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RERA for Maharashtra – a mixed bag

The draft offers some positive factors for the buyers. However, there is a scope for improvement from the consumer’s point of view.

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Paresh Karia
Acquest Property and Hospitality Services.

The much awaited RERA rules for Maharashtra will finally see the daylight. The draft rules have been put in public domain for inviting suggestions up to December 23rd, 2016. The final rules are likely to be notified in the official gazette sometime early next year.

Let us examine some of the key provisions and see how they will benefit the home buyers. Let’s also identify the rules which are detrimental to the interest of the home buyers and make appropriate suggestions for rectifying the same.

Applicability to ongoing projects

Firstly, we must appreciate the government for bringing the ongoing projects also within the ambit of RERA unlike other governments like Gujarat and UP which have given them exemption.

The developer of all ongoing projects which have not received Occupation Certificate or Completion Certificate will have to register the project within 3 months from the date the act becomes effective. This means that they will have to comply with all conditions regarding disclosure, escrow etc. The developer will not be able to make any sale till the project is registered.

Given the quantum of disclosure and complexity in escrow mechanism etc., there are very few developers (we can count them on finger tips) who will be in position to register the ongoing project within stipulated time.

Hence, one may find developers clamouring to sale as much as they can, in the ongoing projects before the deadline of registration of project under RERA. Post the deadline, the sales of ongoing project will virtually come to a standstill and pick up only gradually as the developers complete the registration process. The launch of new projects will be kept in abeyance as the developers focus on registering ongoing projects.

Disclosure

One of the main objects of RERA was to bring about transparency through disclosure of all information related to a project.

Disclosure to the regulator

The rules have made it mandatory to furnish not only extensive information as envisaged under the act, but also additional information regarding the project to the regulator, which includes details of past projects of the developer, land ownership and title, development/JV agreements, Approvals, Commencement Certificates, FSI/TDR to be utilized, Buildings/Wings/Floors to be constructed, Sanctioned Plans/Layouts, Amenities, Specifications, Proforma of allotment letter/agreement to sale/conveyance deed etc.

Disclosure to the Public

The regulator is bound to publish information regarding the project on its website. However, the rules have exempted certain information to be published on the website which inter alia includes:

  1. Details of the past projects by the developer
  2. Details of firefighting, drinking water facility, emergency service services etc.
  3. Proforma of allotment letter/agreement to sale/conveyance deed
  4. Number, Type and carpet area of the apts for sale etc.

While one can understand that certain sensitive information need not be put in public domain, it is imperative to have information mentioned in point no. 1 and 4 above made available to public so that they can take an informed decision.

Delay in execution of projects

One of the major problems faced by the homebuyer today is delay in completion of the project. Unfortunately, the RERA rules, in their present form, have not adequately addressed this burning problem.

The rules simply say that in case of delay in completion of project, the home buyer has the option to cancel his booking and take money back with interest at two percent above SBI’s lending rate which effectively could be around 11%. This is no way penalises the developer for delay or protects the interest of the home buyer. Considering the hardship faced by the homebuyer on account of delay in completion of his home and the financial cost incurred by him by way of EMIs and rent, it would be fair that he should be compensated for the same.

Hence the rules should provide for compensation to the home buyer for the delayed period at a rate which will at least take care of the EMI and Rent (effectively around 11%).

Carpet Area

The rules defined carpet area as “Net Usable area including internal walls”. Finally, we now have a standard measure and all developers will have to follow the same and explicitly mention in the agreement.

However, the rules also say that the final carpet area will be confirmed after the building is constructed and OC is received. If at that point of time, the carpet area is more than originally envisaged, the buyer will pay difference to the developer at the original per square feet rate. Similarly, if the carpet area is less, the developer will refund the money for the shortfall to the buyers.

While the objective of this clause may be to protect both the parties on account of difference which is quite possible due to technical reasons, such difference may be hardly in the range of 2% to 3%. Accordingly, the rules should prescribe such limit else, by leaving it open ended there is scope for misuse.

Possession only after receipt of Occupation Certificate

The rules make it amply clear that the developer can offer the possession only after receipt of occupation certificate.

This will put to end the current practise of many developers calling upon buyer to take possession and collecting amount due on possession as well as maintenance and other charges even when they have not received occupation certificate.

Payment Schedule

The draft agreement in the rules have also prescribed the manner in which the developer can collect money from the buyer for an under construction project. What is surprising is that the developers can now take as much as 45% of the total amount at the plinth level itself i.e. even before the building is off the ground. Thus home buyers may now be called upon to pay a substantial amount at the very early stage and wait for years for the completion of their home. What makes it worse that there is no penalty on developer if he delays the project. Hence, the developer can take a large chunk of money upfront and take their time to complete the project.

Also, there does not seem to be any rationale behind this as the cost of construction till plinth would be much lower than 45%, especially in case of high rise buildings. Hence, it is suggested that the payment up to plinth should ideally not be more than 30%.

Further, the developers can now collect up to 30% of the consideration, even before the agreement for sale is done (this was less than 20% under MOFA and 10% in the RERA Act). Currently, the home buyer pays 20% to 25% of the consideration and then goes for registration of the agreement so that he can take home loan for the balance amount. Now, if the developers insist for 30% payment, the buyer will be able to avail loan up to 70% of the consideration value only.

Draft Agreement

The draft agreement laid down by the rules comes as a welcome relief to home buyers who until now had no option but to accept a one side agreement completely in favour of the developer. The agreement is now more balanced and most of the clauses in the draft agreement start with “The Promoter …..  as against the current agreements where they start with “The Purchaser ….

Warranty for 5 years against defect

The rules provide that the developer will have to rectify any defects in the property, at his own cost for a period of up to 5 years from the date of handover. If the defect cannot be rectified, the developer will have to pay compensation for the same.

Thus, as can be seen from above, the rules are a mixed bag as of now. We hope that the government takes into consideration the factors mentioned above as well as other suggestions before announcing the final rules so as to adhere to the REAR in its true spirit of protecting the interest of home buyers.

 

 

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