Top 10 Rules Every Buyer Should Know Before Investing in Indian Real Estate
The Real Estate (Regulation and Development) Act, commonly known as RERA, was introduced to address various issues such as lack of transparency, fake projects, poor quality of construction, misuse of funds burdening the Indian real estate industry. When the global real estate market was facing vulnerabilities and India was experiencing significant issues with real estate frauds, the introduction of the RERA emerged as a game-changer in enhancing the integrity of the Indian real estate sector.
The formulation of RERA aimed to address the issues faced by both buyers and developers by establishing a regulatory framework, ensuring transparency, protecting consumer rights, and promoting accountability.
The Act imposes strict penalties on developers for delays in real estate project construction, holding buyers accountable for delayed payments. It provides mechanisms for clear communication, financial security, and legal recourse, significantly enhancing buyer confidence and safeguarding their interests. Whether you are a first-time investor or a seasoned buyer, being informed about essential aspects such as RERA registration, the role of real estate agents, and the dynamics of real estate development is crucial.
Here are 10 essential rules that every homebuyer should know before investing in the Indian real estate sector:
1. RERA Registration
Every real estate project exceeding 500 square meters or involving more than eight units must be registered with RERA. This rule, mandated by the RERA Act, ensures transparency in Indian real estate. By making RERA registration compulsory, buyers are protected from fraudulent practices, ensuring that only legally compliant projects are marketed and sold.
Why it matters:
This rule helps buyers by guaranteeing that the project has met all legal requirements, protecting their investment from any hidden risks.
2. Separate Bank Account for Projects
As per the RERA Act, builders must open a separate bank account for each of their projects. 70% of the funds collected from buyers must be deposited into this account. The money from the separate account can be used only for payment of the cost of land, construction and development of the project. The promoter can pay normal interest against the project loans but no penal or compound interest or interest and compensation payable to the allottees.
Why it matters:
This rule ensures that the money you pay goes directly towards construction and land costs, preventing builders from misusing funds and delaying projects.
3. Carpet Area Disclosure
Under the RERA Act, the term "carpet area" refers to the actual usable space within a property that is disclosed by the developer. This measurement excludes walls, balconies, and any common areas. The carpet area as per RERA is the most important area when it comes to determining the cost of a property. Indian real estate developers must provide an accurate disclosure of the carpet area, which is the usable floor space within an apartment. Defined clearly by RERA, this transparency ensures that buyers know exactly what they are paying for.
Why it matters:
This protects buyers from overpaying for inflated areas leading to fairer pricing, transparent transactions, and better decision-making and gives clarity on the actual living space they will own.
4. Defect Liability
Defect liability is the liability of the builder to rectify or repair any structural defect that has been observed by the recipient after the property has been delivered without any type of further charges. Builders are liable to fix any structural defects within five years of possession. If the issue isn't resolved within 30 days, buyers can claim compensation from RERA.
Why it matters:
This rule safeguards buyers from poor construction quality and holds developers accountable, ensuring long-term durability of the property.
5. Standard Agreement to Sale
RERA mandates a standardized agreement format for real estate transactions to ensure standardization, transparency, accountability, and fairness between promoters and buyers in the real estate sector. It helps to avoid future disputes and provides legal protection for both parties. The Act requires that both promoters and buyers use the sale agreement format prescribed by their respective states.
Why it matters:
A standardized agreement protects buyers from unfair clauses, making the transaction process transparent and straightforward.
6. Quarterly Construction Updates
Quarterly Progress Report under RERA is designed to ensure transparency and provide updates on the status of the real estate project to both the regulatory authorities and the buyers. Builders must provide regular updates on the progress of their projects, including the number of units sold and approvals received.
Why it matters:
This helps buyers monitor their investment and ensures accountability in the *real estate development* process, providing peace of mind.
7. Advance Payment Limit
RERA mandates that a builder or developer cannot accept more than 10% of the cost of an apartment, plot, or building as an advance payment or application fee from a homebuyer unless a written sale agreement has been signed first. This rule aims to prevent dishonest builders from collecting substantial amounts from buyers without a formal legal commitment.
Why it matters:
Buyers are protected from losing significant amounts of money if the deal doesn't go through or the project is delayed.
8. Filing Complaints via RERA
Buyers can file complaints against developers or real estate agents through RERA if they face any issues. When filing a complaint, you'll need to provide details like your name, address, contact information, and supporting documents. Supporting documents can include the sale agreement, payment receipts, and correspondence with the developer. The authority must resolve complaints within 60 days.
Why it matters:
This provides a fast, efficient, and legal avenue for resolving disputes, offering buyers greater protection in the Indian real estate market. A complaint against developers guarantees compensation by promoters in case of delayed possession.
9. Approval for Plan Alterations
If the developer modifies any Sanctioned Plans (as defined under Section 2 of the RERA Act, 2016), the developer must obtain prior consent from 2/3rd allottees and report the modifications to the authority and modify the project details. Regardless of the number of flats or plots rented by him, his family, or a corporation or LLP or its affiliated entities, he will be counted as one allottee for the 2/3rd consent count.
Why it matters:
Buyers are given a say in changes affecting the real estate development they have invested in, ensuring they aren’t blindsided by alterations that could affect the project’s value.
10. Real Estate Agent Registration
All real estate agents and property dealers must be registered with RERA to legally operate. It signifies compliance with regulatory standards, instilling confidence and trust in the agent's professionalism. The registration number and certificate act as legal proof that a person is a real estate agent. To register with RERA, agents need to submit a number of documents, including their PAN card, details of their enterprise, registration particulars, income tax returns, and proof of address.
Why it matters:
This regulation ensures that the agents are credible and knowledgeable, promoting trust and professionalism in the Indian real estate market.
For prospective investors and homebuyers, being aware of important elements such as RERA registration, accurate carpet area disclosure, and standardized agreements can greatly enhance the success and satisfaction of your property transactions. Engaging with registered and trustworthy real estate agents, as required by RERA, ensures that you make well-informed decisions.
RERA’s entry into the Indian real estate market addressed many of the issues that contributed to fraud and instability. Understanding these rules is essential for anyone looking to make a real estate investment in India. The Indian real estate landscape can be complex, but with knowledge of key aspects like RERA registration, the role of real estate agents, and the regulations governing real estate projects, buyers can confidently channelise the real estate market. RERA’s introduction and implementation marked a significant shift towards a more regulated and buyer-friendly real estate environment, leading towards a more trustworthy and organized real estate market.
