Prepared By. Surana Maloo & Company

Transcription

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2 CA Vidhan SURANA CA Sunil MALOO Reader's feedback / observation are welcomed and would be appreciated. vidhansurana@suranamaloo.com, sunilmaloo@suranamaloo.com

3 Time line and applicability of the Act through RERA.. Backdrop Focus Area Areas not addressed by the Bill How are Developers Benefitted Registration Requirement Expense of Project Revocation of Registration and its Consequences Functions and Duties of Promoters Promoters when held Responsible Modification in sanctioned or layout Plan

4 Registration of Real Estate Agent Functions of Real Estate Agent Rights, Functions and duties of Allotees RERA-its Functions and Powers Offences, penalties and Adjudication Offences by Company How to mitigate New Risks Role of the Consultant Looking Forward

5 Time line and Applicability of the Act.. Through formation of RERA in a time bound manner

6 Bill passed by Rajya Sabha on March 10,2016; Lok Sabha passed the Bill on March 15,2016; President of India accorded his assent to the Bill on March 25,2016; The Real Estate (Regulation and Development) Act,2016 was published in the Gazette for public information on March 26,2016; 69 Sections of the Real Estate (Regulation and Development) Act,2016 notified by the Ministry of Housing & Urban Poverty Alleviation on April 27,2016 bringing the Act into force with effect from May 1,2016.

7 The Act has already specified that the respective state Government shall within a period of Six Month of commencement of this Act, i.e by October, 2016, by notification, make rules for carrying out the provisions of this Act.

8 Backdrop

9 Real Estate (Regulation and Development) Bill, has been envisaged as a landmark reform for the real estate sector, was recently passed by both the Rajya Sabha and the Lok Sabha and has received the assent of the President on 25the March The Bill largely seeks to protect the interest of the allottees/purchasers by promoting transparency, accountability and efficiency in the construction and execution of real estate projects by promoters. It also holds the promoters accountable for not registering their projects with the Real Estate Regulatory Authority (Regulatory Authority) or for providing insufficient information regarding their project. In addition to the promoter and allottees, the Bill also brings real estate brokers who facilitate the sale and purchase of units in a project within its ambit.

10 Focus Areas.

11 Timely Delivery of Flats Furnishing of accurate details Specifying Carpet Area All clearance mandatory before beginning a project Each Project should have a Separate Bank Account After Sales Service An increasingly-regulated broker environment. Greater visibility into the developer s Delivery Track Record

12 Areas Not Addressed by the Bill..

13 Past Real Estate Projects not included in the Bill Delay from Government agencies: There can be delays caused by the government, which sometimes takes a lot of time to clear a project. It is up to the government bodies to follow strict time frames to approve projects, so that developers can launch, complete and deliver them on time. No Compulsory regulations for project less than 500 sq. mt. ie 5381 sq ft or sq yards.

14 How are the Developer Benefitted..

15 The Bill is expected to support organized and large developers in the long run, as we expect limited competition from part-time developers who do not comprehend real estate development in depth, and are unable to evolve. Minimum standards of governance and accountability have now been set to an extent, and there s potential for driving standardization and professionalism in the sector. Developers may now need to upgrade their project development skills, especially in the area of project planning, project management, risk management, engineering and design, etc., to deliver qualitatively on time. The successful enactment of regulations is likely to strengthen the confidence of buyers, investors, funding agencies and anyone related to the property sector in the real estate sector.

16 Registration Requirement.

17 Projects to Start No Advertisement, No market, sale or offer for sale No invitation to purchase to anyone in any manner. Project in Process Projects which are ongoing on the date of commencement of this act and for which completion certificate is not issued Within Three months from commencement of this Act. Registraion by Authority If Authority thinks it necessary in the interest of the Allottees, the authority can direct the Promoters of such project to Register with the Authority

18 Area of land proposed to be developed does not exceed 500 sq mts or number of apartments to be developed does not exceeds 8 inclusive of all phases Where promoters has received completion certificate for a real estate projects prior to commencement of this act. For purpose of renovation or repair or redevelopment which does not involve marketing, advertisement, selling or allotment of any apartment, plot or building.

19 Every Phase shall be considered a stand alone real estate project and registration under the Act to be obtained Separately for each phase.

20 Brief details of enterprises including name, registered address, type (i.e proprietary, partnership, company, etc.), particulars of registration, Name and photograph of promoters Brief details of project launched by him in past five years Projects already completed or being developed Current status of Project in process Every Phase shall be considered a stand alone real estate project and registration under the Act to be obtained Separately for each phase.

21 Authenticated Copy of the approvals Commencement certificate from the competent authority Sanctioned plan, layout plan and specification of the proposed projects or the phases and whole project must be sanctioned by the competent authority. The plan of development works to be executed in the proposed project and the proposed facilities to be provided including Fire fighting facilities, drinking water facilities, emergency evacuation services, renewable energy etc. Location details of the land with the clear demarcation of land along with its boundries.

22 Performa of the Allotment letter, Agreement for sale, conveyance deed. Area Details- Number, type and the carpet area of the apartment, Area of the exclusive balcony, verandah areas, open terrace area. Other Details-The number and area of the garage for sale in the project, Name and address of the real estate agent, contractors, architect, structural engineers or any other person concerned Declaration supported by an affidavit, which shall be signed by the promoters or any person authorized by the Promoter.

23 On receipt of the application, the authority shall grant the registration within a period of 30 days. On registration the authority shall provide- Registration number & Login id and password for accessing the website of the authority to fill the details of the proposed project. If the authority fails to grant the registration within time the project shall be deemed to be registered and the authority shall provide the registration no. within 7 days of the expiry of the said 30 days.

24 The Registration shall be valid for a period declared by the promoters for completion of the project. Extension granted on application made by promoter due to War Cyclone. Earthquake Period of Extension shall not exceed One Year in aggregate Flood/Drought Any other Calamity Cause

25 Expense of the Project.

26 70% of the amounts realized for the real estate project form the allottees, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost Promoters shall withdraw the amounts from the separate account maintained by the company to cover the cost of the project in proportion to the percentage of completion of the project Proportion to the percentage of completion of the project must be certified professionals by all of the following three An Engineer An architect and CA Promoter shall get his accounts audited within six months after the end of every Financial year by a CA in Practice.

27 Revocation of Registration and its Consequences.

28 Promoters make default in doing anything required by the Act, rules and regulations Promoters violates any of the terms and conditions Promoters involved in any kind of unfair trade practice or irregularities like false representation-that services are of a particular standard or grade, the promoters have approvals which he does not have, false or misleading representation concerning the services and/or any advertisement of services which are not intended to be offered. Promoters indulges in fraudulent activities The registration shall be revoked only after giving notice to the promoters of not less than 30 days.

29 Debar the promoters from accessing its website in relation to the project Specify its name in defaulter Display his photograph in its website Inform to all RERA in other states and union territories about such revocation Shall facilitate the remaining development works to be carried out by the competent authority or by the association of allottees Bank will hold the project bank account and authority may direct to bank to freeze or de-freeze the account accordingly.

30 Functions and Duties of the Promoters.

31 Promoter has to create webpage on the website of authority, where the details of the project shall be available for public Viewing, which shall include: Registration details Quarterly up to date list of number and type of Appartment/plot booked Quarterly up to date list of garages booked Quarterly up to date list of approvals taken and pending approvals Quarterly up to date status of the Project Website address of the authority to be mentioned in all the advertisement / prospectus/brouchers. At the time of booking and issue of allotment letter the promoter has to make available the following information before the allottees: Sanctioned plan, lalyout and other specification Stage wise time schedule of completion of the project.

32 Promoters-When held Responsible.

33 All structural defects for period of 5 years from the date of handing over the possession Obtain completion / occupancy certificate and make available to individually or association of allottees In case of leasehold land, obtain lease certificate and specify the lease period and certify that all the charges in this regard has been paid Execute a registered conveyance deed of the Appartment in favor of the allottees Enable the formation of association of allottees Maintenance till the formation and taking charge of association of allottees

34 Pay all the outgoing until he transfers the physical possession of the real estate project to the allottees After the promoters executes an agreement for sales then he cannot mortgage or charge on such projects. Not accept a sum more than 10% of the cost of the apartment, plot or building as the case may be, without first entering into Agreement of Sale. Obtain such insurances as may be notified by appropriate Government Execute registered conveyance deed in favor of allottees within 3 months from date of issue of occupancy certificate.

35 Non Adherence to the advertisement or Prospectus Compensation/ incase the allottee intends to withdraw from the project,return the entire investment along with interest and compensation Fails to complete or is unable to give possession in accordance with the terms/due to susspension/revocation of registration If allottee withdraws-return the amount with interest and compensation. If allottee continues-interest for every month of delay

36 Modification in sanctioned or layout Plan.

37 No addition or alteration in the sanctioned or layout plan approved by the competent authority can be made without consent of the allottees Alteration and minor changes can be made as required by the allottee and may be necessary due to architectural or structural changes Change must be verified by appropriate architect or engineer after proper declaration and intimation to the allottee Any alteration and addition in the sanctioned or layout plan of the building or common area can be made only after written consent of at least two third of the allottees other than the promoter agreed to take the apartments.

38 Registration of Real Estate Agents.

39 Registration of the agent mandatory to facilitate the sale or purchase of or act on behalf of any person to facilitate the sale or purchase of any plot, apartment or building Agent shall be granted a registration number by the Authority, which shall be quoted by them in every sale facilitated by him under this Act The registration can be revoked by the authority if agent is not complying with the Act

40 Functions of Real Estate Agents.

41 Shall not facilitate the sale or purchase in a real estate project which is not registered with the Authority Shall maintain and preserve such books of account, records and documents as may prescribed; Shall not involve himself in any unfair trade practices; Shall facilitate the possession of all the information and documents, as the allottee, is entitled to, at the time of booking; Discharge such other functions as may be prescribed

42 Rights, Functions and Duties of Allottees.

43 Right of information regarding the project and its development Right to know the stage wise time schedule of completion of project including the specified amenities in the agreement to sale. Right to claim the possession of apartment, plot or building, as the case may be, and the association of allottees shall be entitled to claim the possession of the common areas Right to claim the refund of amount paid along with interest at such rate as may be prescribed and compensation if the promoter fails to comply or is unable to give possession as per terms of agreement Right to have the necessary documents and plans, including that of common areas, after handing over the physical possession

44 Obligation to make timely necessary payments as per agreement for sale and also to pay the share of the registration charges, municipal taxes, water and electricity charges, maintenance charges, ground rent, and other charges, as agreed Obligation to pay interest, for any delay in payment towards any amount or charges to promoter Obligation towards the formation of an association or society or cooperative society of the allottees Obligation to take physical possession within a period of two months from issue of occupancy certificate Obligation to participate towards registration of the conveyance deed

45 The Real Estate Regulatory Authority (RERA)-Its Functions and Powers

46 to register and regulate real estate projects and real estate agents registered under this Act; to publish and maintain a website of records, for public viewing, of all real estate projects for which registration has been given, with such details as may be prescribed, including information provided in the application for which registration has been granted to maintain a database, on its website, for public viewing, and enter the names and photographs of promoters as defaulters including the project details, registration for which has been revoked or have been penalized under this Act, with reasons therefor, for access to the general public; to maintain a database, on its website, for public viewing, and enter the names and photographs of real estate agents who have applied and registered under this Act, with such details as may be prescribed, including those whose registration has been rejected or revoked; to fix through regulations for each areas under its jurisdiction the standard fees to be levied on the allottees or the promoter or the real estate agent, as the case may be; to ensure compliance of the obligations cast upon the promoters, the allottees and the real estate agents under this Act and the rules and regulations made thereunder; to ensure compliance of its regulations or orders or directions made in exercise of its powers under this Act; to perform such other functions as may be entrusted to the Authority by the appropriate Government as may be necessary to carry out the provisions of this Act.

47 Section 35 - Powers of Authority to call for information, conduct investigations Section 36 - Power to issue interim orders. Section 37 - Powers of Authority to Issue directions to promotors, allottees and real estate agents Section 38 Power to impose penalty regard to any contravention of obligations cast upon the promoters, the allottees and the real estate agents, under this Act or the rules and the regulations made thereunder. Section 39 Power to rectify the orders if misstate apparent from records

48 Offences, Penalties and Adjudication

49 Punishment for non-registration Penalty for Providing false information Penalty for contravention of other proivisons of the Act Penalty for nonregistration of real estate agent up to 10 % of the estimated cost of the real estate project as determined by the Authority For continued failure - imprisonment for a term which may extend up to three years or with fine which may extend up to a further 10% of the estimated cost of the real estate project, or with both. up to 5% of the estimated cost of the real estate project as determined by the Authority up to 5% of the estimated cost of the real estate project as determined by the Authority penalty of ten thousand rupees for every day during which such default continues, which may cumulatively extend up to 5% of the project cost

50 Penalty for failure to comply with orders of Authority by promoter Penalty for failure to comply with orders of Appellate Tribunal by promoter Penalty for failure to comply with orders of Authority by real estate agent. Penalty for failure to comply with orders of Appellate Tribunal by real estate agent. up to 5% of the estimated cost of the real estate project as determined by the Authority Punishable with imprisonment for a term which may extend up to 3 years or with fine for every day during which such default continues, which may cumulatively extend up to 10% of the estimated cost of the real estate project, or with both. cumulatively extend up to 5% of the project cost punishable with imprisonment for a term which may extend up to one year or with fine for every day during which such default continues, which may cumulatively extend up to 10% of the estimated project cost

51 Penalty for failure to comply with orders of Authority by allottee. Penalty for failure to comply with orders of Appellate Tribunal by allottee. Extend up to 5% of the plot, apartment or building cost, as the case may be, as determined by the Authority. Imprisonment for a term which may extend up to one year or with fine for every day during which such default continues, which may cumulatively extend up to ten per cent. of the plot, apartment or building cost, as the case may be, or with both.

52 Offences by Company

53 Where an Offence under this Act has been committed by a company, every person who, at the time, the offence was committed was in charge of, or was responsible to the company for the conduct of, the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: For genuine cases, escape clause also provided Directors also liable if it is proved that the offence is done with (a) ''company'' means any body corporate and includes a firm, or other association of individuals; and (b) ''director'' in relation to a firm, means a partner in the firm.

54 How to Mitigate New Risks.

55 One of the burning issues real estate developers now face is the need to mitigate new risks that have strong implications for them. In our view, the priorities for developers should include the following:

56 1 Land Acquisition and Approval Developers must secure equity partners to help secure land and approvals. The existing practice of soft-launch may end due to the restriction on the launch of projects before a builder obtains an approval. 2 Design Develoment Developers must also prioritise design development and the finalisation of residential and other facilities for ongoing and proposed projects, since it may be difficult to undertake any design-related changes at a later date, as per the Bill. 3 Marketing Reorganising the sales and marketing function and focusing on employee trainings is also imperative. Developers must strengthen review mechanisms to ensure project collaterals are designed carefully and that they do not contain untenable promises, and are in compliance with the terms of the proposed law.

57 4 Cash Flow Planning Accurate cash flow planning and monitoring needs to be undertaken, considering that 70 per cent of the collections from customers may be locked in an escrow account and governed for the construction of the projects. 5 6 Project Delivery Capabilities Strengthen delivery and management capabilities around design, budgeting, execution, monitoring, and handover and operations, to stay within budget limitations and encourage timely deliveries, apart from avoiding heavy penalties. Use of scientific methods of estimation, planning, monitoring through mechanisms of project audits, cost risk management, project risk reviews, budget and cost audits, and other mature concepts of Project Management Offices (PMO) could lead to successful project delivery.. Customer Relationship Management Implement practices, strategies and techniques to better manage customer interactions through the project lifecycle, with a goal to improve business relationship with customers and driving higher sales.

58 Role of the consultant.

59 Assisting in Initial registration With RERA-Including, drafting/vetting of Agreements/project finance and Cash flow planning/past five years project status/preparation of documents for getting the projects registered Issuance of CA Certificate for % completion of Project for purpose of withdrawal from separate Escrow Account Chartered Accountants Audit of the Project in Timely Manner Representing before The State Real Estate Appellate Tribunal and further Proceeding

60 Looking Forward (Our Expectations from the Bill and concerns that needs to be addressed)

61 Single window clearance for all approvals We hope that the scope of the proposed regulator gradually expands to govern various approving agencies and helps in achieving sustainable growth in the realty sector With many projects in the advanced stages of construction, or in the process of a handover, further clarity is needed on the applicability of the key conditions of the Bill on existing projects. For instance, guidance on establishing escrow accounts for projects, etc. Clear guidelines are required on whether projects recently approved, but not formally launched, would be governed by the Bill or not. The financial penalty for any contravention of the provisions of the law is 5 to 10 per cent of the estimated project cost/building cost. Thus, clarity on the definition of the project cost/building cost could help avoid ambiguity at a later stage. No inclusion of any guidelines regarding the operation and maintenance phase of the project until handover of same to Residents Welfare Association (RWA). The cost and services component of this phase of the project are included in customer agreements, and the level/extent of the service provided has often been a key area of concern for customers and developers alike. There is still a need for a clear definition of the term structural defects to avoid any ambiguity or misinterpretation in the future.

62 I thought, well maybe, The law could catch up, with changes in society, and that was an empowering idea -Ruth Bader Ginsburg

63 The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. The authors do not accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. Surana Maloo & Co. Chartered Accountants 2nd Floor, Aakashganga Complex Parimal Under Bridge, Paldi, Gujarat (India) /8 vidhansurana@suranamaloo.com, sunilmaloo@suranamaloo.com