Mr Ranjit Dubey feels helpless whenever he walks out of the builder's office these days. About 2 ½ years ago, he invested in a property under-construction located in Chandigarh. At the time of booking the house, the developer had promised him to handover the house within a year as the work had already begun. But the bullying builder went back on his promise a year later. Instead of being apologetic, the builder always gave reasons such as labour shortage and unavailability of building material, etc. for being unable to complete work on time. Mr Dubey never missed a single instalment he had agreed to pay. Those who couldn't pay on time were charged a fine as mentioned in the agreement. However, all agreements were strikingly silent about the penalty the builder had to pay had he missed the timelines.

In India, builders have been bullying homebuyers for too long. Agreement For Sale (AFS), which is almost always biased in favour of the developer, creates a huge problem for homebuyers on many occasions. Builders set the terms and conditions of the sales that suit them. As many of you may know, AFS forms the basis of any real estate transaction between the buyer and the seller of the property. AFS sets the terms and conditions of the transaction and thus plays a vital role in the preparation of the sales deed.

Things are going to change soon

However, the Ministry Of Housing And Urban Poverty Alleviation (MHUPA) seems to have gotten serious about protecting the interest of homebuyers. Recently, it drafted new rules for 5 union territories (excluding Pondicherry and Delhi), exercising the powers it received under the Real Estate (Regulation and Development) Act, 2016. The proposed rules are likely to tighten up the screws on errant developers. The proposed rules are to be first placed in the public domain for suggestions and comments from all stakeholders before the Ministry releases the final notification.

The proposed rules are comprehensive and touch upon critical areas that concern the buyers and sellers of any house, apartment or even a plot. The proposed rules will completely change the way AFS is prepared. So not only the transactions among developers and the homebuyers but also among developers and sellers of the plots will come under the scanner of the real estate regulator. If notified as proposed, the rules will bring about changes in the following fields:
 

• Registration of the project
  After the establishment of the real estate regulator and the creation of model AFS, the builders will be able to execute the sale agreement only if they register the projects, wherever required, and have all needed approvals. If the proposed rules are notified, the builders will have to provide additional documents and information aside from that prescribed under the Real Estate (Regulation and Development) Act, 2016. They include the following:
  • Audited balance sheet for the preceding financial year and income tax returns for three preceding financial years.
  • Legal title deed demonstrating that the developer has the land title.
  • Where the developer is not the owner of the property, he will have to produce all documents proving the consent of the owner to develop the property.
  • The builder will have to declare that, he won't show any discrimination with any homebuyer at the time of allotting any apartment, plot or the building.
  • The builder will have to provide a brief account of facilities his company intends to provide to prospective homebuyers.
  • The number of garages for sales and the open parking areas available in the real estate project that is to be registered.
  • Details of the projects launched and (or) completed in the last 5 years. The developer should also provide the updates on the status of these projects.
  • Proforma of all documents and necessary agreements including AFS which will be signed with the buyers.
  • Names and addresses of the contractors, architect, structural engineers, and other persons concerned with the development of the proposed project.
  • The developer has to disclose the size of each apartment on carpet area.
  
  The registration of project is compulsory where the proposed area land to be developed is above 500 square meters or the apartments to be constructed are more than 8. Along with the application for the registration of the project, the developer has to file an affidavit to declare that his/her company will comply with all regulatory requirements and take all necessary approvals from time to time. Moreover, the developer has to give in writing that, the amount collected from the homebuyers would be deposited in a separate escrow account and shall be utilised as per the guidelines of the regulator.
  
  On the submission of required documents and information, the regulator will grant approval to the project subject to the fulfilment of rules and regulations. Any violation on the part of the builder will make him/her or his/her company accountable. Interestingly, the proposed rules will make it mandatory for the developer to apply for the extension of registration in case he/she misses the completion deadline. The application for such an extension shall have a list of reasons for the delay in completion and has to be supported by the documents affirming reasons given therein. Requests for an extension would attract higher registration fees.


• Dealings with real estate agents
  Real estate agents who often shrug off their responsibilities soon after they receive brokerages will no longer be able to do so in the new system. The proposed rules when exercised in conjunction with the Real Estate (Regulation and Development) Act, 2016 would plug the existing loopholes that allow real estate agents to escape from litigation. Under the proposed system, even real estate agents will have to register themselves with the regulator. As a part of that exercise, they will have to comply with the statutory requirements. Their registration will be subject to the fulfilment of a few conditions that include the following:
  • The real estate agent shouldn't act as a middleman in any project which needs to be registered but hasn't been registered.
  • The agent shouldn't get involved in any transaction that qualifies as the unfair trade practice
  • The tax returns for last 3 years which are provided at the time of applying for the registration along with the necessary accounts, shall be preserved for the time stipulated under Real Estate (Regulation and Development) Act, 2016
  
  The registration is valid for 5 years, and the agent has to renew the registration to be able to carry out the business.


• Disclosures of information about the developer on the website of the regulator
  • Developer or group profile
  • Track Record of the developer
  • Litigations pending, if any
  • Website details/links of the developer
  • Particulars of the real estate projects including the copy of all mandatory approvals along with the details on location, development plan and project schedule
  • Financials of the developer


• Penalties and refunds
  • If the builder misses the deadline of the project or the buyer misses the payment instalment, the penalty payable to either of them would be 2% higher than the prime lending rate of SBI. For example, if the prime lending rate of SBI is 10%, the penalty would be payable at 12%.
  • Any compliance related lapses on the part of the developer would attract penalties as high as the 10% of the estimated project cost. The estimated project cost means the total cost involved in developing the real estate project including the land cost, taxes, cess, development and other charges.
  • In the case of any refund, the developer would be liable to refund the money along with the interest thereon within 45 days.

PersonalFN is of the view that lawmakers in various States of India should look upon these rules as the role model and shouldn't dilute provisions while drafting codes for their own state. Greater disclosures, substantial penalties and better regulation would bring in much-awaited transparency to the real estate dealings in India. The developers and the agents would become more accountable once they have a strong regulator to oversee their operations.

 From time to time, PersonalFN has educated real estate buyers and helped them take sound decisions. You may like to read some of the noteworthy articles authored by team PersonalFN.

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