General Studies IIndian SocietyUrbanization

Real Estate Regulation and Development Act, 2016

Ministry of Housing and Urban Affairs

  • The Act came into force on 1 May 2016 with 59 of 92 sections notified. Remaining provisions came into force on 1 May 2017.
  • The Act establishes a Real Estate Regulatory Authority (RERA) in each state for regulation of the real estate sector and also acts as an adjudicating body for speedy dispute resolution.
  • The Central and state governments are liable to notify the Rules under the Act within a statutory period of six months.
  •  Act which seeks to protect home-buyers as well as help boost investments in the real estate industry.


Need for the RERA:
  • Real estate sector had been largely unregulated, no standardization of business practices and transactions.
  • The lengthy approval process for project clearances
  •  Lack of clear land titles
  • Prevalence of black money
  •  Diversion of funds received by the developer towards one project to more lucrative ones
  • Construction work has come to a standstill or the developer has left without completing the project
  • Developer changes the layout or building plans after purchase
  • Legal disputes (It had to be settled in the courts)
  • Endemic issues – For Ex recessive conditions in the past few years.
  • The distress caused by two drought years has also cut demand in the rural and semi-urban segment.
  • Prevalence of issues like delays, price, quality of construction. Delays in projects had been a major issue plaguing real estate sector- huge cost overrun due to delays.
  • Numerous instances where developers cheated property buyers.
  • No grievance redressal mechanism.
Objectives of RERA
  • Enhance transparency and accountability in real estate and housing transactions.
  • Boost domestic and foreign investment in the real estate sector.
  • Provide uniform regulatory environment to ensure speedy adjudication of disputes.
  • Promote orderly growth through efficient project execution and standardization.
  • Offer single window system of clearance for real estate projects.
  • Empower and protect the right of home buyers.
Key Provisions of Real Estate Regulation and Development Act
  • Establishment of state level regulatory authorities- Real Estate Regulatory Authority (RERA): The Act provides for State governments to establish more than one regulatory authority with the following mandate:

    • Register and maintain a database of real estate projects; publish it on its website for public viewing,
    • Protection of interest of promoters, buyers and real estate agents
    • Development of sustainable and affordable housing,
    • Render advice to the government and ensure compliance with its Regulations and the Act.
  • Establishment of Real Estate Appellate Tribunal- Decisions of RERAs can be appealed in these tribunals.
  • Mandatory Registration: All projects with plot size of minimum 500 or eight apartments need to be registered with Regulatory Authorities.
  • Deposits: Depositing 70% of the funds collected from buyers in a separate escrow bank account for construction of that project only.
  • Liability: Developer’s liability to repair structural defects for five years.
  • Penal interest in case of default: Both promoter and buyer are liable to pay an equal rate of interest in case of any default from either side.
  • Cap on Advance Payments: A promoter cannot accept more than 10% of the cost of the plot, apartment or building as an advance payment or an application fee from a person without first entering into an agreement for sale.
  • Defines Carpet Area as net usable floor area of flat. Buyers will be charged for the carpet area and not super built-up area.
  • Punishment: Imprisonment of up to three years for developers and up to one year in case of agents and buyers for violation of orders of Appellate Tribunals and Regulatory Authorities.
  • Timely delivery of flats
    • Developers often make false promises about the completion date of the project, but hardly ever deliver.
    • Strict regulations will be enforced on builders to ensure that construction runs on time and flats are delivered on schedule to the buyer.
    • If the builder is not able to deliver the flats on time, he/she will have to refund the purchaser with interest.
  • Furnishing of accurate project details:
    • In the construction stage, builders promote their projects defining the various amenities and features that will be part of the project. But not everything goes as per plan, with several features missing.
    • As per the Act, there can’t be any changes to a plan.
    • And if a builder is found guilty of this, he/she will be penalized 10% of the project’s costs or face jail time of up to three years.
  • Specifying carpet area:
    • Generally, builders sell flats on the basis of built-in area, which includes a common passage area, stairs and other spaces which are 20-30% more than the actual flat’s area.
    • But, not all buyers are aware of the concept of carpet area.
    • With this Act it will become mandatory to declare the actual carpet area.
  • All clearances are mandatory before beginning a project:
    • Builders often attract buyers with huge discounts and pre-launch offers. And, the buyer, enticed by the offers, does not bother about the clearance.
    • But, due to delays in getting clearance, the buyer does not get the flat on time.
    • This Act ensures that developers get all the clearances before selling flats.
  • Each project should have a separate bank account:
    • Developers raise funds through pre-launch offers and use them to purchase some other land or invest it in other projects.
    • This Act will make it compulsory that a separate bank account be maintained for each project.
    • Each transaction will have to be recorded, and diversion to another project will not be entertained.
  • After sales service:
    • As per an interesting clause in the Act, if the buyer finds any structural deficiency in the development of the building, the buyer can contact the builder for after sales service.
    • But, the buyer should approach the builder within 5 years of purchase to rectify such defects without further
Drawbacks and Apprehensions:

1). Who will ensure how much is 70% of the total project cost? Also, the state government can alter this amount to less than 70%.

2). The Bill mandates that 70% of the amount collected from buyers of a project be used only for construction of that project. In certain cases, the cost of construction could be less than 70% and the cost of land more than 30% of the total amount collected.  This implies that part of the funds collected could remain unutilized, necessitating some financing from other sources. This could raise the project cost.

3). Builders argue that it will be difficult to sell units on the basis of carpet area in an under-construction property in which many units have been already sold on the basis of super built-up area.

4). Developers say that the main cause of delay is slow approvals from government agencies.

5). Under the Act, if the registration is revoked by the regulatory authority, who will complete the construction?

6). A few consumer activists believe that the real estate regulator may not be effective in the matter of handling complaints. The complaints are already being handled by consumer courts. So they say that there is nothing new. Also, the consumer courts were not effective in the redressal of complaints. They express the same reservations about the regulatory authority also.

7).  Does not address important issues like the lengthy process for project approvals, lack of clear land titles, the prevalence of black money etc

8). Since state-level governance is very uneven, this will work patchily. Some states will set up efficient Tribunals and Regulatory Boards; others will not.

9). Many politicians have interests in real estate. That could work both for, and against the concepts of the new Act. Some smart and not-so-crooked politicians will back the new act and use it to accelerate activity. Others will try to hold up the new legislation or subvert it.

  • A single-window clearance is needed from the government side to avoid unfavourable penalty on the developers
  • Good legislation doesn’t necessarily lead to good outcomes unless the implementation is good. However, the Act is a step in the right direction, and most stakeholders believe that it will help boost home buyers’ confidence. Let’s hope that it brings much-needed relief to the realty sector.
  • Avoiding any conflict between the Centre and the States regarding regulation of real estate sector.
  • States should not dilute the RERA provisions. Provisions for punishment of violations, should be kept intact in all State laws.
  • States should fully implement RERA to curb black money
  • Issues regarding the implementation of RERA in North-Eastern States should be resolved to avoid any uncertainty in the housing sector in that region.
  • Government agencies should be made accountable for the delay in granting approvals.
  • A robust IT infrastructure should be established for monitoring projects and quick redressal of grievances.
  • All the concerns of developers should be addressed in a time-bound manner to avoid unnecessary litigations in courts.


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