The Real Estate (Regulation and Development) Act, 2016, needs to be amended to make financial institutions accountable for the completion of projects backed by them, says the founder-chairman of the Maharashtra Real Estate Authority (MahaRERA).
The money needed for funding a real estate project comes partly from amounts deposited by homebuyers and in the form of loans advanced by financial institutions, Gautam Chatterjee said in an interview. If builders and buyers find a mention in the legislation, so should financial institutions, he said.
“RERA should also have power over financial institutions by virtue of the fact that they are in possession of unsold flats. Right now, RERA does not go beyond two stakeholders – the buyers and the real estate promoters,” Chatterjee said.
“The Act should include financial institutions as they are an important stakeholder. Section 7 and 8 mentions that in a stressful situation, RERA can deal with the problem of how to take the project to completion and get the balance construction work done. Since financial institutions who have lent money and hold the first charge on the project (over unsold flats), then financial institutions along with the association of allottees together would have to ensure that the project is completed,” he added.
This stand was reflected in a recent Supreme Court order that put the interests of homebuyers above those of banks in the event of a real estate builder defaulting on repayment of bank loans and handing over possession of units to their owners.
The apex court also said that in case of a conflict between the Real Estate (Regulation and Development) Act and recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), the former will prevail.
Chatterjee also said that under Section 37, RERA’s power to give directions to a competent authority is only confined to the real estate promoter, real estate agent and home allottees.
“The Authority may, for the purpose of discharging its functions under the provisions of this Act or rules or regulations made thereunder, issue such directions from time to time, to the promoters or allottees or real estate agents, as the case may be, as it may consider necessary and such directions shall be binding on all concerned,” the section says.
This provision should include both financial institutions and officials of the competent authority, said Chatterjee.
“In a stressful situation, both the financial institutions or important stakeholders that have charge on a project, should be held responsible. Also, various officers of the competent authorities should also be held accountable for their acts of omission and commission,” he said.
RERA did try to bring in financial discipline and transparency, correct the information asymmetry that existed before the legislation was enacted and brought about a level playing field between buyers and sellers through information sharing, mandatory disclosures and accountability.
The Act tried to usher in an era of 3Ts – transparency, trust and time, he said.
As many as 80% of homebuyers want to buy only RERA properties in the future and 50% of consumers believe that approvals are faster in the case of projects registered under the real estate law, Chatterjee said.
“Close to 80% of the household assets is held in real estate. Information asymmetry was a major problem in the sector before RERA was introduced. The main problem was that a buyer trying to put his life savings into real estate did not get any information on how his asset was being developed or what was happening with his money,” he said at a recent event organized by the National Real Estate Development Council (Naredco).
He said that 76% of consumers are clear that they will buy only RERA properties in the future but this proportion needs to be increased further. Almost 50% of consumers believe that loan approvals are accelerated for RERA projects because financial institutions look upon at the legislation as a shield to invest their money. Almost 64% developers are satisfied with RERA helping increase their credibility among buyers, he said.
Asked if a builder can be held liable for construction quality and any defects in a project, Chatterjee said the Act contains a defect liability provision wherein the builder can be held responsible for structural liability for a period of five years.
“Section 14 of the Act says that on completion of the project or handing over of the property to the buyer, the developer will be held accountable for structural defects, workmanship defects etc. The buyer inflicted by any of these bring up the issue with the developer and if he fails to rectify the problem within 30 days, the buyer can seek compensation,” he explained.
These are curative remedies. MahaRERA has introduced a preventive remedy through Form 2 A wherein the engineer of a project has to certify that the raw materials used and the project itself conform with various codes enforced in the country.
“This can be made uniformly applicable across the country. Rather than Section 14 deal with the problem of structural defects or workmanship only in the curative mode, certain provisions can be included in the preventive mode wherein the structural engineer can be held accountable for the structure,” Chatterjee said.
“Having said that, the competent authority is expected to look at this aspect but they don’t do so. RERA can be made successful by making these three accountable – architect (design), engineer (quality of the work) and the chartered accountant (fiscal disciple),” he added.
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