RERA Act: A Step in Reforming the Indian Real Estate Sector

By Ashima Obhan

In the absence of adequate protection, real estate consumers have been extremely vulnerable. For most, investing in property is a lifetime decision involving years of savings and much financial planning. The downward spiral in the real estate market, led to developers not having adequate funds to finish projects as funds from one project were most often than not diverted to other projects and it was the consumer who faced the brunt of it all. In light of this on March 26, 2017, India finally passed the Real Estate (Regulation and Development) Act, 2016 which came into force from May 1, 2017 (“RERA“). RERA, a breakthrough reform pertaining to the real-estate sector, is fundamentally a consumer protection law meant to safeguard the interest of homebuyers by ensuring fair practices and penalties on errant builders.

Relevant Provisions of RERA

Under RERA all promoters with ongoing projects must apply to the regulatory authority to register their projects. Documents such as details regarding the projects, past projects of the last five years, copy of the commencement certificate obtained, sanctioned plans, layout plans, location of property etc. also need to be submitted by the promoter. Promoters are not permitted to advertise, market, book, sell or offer for sale, or invite persons to purchase any plot, apartment or building unless the project has been registered under RERA and further all advertisements of such projects are required to carry the RERA registration number.Ready-to-move apartments with occupation certificates (OCs) have been kept out of the ambit of RERA.

In the past, several homebuyers have faced the issue of delayed possession of the flats purchased by them due to a delay in the construction due to several reasons. One of RERA’s clauses that brings relief to buyers is that a registration application is also to be accompanied by an affidavit from the promoter stating that the promoter has legal title of the land to be developed and it is free from all encumbrances and more importantly, the promoter is required to declare under RERA, the time period under which the project will be completed. An allotteeis entitled to claim the refund of amount paid along with interest and compensation, from the promoter, if the promoter fails to comply or is unable to give possession of the apartment, plot or building, in accordance with the terms of agreement for sale or due to discontinuance of his business as a developer on account of suspension or revocation of his registration under the provisions of RERA or rules thereunder. The rate of interest prescribed under RERA is an interest rate of the State Bank of India’s highest marginal cost of lending rate plus 2% equivalent to approximately 11% to 12%. This rate of interest could vary state-wise.

RERA further obliges the promoters to park 70% of the project funds required to meet construction needs in a dedicated bank account and attracts a penalty of jail term of three years in case they fail to deliver, thereby ensuring that project funds are utilized for that project only. Another benefit of RERA for homebuyers is that a promoter’s liability to repair structural defects has been increased to five years from the earlier two years.

A homebuyer has always been uncertain of what is carpet area, super-built up area and what is the actual space they would get to live in once they purchase a property. RERA helps simplify this firstly by defining carpet area as the net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area. Further, a buyer under RERA needs to pay only for the carpet area and a promoter cannot charge for the super built-up area, as has been the practice at present in several cases.

Once a project has been registered under RERA, promoters are required to upload project details on the RERA website and provide updates on the construction progress as well as commencement, occupation and other certificates required before flats are handed over to buyers. Homebuyers looking to purchase a flat would therefore benefit to visit the RERA website wherein Real Estate Regulatory Authorities will ensure publication of information relating to profile and track record of promoters, details of litigations, advertisement and prospectus issued about the project, details of apartments, plots and garages, registered agents and consultants, development plan, financial details of the promoters, status of approvals and projects etc.

Penalties under RERA

RERA imposes several penalties on promoters who contravene the provisions of RERA. A promoter who contravenes the provisions of RERA and does not register any projects is liable to a penalty which may extend up to ten per cent of the estimated cost of the real estate project. A promoter who does not comply with the orders, decisions or directions of the authority is further punishable with imprisonment for a term upto three years or with fine or with both. A promoter providing false information is liable to a penalty of up to five per cent of the estimated cost of the real estate project. Contravening any other provisions under RERA attracts a penalty of up to five per cent. of the estimated cost of the real estate project.

Real Estate Agents

Another point that RERA touches upon is the regulation of real estate agents. No real estate agent is permitted to facilitate the sale or purchase of any plot, apartment or building in a real estate project registered under RERA unless the agent is registered under RERA itself.A real estate agent contravening the provisions of RERA is also liable to a penalty for every day during which such default continues, which may cumulatively extend up to five per cent, of the estimated cost of plot, apartment or building, of the real estate project, for which the sale or purchase has been facilitated.


The introduction of the RERA expects to bring in transparency, weed out unorganized players and build up buyer confidence and thereby benefit the real estate sector in the long run.However, it is important to ensure that RERA does not get diluted by the states.