Registration of projects: A double-edged sword under RERA

The National Capital Region (NCR) has the maximum number of integrated townships - 42 projects with approximately 1.33 lakh units

Vivek Dahiya

The second chapter of the Real Estate (Regulation and Development) Act (Act), that focuses on registration of a project and agents can greatly determine its future or backfire. It could be a double-edged sword.

Edgy issue 1: Expect delays

The Act has set the ground rule that no one can sell/ offer to sell/ advertise/ invite/ market/ book unless they have registered the project with Real Estate Regulatory Authority (RERA). What government infrastructure needs to be in place for this?

1. Chairperson of RERA
2. Members, adjudicating offices of RERA
3. A Selection Committee to be set up for selecting the above
4. A robust online system to accept registration and follow up updates
5. An Appellate Tribunal to be established

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Vivek Dahiya

Founder and CEO|GenReal

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On May 1, 2017, only 13 states had notified the rules. With the exception of a couple of states, no state government has the infrastructure in place for undertaking registration.

The Act requires that within three months, the promoters should make an application to RERA to register. But the state governments have one year to establish RERA. Till then, by order, any regulatory authority/ officer would be made RERA-designate. There is little or no clarity regarding this on-ground.

Edgy Issue 2: Rush of a different kind

Projects, which are ongoing and for which a Completion Certificate (CC) has not been issued by May 1, 2017, have to register with RERA. The ongoing projects have till July 31, 2017 to register. What about those projects which are completed, documents submitted to relevant authorities, yet the completion certificate is yet to be issued?

Applications for CC have been filed across the country before May 1, even if a lot of work is still pending at site. There is currently a mad-rush in such projects. Developers with means are trying to achieve completion before the CC inspection. This allows the developer to limit their liabilities.

Almost all the projects come under the fold of the Act and we can expect a long, tedious process of registration considering the amount of data that has to be reviewed and confirmed before registering.

Unless the process of submission, review, clarification and confirmation is not streamlined in advance by each RERA, we are in for an uphill task for both RERA and Promoters. Significant resources would have to be deployed to undertake and complete this task diligently.

Edgy Issue 3: Increase in paperwork

Most of the information required by RERA, related to the building structure, is already submitted by developers in large metros due to existing norms of development authorities or municipalities. So that should be easy to share. However, they are new additions, some logical and others confounding. Two such inclusions are:

1. Location details of project with latitude and longitudes of the end points of the project. How this protects an Allottee’s interest remains a mystery.

2. Detail regarding area and number of garages planned/ sold. I am not sure of popularity of garages now a days but basement car parking doesn’t find a mention.

If you glance through the list of about 15 sub-clauses in the Act which highlight the data to be submitted by the promoter, you realise that designs, consultants, timelines etc all change due to internal and external factors. Agents might not be able to perform; consultants might have to be fired, area or design of apartments could have to be improved.

What does the promoter do when these changes take place? Inform RERA on a regular basis? Submit all details again or only file an addendum?

Edgy Issue 4: Increase in costs

Registration, quarterly documentation, additional time and costs, title insurance, delays in approval, fresh registration for each phase etc would lead to increase cost of construction. This is expectedly to be passed on to the consumer.

It is difficult to estimate how much would this increase be at this stage as details of fee and timelines are still not clear. However, the bigger question is will the developers be forced to absorb this cost initially? Will the current slowdown result in costs remaining stable and margins reducing? Over the past two quarters we have noticed freebies galore from the developers. They have been doing everything possible to bring back the buyers and increase sales. It’s difficult to imagine developers attempting anything that might reduce their sales.

One more layer of approval, increased costs and timeline is not a positive but a necessity for now.

Edgy Issue 5: Approval or Rejection

On receipt of application RERA has to, within 30 days, grant registration or reject the application. In case the developer doesn’t hear from RERA in 30 days, the project is deemed registered within seven days after the 30 days period.

While reasons of rejection have to be given in writing, what could be the grounds for the same? It’s safe to assume that if plans of the project have already been sanctioned, most of the preliminary data would have already been prepared by the developer. Unless the data is submitted incompletely or incorrectly or is illegible, I don’t see why there should be any rejection.

But then real estate has a tendency to surprise us! I am curious to see how this unfolds.

Edgy Issue 6: Environment management

As I mentioned earlier, submitted documents will witness change. The change could happen due to:

1. Market conditions resulting in reduction in demand/ sales or
2. An over-zealous judicial order asking developer to stall or amend their construction or
3. A government action resulting in the developer to amend their design/ plans

We have seen these situations across the country, every year. Ban on construction due to orders of the Green Tribunal, restriction on ground water or ban on sand mining, delays in approvals due to change in governments. In most cases, projects have been delayed due to factors outside of a promoter’s control.

There is no protection for the developer in such a case and hence the allottee also is completely at risk.

You should note that the registration granted can be extended for one more year only due to force majeure. The above-mentioned points are not covered in force majeure.

I fear that unless such external factors are considered and addressed in the Act, risks for buyers will remain unchanged and promoters will get adversely impacted due to actions out of their purview.

Edgy Issue 7: Enforcement

RERA may, on receipt of a complaint or suo motu, revoke the registration of a project if the promoter defaults as per the Act or is involved in unfair practises or if there are irregularities.

The promoter would be given grounds of default and a 30-days notice to respond. If revoked, promoter will not have access to RERA website, his name would come in the list of defaulters and his accounts would be frozen.

Interestingly, RERA can “facilitate the remaining development works to be carried out either by a competent authority or by the association of the Allottees or in any other manner.

This provision, if enforced pro-actively and ethically, is a potential road to salvation for thousands of buyers/ investors who have invested in projects where promoter has “run out of money”. Or this could be a route to unending litigation.

Conclusion

Will we see the tendency to cut corners, bureaucracy and general apathy towards statutory norms turn this Act into a paper tiger? A lot would depend on speed with which state governments set up the infrastructure. Then, on the people chosen to run RERA would have a significant say in its success.

Statutory infrastructure could take longer than one year. Paperwork would significantly increase. Increased costs will eventually be transferred to the buyer. Uncertainties that plagued real estate, will remain.

(The author is Founder and CEO of GenReal)