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Real Estate Regulatory & Development Act

Presented by:- CA. Sourabh Ajmera and CA. Omprakash Ajmera (The authors are members of the ICAI. They can be reached at info@ajmeraandajmera.co.in)

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Real Estate Regulatory & Development Act
Presented By:-
CA. Sourabh Ajmera and CA. Omprakash Ajmera
(The authors are members of the ICAI. They can be
reached at info@ajmeraandajmera.co.in)
REAL ESTATE REGULATORY &
DEVELOPMENT ACT, 2016
[RERA]
FinancialDiscipline
Transperancy
Acountability
Customer
Centricity
Compliance
Improve the perception of the sector among variousstakeholders
Uniform regulatory environment
COMMERCIAL and
RESIDENTIAL projects including
PLOTTED DEVELOPMENT
Land under development
MORE THAN 500 SQ MTS /
NO. of UNITS exceeds 8
Projects which do not have
COMPLITION CERTIFICATE
before commencement of
ACT
RENOVATION or REPAIR or REDEVELOPMENT projects not involving Marketing, Advertising,
Selling & New Allotment NEED NOT BE REGISTERERD
Real Estate Act
Fiscal discipline will play a critical role in project development and requires utmost
importance
FinancialDiscipline
What it entails
70% of the
funds collected
from allottees
needs to be
parked in the
project account
Withdrawals to
cover
construction
and land cost
In proportion
to the %
completion
method
Withdrawals
to be
certified by
Engineer,
Artichect ,
and CA
Provision for
RERA to freeze
project bank
account upon
non-
compliance
Projects
Account to be
Audited / FY .
Copy to be
submitted to
RERA
Provision for
stronger
financial
penalties for
RERA non-
compliance
Interest on
delay will be
same for
customer
and
promoter
Promoter to
compensate
buyer for
incorrect
statement
with full
rerun of
property
cost with
interest
Structured communication is required to furnish all project related information to the customersTransparency
What it entails
Number, type
& carpet area
of apartments
Consent from
affected
allottees for
any major
addition or
alteration
Consent of
2/3rd
allottees for
any other
addition or
alteration
No false
statements or
commitments
in
advertisement
No arbitrary
cancellation of
units by
promoter
Project
complition
time frame
Informing
allottees for
any minor
addition or
alteration
No Launch or
advertisement
before
registration
with RERA
Quarterly
updating
RERA
website
with details
such as
unsold
inventory &
pending
approvals
Consent of
2/3rd
allottees
for
transferring
majority
rights to 3rd
party
A PMO would be required to track and monitor developments as per defined project plansAccountability
What it entails
Quarterly update
of project
progress along
with pending
approvals on
RERA website
Every office of the
company , who as
in charge or
responsible will
be liable for the
conduct of the
company and
deemed guilty
Offence by an
officer committed
with the consent
or connivance of
any director ,
manager ,
secretary or other
officer of the
company , will
also be guilty

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Real Estate Regulatory & Development Act

  • 2. Presented By:- CA. Sourabh Ajmera and CA. Omprakash Ajmera (The authors are members of the ICAI. They can be reached at info@ajmeraandajmera.co.in) REAL ESTATE REGULATORY & DEVELOPMENT ACT, 2016 [RERA]
  • 3. FinancialDiscipline Transperancy Acountability Customer Centricity Compliance Improve the perception of the sector among variousstakeholders Uniform regulatory environment COMMERCIAL and RESIDENTIAL projects including PLOTTED DEVELOPMENT Land under development MORE THAN 500 SQ MTS / NO. of UNITS exceeds 8 Projects which do not have COMPLITION CERTIFICATE before commencement of ACT RENOVATION or REPAIR or REDEVELOPMENT projects not involving Marketing, Advertising, Selling & New Allotment NEED NOT BE REGISTERERD Real Estate Act
  • 4. Fiscal discipline will play a critical role in project development and requires utmost importance FinancialDiscipline What it entails 70% of the funds collected from allottees needs to be parked in the project account Withdrawals to cover construction and land cost In proportion to the % completion method Withdrawals to be certified by Engineer, Artichect , and CA Provision for RERA to freeze project bank account upon non- compliance Projects Account to be Audited / FY . Copy to be submitted to RERA Provision for stronger financial penalties for RERA non- compliance Interest on delay will be same for customer and promoter Promoter to compensate buyer for incorrect statement with full rerun of property cost with interest
  • 5. Structured communication is required to furnish all project related information to the customersTransparency What it entails Number, type & carpet area of apartments Consent from affected allottees for any major addition or alteration Consent of 2/3rd allottees for any other addition or alteration No false statements or commitments in advertisement No arbitrary cancellation of units by promoter Project complition time frame Informing allottees for any minor addition or alteration No Launch or advertisement before registration with RERA Quarterly updating RERA website with details such as unsold inventory & pending approvals Consent of 2/3rd allottees for transferring majority rights to 3rd party
  • 6. A PMO would be required to track and monitor developments as per defined project plansAccountability What it entails Quarterly update of project progress along with pending approvals on RERA website Every office of the company , who as in charge or responsible will be liable for the conduct of the company and deemed guilty Offence by an officer committed with the consent or connivance of any director , manager , secretary or other officer of the company , will also be guilty
  • 7. Registration of all projects & brokers/agents and a strong dispute management will be required to ensure compliance Accountability What it entails Authenticated copy of all approvals, commencement certificate, sanctioned plan, layout plan of development work, proposed facilities, proforma allotment letter, agreement for sale & conveyance deed to be given when applying for project registration with RERA Registrations of brokers/agents with RERA Timely updating of RERA website Maximum 1 year extension in case of delay due to no fault of developer Annual audit of projects account by a CA Dispute resolution within 6 months at RERA and FERA appellate rebalance Developers to share details of projects launched in last 5 years with status and reason for delay with RERA Conveyance deed for common area in favor of RWA Mandatory registration of new and existing projects with RERA before launch Separate registration of different phases of a single projects Construction and land title insurance Project completion time period
  • 8. Benefits of RERA Industry Developer Buyer  Governance and Transparency Project efficiency and robust project delivery  Standardizatio n and quality  Enhance confidence of investor Attract higher investments and PE funding  Regulated environment  Common and best practices  Increase efficiency  Consolidatio n of sector  Corporate branding  Higher investment  Increase in organization funding  Significant buyers protection  Quality products and timelydelivery Balanced agreements and treatment Transparency - Sale based on carpet area Affordability will become distant Delayed launches and thereby lesser projects Safety of money and transparency on utilization
  • 9. Initial Backlog Increased Project Cost Tight Liquidity Rise in Cost of Capital Consolidation Increase in Project Launch Time Possible impact on sector Initially, a lot of work is to be done to get the existing and new projects registered. Details such as status of each project executed in last 5 years, promoter details, detailed execution plans etc. needs to be prepared. Registrations with RERA and insurance cost for construction and land title. Land and approval costs to be meted out of internal accruals as pre launch concept may end . It may lead to a shift in equity financing from debt financing prevailing currently The cost of capital may go up as developers may now have to fund the land the approval cost through equity. With frequent delay in obtaining approvals, debt funding may not be an ideal route for prominence With entry in the sector made difficult, the sector may witness consolidation. Strong financial and execution capability is required to launch a project. The development model/agreement may gain prominence The project launch time may increase since a lot of time will involve infinalizing finer details before launching a project. Details such as complete drawings, utilities layout, etc. Needs to be finalized before project starts.
  • 10. Who is a promoter ? Definition primarily covers owners of the project Developers and his assignee  Development authority or other public body ;  State level Co-operative Housing Finance Society and a Primary Co-operative Housing Society; Power of attorney holder for land; and any other person who constructs any building or apartment for sale to the general public Open issues International reference Implication on joint development, development agreement ? Is it applicable to services and marketing arrangements ?  Is independent contractor a promoter ? Is society covered under re- development arrangements ? Whether slum development for local authorities in return for TDR covered ? Only master developer and sub- developers under him are covered. Developer means a person engaged in real estate development and the sale of properties to third parties.
  • 11. Registration of a Real Estate project Must for projects inviting sales before completion  Minimum threshold for projects registration defined; Can be tightened by states  Existing projects, awaiting completion certificate, covered  Phase wise registration allowed  Registration for a certain time period as stipulated by developer with maximum 1 year extension  No marketing or sales without registration. Open issues International reference Meaning of project – Single building/plot or cluster of buildings? Ability to change the project where municipal approval has been granted  Implications on township and large format projects  Built-to-lease model/ long term base? Mandatory registration for all developers and their projects  Provision to de-register project as well  No sale of under-construction units before registration Must to have all approvals in place before registration
  • 12. Project account Safeguarding consumer interest Of the total collections, only 30% can be withdrawn without any restriction Rest of the amount (70%) can be withdrawn in stages in proportion to the percentage completion of the project (construction cost plus land cost)  Withdrawals to be certified by CA, Engineer and Architect; Audit report by a practicing CA to be submitted to RERA annually. Open issues International reference Impact on existing/ new joint development arrangements?  Separate account for each project?  Amount realized for the project covers government charges and taxes?  How to compute %completion?  Accounting principle/ Physical progress  Withdrawals for refunds, penalties, SD? Mandatory to open an escrow account with an escrow agent - individual customer accounts to be maintained  All receipts, including loans, have to be deposited in this account Withdrawal only for payment to contractors Post completion of project, amount can be withdrawn, leaving aside 5%, which can be withdrawn after 1 year.
  • 13. Additions and Alterations in a project Changes in Design, Structure Minor change-authorized by architect/engineer and inform allottees  Major changes - Approval of all allottees of that unit/ building affected by the change Other changes- approval of 2/3rd allottees A person holding multiple units (in his name or family's) will be counted as a single allottees Open issues International reference Implications on the project planning and design processes  What to do in situation if FSUFAR increases after project launched? How will modifications necessitated due to changes in local building bye. Laws (such as fire, MoEF etc.) A project may be cancelled by authority if there is significant changes in project plans
  • 14. Advertisements Significant implication for untenable promises No advertising and marketing before registration Any advertisement published by a developer must mention the website address of RERA, where all details about the project have been entered including the registration number. Any loss to the allottee due to incorrect, false statement include in advertisement must be compensated by the promoter. Further, a buyer may withdraw his entire investment along with interest if a buyer is affected by any incorrect, false statement in the advertisement. Open issues International reference Is builder liable for unfair trade practices of an agent / unregistered agent and vice- versa? Is marketing or publicity, not inviting sales, allowed? - hoardings etc? Conflicting/ contradicting advertisements in different media Change in circumstances beyond control  Approvals by RERA No advertisement or marketing before authorization by RERA  Regulation of advertisement norms Monitoring of real estate advertisement by RERA
  • 15. Carpet area disclosure Sale on carpet area  Net usable floor area of an apartment  Excludes the area covered by the external walls, areas under service shafts, exclusive balcony, verandah or open terrace area  Includes area covered by the internal walls Open issues International reference Sale of balconies, verandah or terrace? What would happen if the final size of flat increases or decreases?  Closed balconies on payment of municipal fees?  The registration with the authority is on Net Area basis (which is essentially the carpet area)  The agreement may be done on Gross Area (which is super area) In case of more than 5% decrease in the net area, developer has to refund pro- rated amount to property buyer In case of increase in net area, property buyer does not have to pay anything to the developer.
  • 16. Redressal Mechanism Promoter Or Allottee Or RE agent 1 2 PER Authority /AO 3 RERA Appellate tribunal** 5 High Court 4 6 *For payment of compensation/ penalty basis complaint received or suo-moto investigation **Promoter aggrieved by the order of the Authority or of AO, the appeal before RERA Tribunal can be heard only alter deposit of unrest 30% of penalty or such higher % as may be determined or payment of interest and compensation to the Allottee, or both Call for details/ information as maybe required,call for Attendance, etc and give opportunity for hearing Sub-motto Investigation Any aggrieved person can file complaint Agreed person can file an approval within 60 days of receipt of order File a appeal before the High Court against the order of RERA Appellate Tribunal within 80 days of receipt of order Issue order* Issue order*
  • 17. Other provisions (1 of 2) Structural defects ✓Any structural defect or any other defect in workmanship, quality or provision of services or any other obligations of the promoter as per the agreement for sale, brought to notice of promoter within 5 years from possession, has to be rectified within 30 days free of charge by the promoter. Transfer and assignment ✓Promoter shall not transfer or assign his majority tights and liabilities in respect of a project to a third party without obtaining prior written consent from 2/3 allottees and RERA ✓ The allottee, irrespective of ✓ Number of apartments or plots booked by him or booked in the name of his family ✓In the case of other persons such as companies/firms/any association of individuals, by whatever name called, booked in its name or booked in the name of its associated entities/related enterprises, shall be considered as one allottee only.
  • 18. Other provisions (2 of 2) Refund with interest ✓Failure of promoter to give possession in accordance with the terms agreed or due to revocation of registration- liability to return the amount received with prescribed interest (under Rules). Association of allottees/ Conveyance ✓Tobe formed within specified time period under the local laws or 3 months after majority of units have been sold ✓Execution of a registered conveyance deed in respect of the undivided proportionate title to the common area in favour of RWA.
  • 19. Real estate agent Facilitate transaction of properties in projects which are registered with RERA Maintain and preserve books of accounts, records and documents as prescribed Facilitate possession of all the information and documents to the allottee at the time of booking Unfair trade practices Not indulge in unfair trade practices Functions of an agent Unfair trade practices False or misleading statement, whether written or orally Falsely represent that services are of particular grade Falselyrepresent affiliation with a developer Permitting publication of false advertisement
  • 20. Offences and Penalty Provision Promoter Agent Allottee Non-registration of project/agent with RERA and continue to do so Up to 10% of project cost and imprisonment of 3 years for continuous default Penalty of INR10,000 per day during default tenure up to 5% of property cost False information while making an application to REM Up to 5% of the estimated project cost Non-compliance with any provision of the Act Up to 5% of the estimated project cost Up to 5% of the property cost Non-compliance with the aforesaid order of REM Up to 5% of the estimated project cost Up to 5% of cost property cost Up to 5% of cost property cost Non-compliance with the aforesaid order of the Appellate Tribunal Up to 10% of cost and imprisonment of up of up to 3 years or both Up to 10% of cost and imprisonment of up of up to 1 years or both Up to 10% of cost and imprisonment of up of up to 3 years or both
  • 21. Revisit business and operational model - Developer • Land due diligence • Prioritizing approvals • Phase-wise approval • Dealing with RERA • Company profile for application purpose • Review employment contract • Organization structure • Requisition approval process •Capability to design, budget, execution, monitoring and handover • Identification and finalization of contractors • Defect liability • Managing alterations and additions •Advertisements •Email and communication exchange with customers • Empanelment of channel partners •Detailed project and construction plan •Managing modifications BD Design Finance •Developing agreements and contracts for sales, contractors, vendors, agents etc. Areas Legal IT project Sales/ Deliver CRM •Cash-flow management • Sourcing equity partners •Monitor cost and schedule overruns • Auditing of project accounts • Manage RERA website • Cyber security BD HR Legal Design IT FINANCE AREAS
  • 22. Prioritize existing and planned Projects Prioritize completion Prioritize completion Build RERA competency Prioritize completion Consider revising/shifting Build RERA competency or phasing out the project Build RERA competency Priority status Medium Low Top % sold out ProjectStatus New launch/Planned Mid-way Finalstage<1 year < 10% 10-50% > 50%
  • 23. Next steps Developer Investor ✓RERA readiness assessment ✓Institutionalize periodic RERA, project, process compliance audits ✓Explore mature design development and project execution and monitoring concepts ✓Institutionalize periodic RERA, project, process compliance audits ✓RERA readiness assessment ✓Review and revisit existing commercial arrangements - Escrow/ Waterfalls/ Structured deals etc ✓Ring fence senior management - promoter obligationsliabilities ✓Reinvent future commercial arrangements ✓Institutionalize periodic RERA, project, process compliance audits
  • 24. Thanks AJMERA & AJMERA CHARTERED ACCOUNTANTS Head Office : Borivali(West),Mumbai ✓Delhi(NCR) ✓Bhilwara,Rajasthan Branches: ✓ Andheri(West),Mumbai ✓ Bhandup (Thane) ✓Gulabpura,Rajasthan