Benefits of Real Estate Regulation Act, 2016

Benefits of Real Estate Regulation Act, 2016

What is RERA?

Everybody has a dream to own a house but due to high prices of real estate as compared to earnings, it becomes difficult to do so.In addition to the above, earlier every builder was having his own terms & conditions and used to make the agreement which was beneficial to the builder.  There was no standard and uniform law for all the builders to be followed pan-India. The common man was having limited rights even after investing his lifelong money in the real estate projects.  In view of this, the Government of India had introduced the Real Estate Regulation Act, 2016 to protect the interest of the home buyers and also to avoid the exploitation from the hands of home builders/developers and real estate agents.

Meaning of RERA

RERA is an Act introduced by the Government of India in 2016, to be modified by the State Government as per the needs and requirements of respective States and called it Real Estate Regulation Act, 2016 for protecting the interests of property/home buyers and real estate agents from developers/builders. It provides relief to the home buyers from the malpractices of unfair practices employed by the builders / developers and real estate agents against the home/property buyers.It specifies the norms of development and building of real estate which will provide the transparency in the building transactions by developers. RERA provided many rules and regulations to be followed by the developers /builders and real estate agents and furthermore, secured the rights of the home buyers. RERA Act also laid the foundation for the creation of Real Estate Regulatory Authority and Appellate Tribunal for every State.  In case of any dispute, the home buyer can file his complaint with the concerned Authority.

RERA Act – 10 main benefits

  1. Carpet Area standardization :

Earlier the builders/developers were using their own methods for charging of carpet area, for example they would charge for 1000 sq. ft. and actually provide 900 sq. ft.  This was happening because there was no standard method for calculating the carpet area.  However, now RERA Act has provided the standard formula to be followed by all the developers/builders.  As per the law, the definition of carpet is as under:-

carpet area” would mean the internal covered area within the walls of the apartment.  This will exclude the outer area of the apartment like galleries/balconies, verandas, terrace and service shafts area.”

This would specifically standardize the calculation of carpet area which would have an impact on the prices of Real Estate. Generally the builders charge the prices as per carpet area with following a formula:-

Rate of home/apartment = carpet area x rate per sq. ft.

Earlier the developers/builders were manipulating the price of property by using wrong calculations of carpet area.  Since now RERA has defined the method of calculating the carpet area, it would definitely benefit the home buyers and the builders/developers alongwith the real estate agents will not be able to exploit them by charging higher prices by the account of this loophole which subsisted pre-RERA introduction.

  1. Interest rate of default payments:

The rate of interest shall remain the same for both parties i.e. in case of default of payment by buyer or default in completion of project by the builder.  Earlier, in case builder delayed the possession of flat, the interested rate to be paid by him was less in comparison to that in case the payment is delayed by buyer interest rate was higher. Regarding interest rate, there was no parity of interest to be paid by both the parties which has now been standardized by coming of the RERA Act into force.

  1. Reduces the risk of Insolvency/Bankruptcy:

The builders are constructing flats simultaneously on various locations and earlier they we able to divert the funds from one project to another.  After introduction of RERA Act, this would not be possible for them to divert the funds, as, now, they are liable to keep 70% of amount of amount in separate bank account.  He will be able to withdraw this amount only after getting completion certificate from the C.A., Civil Engineer or the Architecture. As the funds cannot be diverted to other projects, the same shall be used for the project for which the funds have been raised and not for other purposes.  Earlier there have been cases where builders have raised funds for construction of a particular project and used the said funds for some other purposes.  Accordingly, when they became bankrupt, they could not complete the construction work of the project. This provision will ensure that the same shall be used for the project for which the funds have been raised and will, further, ensure the completion of the project in time.

  1. Buyer’s right in case of false promises made by builder:

In case the project is not made as per commitments made with the buyer, the buyer has right to withdraw from the project and he has the full right of refund of payment as advance or with interest or can claim compensation.

  1. Advance payment:

After coming into force RERA Act, the builder cannot take advance more than 10% of the cost of home or application as the case may be before executing sales agreement.

  1. Buyer’s right in case of defect after possession:

In case of any defect in structure, workmanship or quality of construction, provision or service is detected within 5 years, the such defects will be rectified by the builder without any extra cost within one month.  In case, however, the builder fails to do so, the buyer is entitled to claim compensation for the same as per RERA Act.

  1. Buyer’s right in case of delay in possession:

In case the builder does not complete the project as per due date of completion, then the buyer has following options :-

  • He can withdraw from the project and entitled to get refund of full amount alongwith interest from the date of completion of project till refund of money;
  • He can continue with the project till the completion but he will be entitled to compensation alongwith interest from the date of completion till he actual gets the possession.

Example: In case the date of completion is 30.11.2018 and one wishes to withdraw from the project, then he is entitled to get interest w.e.f. 01.12.2018 till he receives the full refund.  Otherwise, if one wish to continue with the project and it is completed on 30.10.2019, the he will be entitled to compensation alongwith interest for the period 30.11.2018 to 30.10.2019 every month.

  1. Buyer’s right in case of defect in the title of the land:

In case one finds defect in title of the property any time after possession, he can claim compensation and there is no limitation bar i.e. the time when the defect is discovered.

  1. Buyer’s right to information:

Buyer is entitled to any information relating to the project whether it is plan layout, execution plan or stage wise completion status etc.

  1. Establishment of Authority for Grievance Redressal:

State Authority set under RERA shall have the power to redress all the grievances which are taken to them against the builder or real estate agent. In case one is not satisfied with the order, he can approach the Appellate Tribunal who will redress the grievances within 60 days and in case of failure to do so, it shall record the reasons of the same.  If the builder wants to appeal to the Appellate Tribunal against the order of Authority, he will be required to deposit 30% of the amount of penalty or such amount as may be determined by the Appellate Tribunal.  Before hearing the appeal, he is required to deposit total amount to be paid to allottee including interest and compensation imposed on him or both as the case may be.

RERA Act – Its applicability:

RERA is applicable on all developers and builders except the following:-

  1. Where the area of development does not exceeds 500 sq. meters and number of units proposed to be built is not more than 8.
  2. Where the builder/developer has received completion certificate before introduction of RERA.
  3. For the purpose of repair, renovation, re-construction which does not involve selling, marketing, advertisement and new allotment of any apartment, plot or building.

In the end, it is safe to say that with the dawn of the RERA Act into the horizon of the Real estate sector, it is a big shot in the arm for the home/property buyers specifically. The nefarious/fraudulent practices carried out widely by the builders and the real estate agents by ascribing to the glaring loopholes previously is now suppressed to a large extent with stern rules and formalities to be carried out and the penalties imposed thereof for not abiding by the procedure and law of the land and the institution of a dedicated Regulatory Authority having sufficient power to curb any wrongdoings on this end. Thus, the introduction and execution of this Act will go a long way to make the dreams of every Indian of owning a home easier, transparent and a little more achievable.

Written By Jashan Preet Singh Sidhu, an Associate Partner in Aggarwals & Associates.

All About IBC and RERA Act vis-a-vis Home buyers

All About IBC and RERA Act vis-a-vis Home buyers


After many years of real estate sector being not regulated. Finally a relief came to homebuyers in the form of a special act Real Estate Regulatory Authority Act (RERA). The foremost goal of this act was protecting the interest of home buyers. Before the coming of this act home buyers were being taken for a ride by the real estate project promoters. There was widespread delay and frauds in the real estate sector. RERA act treats home buyers as consumers. Prior to this act home buyers could redress their grievances through the consumer court, but the respite available under consumer protection act was only curative and did not address all the concerns of the home buyers. The act intends to create transparency, professionalism and accountability.

But a curios situation has occurred after the recent amendment by the government where home buyers have been included as financial creditors under Insolvency and Bankruptcy act (IBC). Some feel that after the amendment, government has pitted both RERA and IBC act against each other. But this amendment has a different objective which we intend to discuss in this article.

Background of this amendment (situation of homebuyers before amendment)

In the Jaypee Infratech Limited housing project case, IDBI bank being a financial creditor to the Jaypee Infratech Limited group, had moved to NCLT for resolution, NCLT Allahabad had admitted IDBI’s case and resolution would happen within 180 days (90 days maximum extension) and if the resolution process fails then a Jaypee Infratech Limited project would go into liquidation (which happens most of the time). But here the real problem was that what about the homebuyers who had a vital stake in the project. Aggrieved homebuyers moved to Hon’ble Supreme Court through special leave petition and public interest litigation that they have no locus in the committee of creditors (Chitra Sharma vs Union of India). The Supreme Court being sympathetic to the homebuyers and exercising its inherent powers, ordered interim protective measures against JIL and stayed the NCLT proceedings  and  and then later appointed an amicus curie from the side of home buyers in committee of creditors (COC).

The homebuyers were being left in a lurch in case the real estate developers company went into liquidation, prior to the amendment homebuyers were treated as unsecured creditor and were not able to initiate insolvency proceedings against defaulting developer. Prior to this act home buyers would only get the balance proceeds after paying off insolvency proceeding costs, workmen dues, financial creditors and government dues.

But now amendment treats homebuyers as financial creditors under the IBC code. Any amount raised from the home buyer under a real estate project is deemed to be an amount having commercial effect of a borrowing. In the position of being a financial creditors homebuyers can now move for insolvency under IBC code jointly or individually against a defaulting developer company. Homebuyers as a class of creditors can be represented by an authorized representative at the meeting of committee of creditors. Now home buyers are on safer side even if the company goes into liquidation home buyers can be part of the meeting of creditors and during the liquidation waterfall (balance of proceeds payment) homebuyers will be in par with other financial creditors.

What would amount to default under IBC code?

Thought the home buyers have been included as financial creditors after the amendment, the definition of the term default vis-à-vis homebuyers has not been amended. Hence to see what would amount to default by a developer we will have to take recourse to RERA act.

Section 18 of the RERA act provides a choice to homebuyers to either choose possession of house or seek refund. The section among other things, states that a developer is liable to refund the amount received by him in respect of the apartment with interest or he must pay interest till the possession of the project as per the agreement.

Therefore a default could be said to occur from the date of demand of refund or interest becoming due. Depending on rules made by the state after how many days a demand by the homebuyer would turn into a default. Like Tamil Nadu considers 90 days period after which if the developer doesn’t refund or pay interest it will be considered a default.


Both the act should be taken in unison vis-à-vis homebuyers rather than pitting them against each other, the sole reason to include homebuyers as financial creditors is to protect them during resolution and liquidation process. And the foremost objective of RERA is also to protect the homebuyers. Moreover RERA is silent on insolvent developer which is addressed under the IBC act. Ensuring transparency and accountability of real estate builders.

Written by Bawa Karanveer Singh, he is an associate partner in Aggarwals and Associates (Advocates and solicitors). The law firm specializes in NCLT, RERA and Consumer court matters.