Understanding RERA Act: How It Protects Homebuyers in India

The Indian real estate sector is poised for transformative growth over the next decade, fuelled by demographic shifts, economic development, and changing consumer preferences. In fact, the sector is projected to grow at a compound annual growth rate (CAGR) of approximately 9.2% from 2023 to 2028, with expectations to reach a market size of USD 1 trillion by 2030 and potentially USD 1.3 trillion by 2034. One of the reasons for growth in the sector is also on account of the regulatory changes made by the Real Estate Regulatory Authority, more popularly known as RERA.

In this blog post, we will delve into the details of RERA and explore how it safeguards the rights of homebuyers in India. We will also discuss its impact on the home loan process. By understanding RERA's provisions, you can make informed decisions and navigate the real estate market with confidence.

What is the RERA ACT?

The Real Estate (Regulation and Development) Act, 2016, commonly referred to as the RERA Act, was enacted by the Indian Parliament for homebuyers’ protection. This legislation aims to enhance transparency, accountability, and efficiency in real estate transactions, ultimately protecting the interests of homebuyers and promoting fair practices among developers.

RERA mandates the establishment of a Real Estate Regulatory Authority in each state. These authorities are responsible for overseeing real estate projects, ensuring compliance with regulations, and safeguarding buyer interests. 

Key Provisions Under The RERA ACT

The Real Estate Regulation and Development Act, 2016 includes several key provisions aimed at regulating the real estate sector in India and protecting the interests of homebuyers. Here are the main provisions under:

1. Establishment of Regulatory Authorities

Each state is required to establish a Real Estate Regulatory Authority to oversee real estate projects and ensure compliance with the Act

2. Mandatory Project Registration

Developers must register their real estate projects with RERA before advertising or selling any units. This registration requires detailed disclosures, including land status, layout plans, and construction timelines.

3. Escrow Account Requirement

At least 70% of the funds collected from buyers must be deposited into an escrow account, which can only be used for construction purposes. This provision aims to prevent fund diversion by developers.

4. Advance Payment Limitations

Developers can only demand an advance payment of up to 10% of the property price before signing a sale agreement, ensuring that buyers are not overcharged upfront.

5. Transparency and Disclosure

Developers must provide comprehensive information about the project on the RERA website, including project details, approvals, and specifications. Any changes to the project must also be disclosed and require buyer consent.

6. Defect Liability

Developers are responsible for rectifying any structural defects within five years of possession. Buyers can report defects, and developers must address these complaints within a month.

7. Timely Completion and Possession

RERA mandates that developers adhere to the timelines specified at the time of registration. If there are delays, buyers are entitled to compensation.

8. Grievance Redressal Mechanism

The Act establishes a framework for resolving disputes through Real Estate Appellate Tribunals, providing a faster resolution process for issues between buyers and developers.

9. Promoter Obligations

Promoters are required to maintain records of all transactions and provide clear documentation regarding property titles and approvals. They must also ensure that two-thirds of allottees consent before transferring project rights to a third party

10. Penalties for Non-compliance

The Act includes provisions for penalties against promoters who fail to comply with its regulations, thereby ensuring accountability in the real estate sector. 

Benefits Under RERA 

Here are some of the ways in which RERA has benefitted and continues to benefit home buyers.

1. Protection of Homebuyers

RERA provides robust protection for homebuyers by ensuring that developers adhere to high standards of quality and transparency. Mandatory project registration means buyers can invest in projects that are regulated and compliant with the law.

2. Timely Delivery of Projects

The Act enforces strict timelines for project completion. Developers must adhere to these timelines, and any delays result in penalties, ensuring that buyers receive possession on schedule. This has significantly reduced delays in project completions across major cities.

3. Increased Transparency

RERA mandates comprehensive disclosure of project details, including approvals, timelines, and specifications. This transparency fosters trust between buyers and developers, reducing the likelihood of fraud and misleading practices.

4. Standardisation of Carpet Area

The Act standardises the definition of carpet area, ensuring that buyers pay only for the actual usable space in a property. This clarity helps in comparing properties more effectively and reduces disputes over area calculations.

5. Accountability of Developers

Developers are held accountable for their commitments under RERA. They must maintain separate escrow accounts for each project, ensuring that funds collected from buyers are used solely for construction purposes. This reduces the risk of financial mismanagement.

6. Effective Grievance Redressal Mechanism

RERA establishes a streamlined grievance redressal process through state-level regulatory authorities and appellate tribunals. This mechanism allows buyers to resolve disputes quickly and efficiently without lengthy legal battles. 

7. Quality Assurance

RERA enforces standards for construction quality, ensuring that developers deliver what they promise. Buyers can expect better quality homes due to these regulatory standards.

8. Enhanced Market Credibility

Projects registered under RERA are viewed as more credible, increasing buyer confidence in investing in real estate. This credibility also benefits developers who comply with regulations and deliver quality projects.

9. Financial Security

The requirement for escrow accounts provides financial security to buyers by safeguarding their investments against potential misappropriation by developers.

10. Reduction of Unfair Practices

RERA aims to eliminate unfair practices in real estate transactions, such as hidden charges or misleading advertisements. Developers can only advertise based on verified information, which protects buyers from false claims

How Should I Know My House is RERA Compliant?

To determine if your house is RERA compliant, you can follow these steps:

1. Verify Project Registration

Visit the official RERA website specific to your state. Most states have a dedicated portal where you can verify if the project is registered. You will need to enter details such as the project name or registration number to check its status. 

2. Review Project Details

Once you find the project on the RERA website, review the details provided, including layout plans, approvals, and builder information. This information should be publicly available and includes specifics about the project’s legal status and compliance with RERA regulations. 

3. Look for RERA Registration Number

Any legitimate advertisement for the project should prominently display the RERA registration number. This includes brochures, websites, and promotional materials. 

4. Assess Developer Compliance

Investigate the developer's past projects and their compliance history. A reputable builder should have a track record of timely project completions and adherence to quality standards as mandated by RERA.

5. Inquire About Financial Practices

Ensure that the developer is maintaining an escrow account where at least 70% of the funds collected from buyers are deposited. This protects your investment by ensuring that funds are used solely for the construction of your project. 

6. Check for Timely Updates

Developers are required to keep buyers informed about project progress and any changes to timelines or specifications. Regular updates should be provided through official channels or directly to buyers. 

7. Understand Your Rights

Familiarise yourself with your rights under RERA, including the builder's obligation to rectify any structural defects within a specified period after possession.

RERA Registration Fees and Charges

The RERA registration fees and charges vary significantly across different states in India. Here’s a summary of the fees associated with RERA registration for developers and real estate agents:

1. For Developers

Being registered under RERA ensures that developers operate within the legal framework governing real estate transactions. This compliance minimises the risk of legal disputes and enhances the developer’s reputation for adhering to industry regulations.

The registration fees for developers are generally calculated based on the size of the project (measured in square meters) and vary by state. 

2. For Real Estate Agents

RERA registration significantly boosts an agent's credibility among clients. It indicates compliance with established regulatory standards, fostering trust and confidence in their professionalism and ethical conduct.

Real estate agents also have specific registration fees that differ by state. Here is a structure that is applicable in a few select states. 

Note: For the latest updated rates, please visit the RERA website in your state

3. Additional Charges

• Renewal Fees: If a project registration expires and needs renewal, additional fees will apply based on state regulations.
• Penalty Fees: Developers may incur penalties for non-compliance or delays in project completion.
• Other Charges: These may include fees for obtaining necessary project-related documents or legal expenses.

Types of Projects Covered Under RERA

1. Residential Projects

• Apartment Complexes: Any project that involves the construction of residential apartments.
• Housing Societies: Developments that include multiple residential units in a single complex.
• Independent Houses and Villas: Projects that consist of standalone homes or villas for sale.

2. Commercial Projects

• Office Spaces: Buildings developed for commercial office use, including corporate offices and co-working spaces.
• Retail Spaces: Projects that involve the construction of shops, malls, or other retail establishments.
• Warehouses and Industrial Spaces: Facilities intended for storage or industrial use are also covered under RERA.

3. Plotted Developments

Any project involving the development of land into individual plots for sale is included. This applies to both residential and commercial plots.

4. Ongoing Projects

All ongoing projects where a completion certificate has not been issued as of the commencement of RERA (May 1, 2016) must register with RERA.

5. Developments Exceeding Specific Thresholds

Projects that exceed 500 square meters of land area or involve more than eight apartments must be registered. This applies to both new developments and ongoing projects.

Exemptions from RERA Registration

Certain types of projects are exempt from RERA registration:

• Small Projects: Developments on land areas not exceeding 500 square meters or involving fewer than eight apartments.
• Renovation or Repair Projects: Projects focused solely on renovation, repair, or redevelopment without new allotments do not require registration.
• Completed Projects: Any project that has received a completion certificate before the enactment of RERA is exempt.

Since when is RERA applicable?

The Real Estate (Regulation and Development) Act, 2016, commonly known as RERA, came into effect following its passage in Parliament and notification in the official Gazette in March 2016. However, its implementation has been designed to follow a phased approach. Each state in India is required to adopt the Act and establish its own Real Estate Regulatory Authority (RERA) for localized implementation. States also have the flexibility to designate an existing regulatory body as the authority under RERA.

While the Act's provisions aim to streamline and regulate the real estate sector, the timeline for the full implementation of all provisions may vary by state. For instance, some compliances, particularly those concerning builders and developers, might be enforced immediately, whereas more complex regulatory frameworks may take longer to roll out. This staggered implementation ensures that states can tailor RERA to suit their local real estate ecosystem while adhering to the central Act’s objectives.

Are there any exceptions to the registration of projects under the RERA Act?

Yes, there are specific exceptions where real estate projects do not require registration under RERA. These exceptions are as follows:

1. Smaller projects based on size or number of units:

Projects where the total area of land proposed to be developed does not exceed 500 square meters or the number of apartments planned for development is not more than eight units, including all phases, are exempt from registration. However, it’s essential to note that state governments have the authority to reduce this threshold further if deemed necessary. For instance, a state can decide that projects smaller than 300 square meters must also comply with RERA.

2. Completed projects:

Projects for which the Completion Certificate has been issued before the Act's commencement are exempt from registration. This provision ensures that ongoing or completed developments before RERA's implementation are not retroactively brought under its ambit.

3. Renovation, repair, or redevelopment without new sales or allotment:

Projects undertaken solely for renovation, repair, or redevelopment purposes that do not involve any marketing, advertising, selling, or allotment of new apartments, plots, or buildings are exempt. This clause applies to projects aimed at improving or restoring existing structures without the addition of new units for sale or lease.

These exceptions have been carefully designed to focus RERA's regulatory framework on larger, new, or significantly altered projects, ensuring that small-scale developers or maintenance work do not face unnecessary compliance hurdles.

Can RERA registration be extended?

Yes, RERA registration can be extended under certain circumstances, but these are limited to extraordinary situations beyond the control of the builder or developer. Extensions are allowed in the following cases:

• Natural calamities: Events like floods, droughts, earthquakes, fires, or other natural disasters that disrupt construction timelines.
• War or similar emergencies: Situations like war or geopolitical conflicts that impact the development process.

Builders or developers must apply to the respective RERA authority for an extension, and such extensions are typically granted for a maximum period of one year. This provision ensures that genuine delays caused by unforeseen circumstances are accounted for, while also protecting homebuyers from indefinite project delays.

The RERA Act has mandated real estate developers to specify ‘carpet area’ rather than ‘super built-up area.’ How will that help?

Under RERA, it has been made mandatory for real estate developers to disclose the carpet area of a unit instead of the previously used super built-up area. This shift brings greater transparency and standardization to the real estate sector.

Definition of Carpet Area:

Carpet area refers to the net usable area within the walls of an apartment. It excludes areas covered by:

• External walls,
• Service shafts,
• Balconies, verandahs, and terraces (even if these are exclusively available to the unit).

However, the carpet area includes the area covered by internal partition walls, allowing buyers to understand the actual usable living space they are paying for.

Transparency and Standardization:

Previously, builders often used the term "super built-up area," which included common areas like staircases, lobbies, and even amenities like clubhouses. This inflated the total area and often misled buyers about the actual size of their property. By mandating the use of carpet area, RERA ensures that buyers know exactly what they are getting.

Ease of Comparison:

With the standardization of the carpet area calculation, homebuyers can now compare properties across developers on an apples-to-apples basis. This fosters healthy competition among developers and empowers consumers to make informed decisions based on the actual value they are receiving.

Consumer Protection:

The provision eliminates the ambiguity surrounding property measurements, ensuring that developers cannot misrepresent the size of a unit. This not only builds trust but also sets a benchmark for fair practices in the real estate industry.

By specifying carpet area, RERA has taken a significant step toward protecting homebuyers’ interests, promoting transparency, and fostering accountability within the real estate sector.

Can a real estate developer exit the project mid-way by selling to another developer or party?

Yes, a real estate developer can exit a project mid-way by selling it to another developer or party. However, this process is subject to strict conditions to safeguard the interests of consumers:

• Approval from consumers: The developer must obtain written consent from two-thirds of the allottees of the project. It’s important to note that if an individual or family owns multiple units in the project, they are counted as a single allottee for the purpose of calculating this majority.
• Approval from RERA: In addition to consumer consent, prior approval from the respective state’s RERA authority is mandatory.
• Rights and liabilities of the new developer: Once the project is sold, the incoming developer or promoter assumes all the rights and responsibilities of the original developer. This includes adhering to the project timeline, delivering units as per the original terms, and meeting all other obligations under the Act.

This provision ensures that the transition of ownership does not negatively impact homebuyers and that the project’s completion remains on track.

Does RERA cover rental arrangements too?

No, RERA does not directly govern or regulate rental arrangements. The Act primarily focuses on the sale, marketing, and development of real estate projects, as well as the protection of homebuyers’ interests in such transactions.

Rental agreements, being governed by tenancy laws such as the Rent Control Acts of various states or the Model Tenancy Act, 2021, fall outside the purview of RERA. These laws regulate the rights and obligations of landlords and tenants, rental terms, security deposits, and dispute resolution mechanisms.

However, RERA’s influence on the real estate sector indirectly benefits the rental market. By ensuring higher standards of transparency and accountability in real estate development, RERA contributes to better-quality housing options, some of which may eventually be available for rent.