phase.
Further, in case of ongoing projects on the date of commencement of the Act, which have not received
a completion certificate prior to the commencement of the Act, the promoter of such project is required to
make application to the Regulatory Authority for registration of their project within a period of three months
of the commencement of the Act.
The following types of projects shall not be required to be registered before the Regulatory
Authority:
i. Where the area of land under development does not exceed 500 square meters or the number of
apartments to be constructed in the project does not exceed eight apartments. This threshold has
ensured that very small projects remain out of the ambit of this regulation; and we believe that even for
those small projects, their developers will voluntarily abide by the RERA conditions to ensure that these
projects do not fall out of favour of buyers and to remain competitive. Also, the appropriate Government
(Central and State Govt) may, if it considers appropriate, reduce the threshold limit below 500 square
meters or eight apartments;
ii. Projects where the completion certificate has been received prior to the commencement of the Act;
developers are likely to focus on faster completion of their projects under construction and secure
completion certificate prior to the formation of RERA (or the relevant body from the housing department
to be formed in the interim) and thus risk of project delays may come down along with slight increase in
supply, both factors acting in favour of buyers.
iii. Projects for the purpose of renovation or repair or re-development which does not involve marketing,
advertising, selling and new allotment of any apartment plot or building.
The application for registration must disclose the following information:
i. Details of the promoter (such as its registered address, type of enterprise such proprietorship, societies,
partnership, companies, competent authority for securing permissions);
ii. A brief detail of the projects launched by the promoter, in the past five years, whether already completed
or being developed, as the case may be, including the current status of the projects, any delay in its
completion and reasons for the delay, details of disputes yet to be resolved or legal cases pending,
details of type of land and payments pending etc.;
iii. An authenticated copy of the approval and commencement certificate received from the competent
authority and where the project is proposed to be developed in phases, an authenticated copy of the
approval and commencement certificate of each of such phases;
iv. The sanctioned plan, layout plan and specifications of the project, plan of development works to be
executed in the proposed project and the proposed facilities to be provided thereof and the locational
details of the project;
Developers

v. Proforma of the allotment letter, agreement for sale and conveyance deed proposed to be signed with
the allottees;
vi. Number, type and carpet area of the apartments and the number and areas of garages for sale in the
project;
vii. The names and addresses of the promoter‘s real estate agents, if any, and contractors, architects,
structural engineers affiliated with the project; and
viii. A declaration by the promoter supported by an affidavit stating that:
a. he has a legal title to the land, free from all encumbrances, and in case there is an encumbrance,
then details of such encumbrances on the land including any right, title, interest or name of any party
in or over such land along with the details;
b. the time period within which he undertakes to complete the project or the phase; and
c. 70% of the amounts realised for the real estate project from the allottees, from time to time, shall be
deposited in a separate account to be maintained in a scheduled bank which shall be used to cover
cost of construction and land of that specific project only. The fact that 70% of the amount realized
from allottees/unit purchasers is to be used for land and cost of construction coupled with the fact
developer launching the project and registering the project is entitled to declare encumbrance of
the land gives the impression that money received from allottees/unit purchases may be used for
repayment of cost incurred for acquisition of land as well as cost incurred for construction. The fact
that money has to be deposited in a separate account and used for the cost incurred towards project
only will bring out transparency and encourage NBFCs and lenders to invest more in this sector.

Carpet area
Developers can sell units only on carpet area, which is the net usable floor area of an apartment.
This excludes the area covered by the external walls, areas under services shafts, exclusive
balcony or verandah area and exclusive open terrace area, but includes the area covered by the
internal partition walls of the apartment.
Some prominent developers have started quoting by carpet area, the rates for which are naturally
higher than prices quoted for saleable/ built-up area. In some metro cities like Mumbai, this trend is
already visible. Developers in other cities could follow suit, soon.
RERA will also help tier-II and tier-III developers in tier-I cities and tier-I developers in tier-II and
tier-III cities as they will be able to attract PE funding with the increase in transparency owing to this
Act. Currently, around 80-85% of PE funds invest in the tier-I developers of the country as they
have a good corporate governance structure and maintain transparency.
Tier-II and tier-III cities, which mostly do not appear on the PE investment radar currently, also
stand to gain from the increased transparency in the sector. This will help developers operating
in these cities. Once developers start maintaining transparency and improve their track record,
demand is bound to return to the market in a big way. This will result in buyers starting to have more
confidence in tier-II and tier-III developers.
Restriction on changing plans
The promoter cannot make any other addition or alteration in the approved and sanctioned plans,
structural designs and specifications of an apartment without the previous consent of the allottee
who has agreed to take the apartment. The promoter also cannot make any other addition or
alteration in the approved and sanctioned plans, structural designs and specifications of the building
and common areas within the project without the previous written consent of at least two-thirds of
the allottees, other than the promoter, who have agreed to take apartments in such a building.
Structural defect
In case any structural defect or any other defect in the workmanship, quality or provision of
services or any other obligations of the promoters is brought to the notice of the promoter within a
period of five years by the allottee from the date of handing over possession, the promoter shall
rectify such defect without any further charge, within thirty days. If the promoter fails to rectify such
defect within such time, the aggrieved allottee shall be entitled to receive appropriate compensation
in the manner as provided in the Act.
Prominent
developers in
tier I cities have
already aligned
and started
quoting prices
by carpet area.
Others will soon
follow suit.

Advertisement
The advertisement or prospectus issued or published by the promoter should prominently mention the
website address of the Regulatory Authority, where all details of the registered project have been entered
and include the registration number obtained from the Regulatory Authority and other similar details.
Where a buyer makes an advance or a deposit on the basis of the information contained in the notice,
advertisement or prospectus and sustains any loss or damage because of any incorrect, false statement
included in these, he shall be compensated by the promoter in the manner as provided under the Act.
Also, if the buyer affected by such incorrect, false statement contained in the notice, advertisement or
prospectus, intends to withdraw from the proposed project, his entire investment (along with interest at such
rate as may be prescribed and compensation in the manner provided under the Act), will be returned to him.
Mandatory deposit of 70% of realisation
The Act mandates that a promoter shall deposit 70% of the amount realised from the allottees, from
time to time, in a separate account to be maintained in a scheduled bank. This is intended to ensure that
adequate funds remain available for completion of the project on time.
The promoter shall be entitled to withdraw the amounts from the separate account, to cover the cost of
the project, in proportion to the percentage of completion of the project. However, such withdrawal can
only be made after it is certified by an engineer, an architect and chartered accountant in practice that the
withdrawal is in proportion to the percentage of completion of the project.
The promoter is also required to get his accounts audited within six months after the end of every financial
year by a practicing chartered accountant. Further, he is required to produce a statement of accounts
duly certified and signed by such chartered accountant, and it shall be verified during the audit that (i) the
amounts collected for a particular project have been utilised for the project; and (ii) the withdrawal has been
in compliance with the proportion to the percentage of completion of the project.
Restriction on transfer and assignment
The promoter shall not transfer or assign his majority rights and liabilities in respect of a project to a third
party without obtaining prior written consent from two-thirds of the allottees, and without the prior written
approval of the Regulatory Authority.
The allottee, irrespective of (i) the number of apartments or plots booked by him or booked in the name
of his family; or (ii) in the case of other persons such as companies/firms/any association of individuals,
by whatever name called, booked in its name or booked in the name of its associated entities/related
enterprises, shall be considered as one allottee only.
Currently, around
80-85% of PE
funds invest with
tier I developers
in bigger cities.
Increased
transparency and
good corporate
governance
structure will
now benefit tier-
II and tier-III
developers in
these cities as
they stand to gain
this share.

Refund of amount in case of delay in handing
over possession
In case the promoter is unable to hand over possession of the apartment, plot or building to the allottee (i)
in accordance with the terms of the agreement of sale; or (ii) due to discontinuance of his business as a
promoter on account of suspension; or (iii) revocation of his registration or for any other reason, then the
promoter shall be liable, on demand being made by the allottee, to return the amount received by him from
the allottee with interest and compensation at the rate and manner as provided under the Act. This relief will
be available without prejudice to any other remedy available to the allottee.
However, where an allottee does not intend to withdraw from the project, he shall be paid interest by the
promoter for every month of delay, till the handing over of the possession, at a prescribed rate.
Limit on receipt of advance payment
A promoter shall not accept a sum more than 10% of the cost of the apartment, plot, or building, as the
case may be, as an advance payment or an application fee, from a person without first entering into a
written agreement of sale with such person and register the said agreement of sale, under any law for the
time being in force.
Other provisions
a. The promoter shall execute a registered conveyance deed in favour of the (i) allottee in respect of the
apartment, plot or building; and (ii) association of allottees of competent authority in respect of the
undivided proportionate title in the common areas, and hand over possession of the same within the
period as specified under the local laws. In the absence of any local law, such conveyance deed shall be
carried out by the promoter within three months from date of issue of the occupancy certificate.
b. After the promoter executes an agreement for sale for any apartment, plot or building, no mortgage or
charge can be created by the promoter on such apartment, plot or building. If any such mortgage or
charge is created, then notwithstanding anything contained in any other law for the time being in force, it
shall not affect the right and interest of the allottee who has taken or agreed to buy such apartment, plot
or building.
c. The promoter may cancel the allotment only in terms of the agreement for sale. However, the allottee
may approach the Regulatory Authority for relief, if he is aggrieved by such cancellation and such
cancellation is not in accordance with the terms of the agreement for sale, is unilateral and without any
sufficient cause.
A promoter
shall not accept
a sum more
than 10% of
the cost of the
apartment as
an advance
payment or an
application fee

d. Every allottee shall take physical possession of the apartment, plot or building as the case may
be, within a period of two months of the occupancy certificate issued for the said apartment, plot
or buildings.
e. In the absence of any local laws, an association or society or cooperative society, as the case
may be, of the allottees, shall be formed within a period of three months of the majority of
allottees who have booked their plot or apartment or building, as the case may be, in the project.
f. The Regulatory Authority shall make recommendations to the appropriate Government on (i)
creation of a single window system for ensuring time-bound project approvals and clearances for
timely completion of the project; and (ii) creation of a transparent and robust grievance redressal
mechanism against acts of omission and commission of competent authorities and their officials.
Liquidity for developers
As developers will have to keep 70% of their money in a separate account, it may result in cash
flow issues in the short term. However, as demand returns in the long term and PE funds take
renewed interest in the sector, they will stand to benefit overall.
Amongst other reasons, diverting funds by developers to other projects was one of the major
reasons for delays. Either way, a developer will now be forced to use the project accruals for
development of the same project and will have little room for fund manipulation. This may not have
a big impact on individual projects’ cash flows; although at an entity level, the developer will have
to manage funds more judiciously as he will have to stick to project timelines in order to avoid the
penalties involved.
There were concerns about being fair with developers who have to bear high land cost upfront,
in cities like Mumbai. In our view, Mumbai’s case will be no different because even if land prices
are high in the city, the commensurate realisations from sale of apartments are also high. It thus
underlines the importance of aligning the product with the market demand, pricing it in accordance
with affordability and being resilient in pricing to maintain required sales velocity. In instances
where a project is finding difficulty in selling, the developer may think of selling stakes in that project
to some other entity who may manage the project in a better way. We do expect the frequency
of project level stake sales and/or joint ventures to rise going forward. The developers who are
presently sitting on land banks may also consider not pre-selling developing projects and would
concentrate on raising funds for construction and selling their products. This will reduce the risk for
the developers and will also provide enhanced returns to the developer.
70% money in a
separate account
may lead to cash
flow issues in
the short term,
but renewed end
user demand and
PE interest will
greatly benefit in
the long term
RERA should
place more
accountability
on govt agencies
for a time-
bound approval
processes &
penalties for
failing to adhere
to time-bound
approvals

Impact on price
The cost of capital for developers will go up because they will have to
now look for equity rather than structured debt to finance land buys. This
is because developers cannot sell homes before they get all the project
approvals. This means they could find it tough to pay interest if they
take debt to buy land. Developers will also have to manage seamless
construction to ensure completion of their projects on time due to the
penalties involved.
Banks will play a role in influencing prices. Banks are likely to
start funding for land purchases as well, although with riders (e.g.
construction start date), which can keep land acquisition costs in check.
Degree of participation of banks with debt offerings thus can influence
developers’ dependence on private equity. Even if the equity finance
costs go up, the developers won’t risk passing it on to the buyers in the
current scenario of weak market conditions, helping prices to remain
stable.
As developers will have to sell on the basis of carpet area alone, there
could be a revision in capital values across cities as well as the cost of
compliance. The former, however, may not affect the end-users as the
total cost would continue to be the same as when they were charged on
super built-up area.
There is a need to look into determining and publishing stamp duty rates
and premium FSI rates on carpet area basis for consistency and to
avoid increase in compliance cost.
Given that builders will be left with restricted surplus liquidity until project
completions, rise in land prices is also expected to remain under check
as developers would find difficult to acquire plots using project revenues.
Impact on government
agencies
A major drawback of RERA is that it misses out on placing higher
accountability for government agencies. There are no punitive measures
recommended on sanctioning authorities for delays in approvals.
The price rise seen in previous years across India, was also due to the
fact that developers faced delays in getting approvals, which increased
project and land holding costs. With the central government moving most
approvals online and urging state governments to do the same as also
planning to come up with a credit rating mechanism for civic bodies, the
entire approvals’ process is expected to shorten over the next few years.
Calculation by carpet area could
lead to revision of capital values
across board, end-users will still
shell out the same cost as they
were bearing before, unless there
is a revision in circle/ ready
reckoner rates.

Financial institutions
Banks will find themselves in more secure situation with project cash flows operated from a project specific
separate account thus adding comfort to debt servicing by the developer, but at the same time, they will
revisit debt product offering and revise terms owing to the fact that they will prefer to link debt servicing
possibility for one not-so-successful project from project accruals of another successful project by the same
developer even if it means not having a first charge on the project cash flow.
The typical product offering of a bank will change from the typical term loan to overdraft (as corporate loans
will also get more difficult to obtain). Another implication is that Lease Rental Discounting (LRD) could go up
due to this.
Retail investors/ Apartment funds
On the other hand, individual or group investors (also known as apartment funds) who mostly invested in the
residential asset class with an intention to exit even before the project is completed, will have to participate
as lenders and not as investors. They will have to be prepared for a longer period (at times, up to completion
of projects) for making returns on their funds lent.
Brokers
In addition to the promoter and allottees, RERA also brings real estate brokers, who facilitate the sale
and purchase of units in a project, within its ambit. India has had real estate broking as one of the easiest
businesses to do. It called for no specific qualification, experience or code of practice and the government
agencies only prescribed guidelines – rather expectations from the broking community without defining roles
and responsibility.
No wonder India has thousands of brokers in her big cities, hundreds of them in smaller cities and quite
a few even in her villages. Very few of them work with professional companies whether international or
domestic, and for many of them, property brokerage is just a side business. Hence, brokerage business
in general, is linked with lack of professionalism, accountability deficit, opacity in activities, and a lengthy,
costly dispute resolution mechanism, all of which will become history after a few months.
RERA demands all property brokers be registered with the regulator to be qualified for doing property
brokerage business. While we do not expect the regulator to introduce qualifying criteria immediately, this
registration will be conditional to brokers’ acceptance of accountability and code of business practice. This
will bring in transparency and responsibility, the two virtues this sector needs badly.
Steadily, over a period, the regulator will also bring in qualification criteria – in terms of training to be
acquired and professional experience to be had as trainee brokers, thus raising the standards of services for
the consumers hiring them. This, in turn, will lead to introduction and development of real estate brokerage-
related vocational training and inclusion of real estate-related courses in degree and diploma colleges,
and other autonomous institutions. India’s Technical Education Board will hopefully develop a real estate
education programme as a guideline for the colleges to follow.
The unorganized
brokerage
business which
is linked
with lack of
professionalism,
accountability
deficit and
opacity in
activities will
become history
in the next few
months

RERA also requires developers to appoint only brokers registered with the regulator for selling and thus,
primary market will be out of bounds for brokers not registered. It will be just a matter a time before the
regulator will push this condition for the secondary market as well. It clearly means that going forward, this
field will allow only those to function who treat property brokerage as primary livelihood activity, attain and
demonstrate professional and responsible business practice, have training and experience in property
business and who aspire to make a prosperous career in it.
Consolidation is bound to happen and hundreds of part time brokers will have to leave the field. Even for the
full-time brokers, it will be a serious business to be engaged in. To remain relevant, they will have to have a
certain minimum scale, skill and sophistication to demonstrate.
Redressal system
Acceptance or refusal of registration
a. Upon receipt of an application by the promoter, the Regulator Authority shall within a period of 30 days,
grant or reject the registration.
b. Upon granting a registration, the promoter will be provided with a registration number, including a login Id
and password for accessing the website of the Regulatory Authority and to create his web page and to fill
in the details of the proposed project.
c. If the Regulatory Authority fails to grant or reject the application of the promoter within the period of 30
days, then the project shall be deemed to have been registered. The industry’s concern here is how to
implement this and how to ensure that the details of project deemed approved are disclosed in the same
way for formally approved projects and how to ensure such projects also follow the Act.
d. The registration, if granted, will be valid until the period of completion of the project as committed by the
promoter to the Regulatory Authority. This period shall be extended by the Regulatory Authority due to
force majeure and on payment of such fee as may be specified by regulations made by the Regulatory
Authority or in reasonable circumstances not due to default of the promoter for a period not exceeding
one year in aggregate.
Lapse or Revocation of registration
a. The registration of the project / phase of the promoter shall lapse if the promoter fails to complete the
project within the time period specified at the time of registration or the extended period.
b. In the event the registration is lapsed then the Regulatory Authority may consult the appropriate
Government to take such action as it may deem fit including carrying out of the remaining development
work by the competent authority or the association of allottees or in any other manner as may be
determined by Regulatory Authority.
c. The Regulatory Authority may revoke the registration granted on receipt of a complaint or suo moto or
on the recommendation of the competent authority in case (i) the promoter makes a default in doing
anything required under the Act or the rules or regulations made thereunder; (ii) the promoter violates
Consolidation is
bound to happen
and hundreds of
part time brokers
will have to leave
the field.

any terms of the approvals granted for the project; and (iii) the promoter is involved in any kind of unfair
practice of irregularities.
d. In the event the registration is revoked by the Regulatory Authority, the Regulatory Authority shall:
i. debar the promoter from accessing the website in relation to the project, specify his name in the list
of defaulters on its website and also inform other Regulatory Authorities in other States and Union
territories about such cancellation;
ii. facilitate the remaining development works to be carried out by competent authority or the association
of allottees or in any other manner as may be determined by the Regulatory Authority. However, the
association of allottees shall have a first right of refusal for carrying out the remaining development
works; or
iii. direct the scheduled bank holding the project bank account, to freeze the account and thereafter take
such further necessary actions, including consequent de-freezing of the account, for facilitating the
remaining development works in the manner mentioned above.
Website of the Regulatory Authority
a. The promoter shall, upon receiving his login Id and password, create his web page on the website of the
Regulatory Authority and enter all details of the proposed project including:
i. details of the registration granted by the Regulatory Authority;
ii. quarterly up-to-date list of the number and types of apartments or plots or garages, as the case may
be, booked;
iii. quarterly up-to-date status of the project along with the list of approvals obtained and approvals
pending subsequent to commencement certificate; and
iv. such other information and documents as may be specified by the regulations made by the
Regulatory Authority.

Real Estate Appellate Tribunal
a. In addition to the establishment of the Regulatory Authority, the Bill also proposes to establish a Real
Estate Appellate Tribunal (Appellate Tribunal) within one year from the date of commencement of the Act.
b. Any person aggrieved by any direction or decision made by the Regulatory Authority or by an
adjudicating officer, may make an appeal before the Appellate Tribunal within a period of 60 days from
the date of receipt of a copy of the order or direction.
c. The Appellate Tribunal shall deal with the appeal as expeditiously as possible and endeavour shall be
made to dispose of the appeal within a period of sixty days from the date of receipt of appeal.
d. The Appellate Tribunal shall have same powers as a civil court and shall be deemed to be a civil court.
An appeal against the order of the Appellate Tribunal may be filed before the jurisdictional High Court
within a period of sixty days from the date of communication of the decision or order of the Appellate
Tribunal.
Adjudicating Officer
For adjudging the compensation to be paid by the promoter in accordance with the provisions of the Act, the
Regulatory Authority shall appoint (in consultation with the appropriate Government) one or more judicial
officers as deemed necessary, who is or has been a District Judge, to be an adjudicating officer for holding
an inquiry in this regard. However, such an appointment will be made after giving any person concerned a
reasonable opportunity of being heard.
Offences and Penalty
a. Stringent penal provisions have been prescribed under the Act against the promoter in case of any
contravention or non-compliance of the provisions of the Act or the orders, decisions or directions of the
Regulatory Authority or the Appellate Tribunal which are the following:
i. If promoter does not register its project with the Regulatory Authority – the penalty may be up to 10%
of the estimated cost of the project as determined by the Regulatory Authority;
ii. If promoter does not comply with the aforesaid order of the Regulatory Authority - imprisonment of up
to three years and a further penalty of up to 10% of the estimated cost, or both; and
iii. In case the promoter provides any false information while making an application to the Regulatory
Authority or contravenes any other provision of the Act – the penalty may be up to 5% of the
estimated cost of the project or construction.
These penal provisions have also been prescribed for any contravention or violation committed by the real
estate agent or the allottee.
RERA, a central
act rides over
state acts of same
nature

b. If any allottee fails to comply with, or contravenes any of the orders, decisions or directions of the
Regularity Authority, there may be a penalty for the period during which such default continues, which
may cumulatively extend up to 5% of the cost of the plot, apartment or building, as the case may be, as
determined by the Regulatory Authority. Further, if any allottee fails to comply with, or contravenes any of
the orders or directions of the Appellate Tribunal, this may entail imprisonment up to one year or with
fine for every day during which such default continues, which may cumulatively extend up to
10% of the cost of the plot, apartment or building, as the case may be, or with both.
Overriding effect
The provisions of this Act shall have an overriding effect in case there is any inconsistency between the
provisions contained in this Act and in any other law (including a state law) for the time being in force.
The Maharashtra Housing (Regulation and Development) Act 2012 has been repealed by the Central
Government.

Conclusions
and unanswered
questions

In essence, the Bill intends to increase transparency and accountability in the real estate sector, by providing mechanisms to facilitate and
regulate the sale and purchase of commercial and residential units/projects and timely completion of projects by the promoters.
Now, the challenge before the Government would be to establish the Regulatory Authority (or any other authority, in the interim) within the
timeline prescribed under the Act in order to start implementing the provisions of the Act effectively.
Also, a single-window clearance is needed now, without which there may be cases where bona-fide delays by developers may still result in an
unfair penalty. The time taken to get many environmental, state-level and municipal-level clearances have afflicted developers for long. The
central government, on its part, has been working to streamline approvals and has set up a 30-day approval period recently. The Model Building
Byelaws have also been released.
There are, however, questions that need answers:
• While the accountability of buyers, developers and brokers has
been set, where is the accountability for government agencies?
• More clarity needed on if, and what, changes will have to be
implemented by under-construction projects. There maybe many
projects having all the clearances and approvals currently but
no separate project account maintained or less than 70% of the
project accruals used for the same project, what will be the likely
treatment for those projects.
• More clarity needed on plotted development as it affects a majority
of home buyers, especially outside the metros.
• What is the minimum amount in a separate account that the states
can implement? The Centre has prescribed 70% with an allowance
to State Govt. to reduce it, is there is lower ceiling defined?
• How soon do we anticipate the implementation of this Bill? As it
requires cooperation from all states, the implementation could be
delayed.
All in all, the incumbent government has succeeded against
various odds and given Indian real estate its most valuable card.
The bill is a verdict to end the age of information asymmetry, lack
of accountability and unwarranted project delays, and marks the
beginning of rising transparency, liquidation of assets – and,
importantly, positive sentiment.

The New Indian Express
The industry feels the government should fix accountability of all
stakeholders, including government authorities and local urban bodies.
Developers are also worried they will be penalised for delays in project
completion, even if it is due to delayed government approvals.
“We wish sanctioning authorities were included in the Bill without
bringing them on board, delays would continue in implementation
of projects,” Navin Raheja, MD, Raheja Developers, told The New
Indian Express. R K Arora, Chairman, Supertech said the Bill should
engage approving authorities so that projects don’t get delayed.
The Economic Times
“Real estate regulatory bill should not act as a barrier for small
developers and the government should offer better financing
mechanisms for their survival,” said Dr. Madalasa Venkataraman,
Faculty, Indian Institute of Management - Bangalore.
Experts said giving industry status to the real estate sector or a relook
at the sensitive sector exposure limits of the Reserve Bank of India
might help ease this problem.
“The bill aims to flush out the non serious players, who divert funds
from one project to another, which might lead to consolidation for sure,”
said V Suresh, Former chairman and managing director, HUDCO
and Advisor Good Governance and Municipalika.
Compliance cost for builders is set to increase, which might get passed
on to the end consumers in the next 12-18 months. “However, we can
see stabilisation of prices in the next 24-48 months,” said Om Ahuja,
CEO, Residential business, Brigade Enterprises Ltd.
Venkataraman from IIM-Bangalore, however, feels prices could also
go down. “Short term compliance cost will surely go up, but if approval
process is properly implemented, with builders having proper source of
funding, we can see home prices going down,” she said.
The bill mandates the regulatory authority to provide project approvals
within 60 days, failing to do so without any communication to the
developer can be considered as deemed approval. However, each
state will now have to form their own regulator, and have liberty to set
the timelimit of approval process.
The Tribune
“There are some provisions like imprisonment which are harsh and
may be passage with the time they will be set right,” DLF Chief
Executive Rajeev Talwar told The Tribune. He also questioned why
the government authorities have not been included in the Bill.
Amit Modi, Director, ABA Corp and Vice-President CREDAI
Western UP, also, expressed concern over all stakeholders not
being made equally accountable. “Projects are often delayed due
to graft in the issuance of permits and clearances. Government
agencies issuing permits should be brought under the law and made
accountable for undue delays. On an average it takes 2-3 years to
start a project after land is acquired; by this time the cost of land rises
by 24-30 per cent due to hefty interest payments as bank loans are
not available for procuring important raw material in this sector. The
added cost ultimately gets passed on to the customer. These costs
can be curtailed and passed on to the consumer, if developers can
start building faster and also deliver larger volumes quicker for the
consumer”, he said.
“The whole process of approvals must be made online to reduce
corruption and bribery, which is rampant in the business, and unless
there is a single-window clearance, low-cost housing will never happen
in this country and restrictive ad-hoc rules on usage must go,” said
Modi
Anita Arjundas, MD, Mahindra Lifespace, said, “Speedy action on
single-window approvals will enable more efficient use of capital and
also support timely delivery.”
Soundbytes
of significant
stakeholders

THE Economic times
Industry body Credai’s Bengal president Sushil Mohta said the bill
will bring more transparency to the sector.
“It was necessary, but not sufficient, to route more foreign investments
in the country. Unless the process of project sanctions, approval and
clearances get simplified, foreign investment would not come in a big
way,” he said.
THE Economic times
“Ultimately the issues related to home buying will need to be sorted out
at the state level, getting the act passed in Parliament has been only
one half of the struggle. The actual struggle is to get the law adapted
by the state assemblies. And the local groups of RERA in every state
will help to push that forward,” Indrish Gupta, co-founder, Fight for
RERA said.
The group said there is a need for clarification on the implementation
of RERA. “Once it comes to the state level, the ground realities of this
act will surface. We are mobilising activity at state level, across the
country to keep the ball rolling,” Alok Kumar, co-founder, Fight for
RERA, and president of Ghaziabad Apartment Owners Welfare
Association, said.
THE Economic times
“The provision in the draft bill to escrow a portion of the sales proceeds
for construction purposes will ensure timely completion and stop the
diversion of funds to purchase land or for the launch of other projects.
The sector is now closer to getting a regulator,” said Vinay Betala,
associate director, India Ratings & Research, which is a Fitch group
company.
“The surplus cash available to companies to purchase land is likely
to reduce and this may result in the higher reliance on joint venture
projects with land owners. Since all approvals need to be in place
prior to project launches, it will reduce delays and ensure timely
implementation of projects,” Betala said.

Authors
Strategic Oversight
Amit Wadhwani
Principal Associate
Khaitan & Co
+91 22 6636 5000
amit.wadhwani@khaitanco.com
Sudip Mullick
Partner, Real Estate
Khaitan & Co
+91 22 6636 5000
sudip.mullick@khaitanco.com
Sparsh Sharma
Assistant Manager, Research
JLL | India
+91 22 6620 7509
sparsh.sharma@ap.jll.com
Anuj Puri
Chairman & Country Head,
JLL | India
+91 22 6620 7575
anuj.puri@ap.jll.com
Ashutosh Limaye
Head of Research & REIS
JLL | India
+91 22 6620 7519
ashutosh.limaye@ap.jll.com
Haigreve Khaitan
Partner
Khaitan & Co
+91 22 6636 5000
haigreve.khaitan@khaitanco.com
Ramesh Nair
Chief Operating Officer - Business
& International Director
MRICS | JLL India
+91 22 6620 7696
ramesh.nair@ap.jll.com

JLL India Offices
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Jones Lang LaSalle Property Consultants (India) Pvt Ltd © 2016. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the
accuracy thereof.
Disclaimer:The content of this document do not necessarily reflect the views / position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact
Sudip Mullick at sudip.mullick@khaitanco.com
About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by
owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more
than 230 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides
management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in
sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $56.4 billion of real estate
assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com
JLL has over 50 years of experience in Asia Pacific, with over 32,000 employees operating in 83 offices in 16 countries across the region.
The firm was named ‘Best International Property Consultancy’ and ‘Best Property Consultancy Asia Pacific’ at the International Property Awards Final 2015 as
well as number one real estate advisor in Asia at the 2015 Euromoney Real Estate Awards. www.jll.com/asiapacific
About JLL India
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