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Real Estate Regulations - What lies within - Sandeep Jhunjhunwala - ICMAI

The document is a presentation on Real Estate Regulations in India given by Sandeep Jhunjhunwala to the Bangalore Chapter of the Institute of Cost Accountants of India on June 7, 2017. The presentation provides an overview of the Real Estate (Regulation and Development) Act, 2016, including the need and objective of the Act, its structure and key provisions, and its impact on developers, real estate agents, and homebuyers. It discusses topics such as registration requirements for real estate projects, the establishment of Real Estate Regulatory Authorities in states, and obligations of promoters/developers under the Act.

Contents Summary Content Page 1 Real Estate Regulations – What lies within? Bangalore Chapter of the Institute of Cost Accountants of India June 7, 2017 Presented By: Sandeep Jhunjhunwala
Contents Summary Content Page 2 Presentation Overview Summary Need and Objective The Build up to the Act Preamble and Structure Whom does it apply to? Real Estate Regulatory Authority Impact on Developers Real Estate Agents/ Channel Partners Allottees – Rights and Obligations Judicial Mechanism Punitive Provisions Teething Issues/ Prevailing Concerns Pertinent points relating to some definitions Impact on Pricing A look at the Rules and deviations The Finale - Hits and Misses Overall Analysis ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 3 Need and Objective Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 4 A step closer to happy home-buying Content "Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world" - Franklin D. Roosevelt, US president "The best investment on Earth is Earth" - Louis Glickman, Real Estate investor "Don’t wait to buy real estate. Buy real estate and wait"- Will Rogers, Actor In India – Homebuyer activism, Trust-deficit, deliberate delays, defective land titles, fly-by-night operators, unregulated/ unorganized/ fragmented markets, no provision of compensation from the Government side, fraudulent advertisements, opaque records, pseudo-agents, long drawn litigation, curative (and not preventive laws)…….ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 5 A step closer to happy home-buying Content Lack of standardization and adequate consumer protection Lack of uniform regulatory environment Dearth of transparency and accountability in transactions High levels of risk perception by investors/ consumers Redundant/ Static land laws Consumers forced to sign on dotted lines Making project investment ready for REITs Steering in transparency into real estate transactions Elimination of information asymmetry and ensuring full and fair disclosures Provide respite to flat purchasers against the practice of fly-by-night developers Protect consumer interests Ensure timely execution of the projects Provide a speedy/ robust dispute resolution mechanism Need Objectives Though the Consumer Protection Act, 1986 is available as a forum to the buyers in the RE market, the resource is only curative and is not adequate to addresses all the concerns of the buyers and promoters "We need action on real side (as) also on transparency on land acquisition, transparency on construction and on sales” – Former RBI Governor ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 6 The Build up to the Act Content Date Event January 20, 2009 National conference of Ministers of Housing, Urban Development and Municipal Affairs of States and UTs proposing a law for RE sector July, 2011 Ministry of Law & Justice suggested central legislation for RE sector under specified entries of concurrent list of the Constitution for regulation of contracts and transfer of property June 4, 2013 Union Cabinet approved the Real Estate Bill, 2013 August 14, 2013 Real Estate Bill, 2013 introduced in Rajya Sabha September 23, 2013 Bill was referred to the Department related Standing Committee February 2014 Report of the Standing Committee tabled in Rajya Sabha on February 13, 2014 and in Lok Sabha on February 17, 2014 February 9, 2015 Attorney General upheld the validity of central legislation for RE sector and the competence of the Parliament April 7, 2015 Union Cabinet approved official amendments based on Standing Committee Report March 6, 2015 Real Estate Bill, 2013 and official amendments referred to the Select Committee of Rajya Sabha July 30, 2015 Select Committee of Rajya Sabha tabled its Report along with Real Estate Bill, 2015 December 9, 2015 Union Cabinet approved the Real Estate Bill, 2015 as reported by the Select Committee of Rajya Sabha for further consideration of the Parliament March 10, 2016 Real Estate Bill, 2015 passed by Rajya Sabha March 15, 2016 Lok Sabha passed the Real Estate Bill, 2015 March 25, 2016 The President of India accorded his assent to the Real Estate Bill, 2015 March 26, 2016 Real Estate (Regulation and Development) Act, 2016 published in the Gazette for public information April 27, 2016 69 Sections (Sections 2, 20-39, 41-58, 71-78, 81-92) of the Act notified by the Ministry of Housing & Urban Poverty Alleviation bringing the Act into force with effect from May 1, 2016 - Remaining to come into force on May 1, 2017 *Source: Press Information Bureau, Government of India ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 7 The Build up to the Act and thereafter Content Date Event October 28, 2016 Issues Real Estate (Regulation and Development) Removal of Difficulties Order, 2016 October 31, 2016 Real Estate General Rules, 2016 and Agreement for Sale Rules, 2016 notified for UT of Andaman & Nicobar Islands, Chandigarh, Dadra & Nagar Haveli, Daman & Diu and Lakshadweep *Source: Press Information Bureau, Government of India UTs, Gujarat, Uttar Pradesh, Madhya Pradesh, Andhra Pradesh and Odisha have notified the Rules National Capital Territory of Delhi has not notified rules yet (though it has been finalised) Haryana and Delhi have designated interim real estate regulatory authority for addressing disputes Maharashtra Govt has approved RERA rules, law ministry to give final nod; Karnataka/ West Bengal/ Tamil Nadu/ Rajasthan - draft rules UTs: Andaman & Nicobar Islands, Dadra & Nagar Haveli, Daman & Diu, Lakshadweep and Chandigarh As per Section 84 of the Act, the State Governments were required to notify rules within 6 months from the date of commencement of RE Act ie May 1, 2016 – States Miss the Bus! ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 8 Preamble and Structure An Act to: Act has 92 sections divided into 10 chapters as below: Chapter I Preliminary Section 1 – 2 Long Title Structure Chapter II Reg of RE Projects and RE Agents Section 3 – 10 Chapter III Functions and Duties of Promoter Section 11 – 18  ensure sale of plot, apartment, building, RE project in an efficient/ transparent manner  protect the interest of consumers in the RE sector  establish an adjudicating mechanism for speedy dispute redressal  establish Real Estate Regulatory Authority for regulation/ promotion of RE sector Content  establish the Appellate Tribunal to hear appeals from decisions, directions or orders of the Real Estate Regulatory Authority  for matters connected therewith or incidental thereto Chapter IV Rights and Duties of Allottees Section 19 Chapter V The Real Estate Regulatory Authority Section 20 – 40 Chapter VI Central Advisory Council Section 41 - 42 Chapter VII The Real Estate Appellate Tribunal Section 43 – 58 Chapter VIII Offences, Penalties and Adjudication Section 59 – 72 Chapter IX Finance, Accounts, Audit and Reports Section 73 – 78 Chapter X Miscellaneous Section 79 – 92 *Section 89: Act to have an overriding effect ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 9 Whom does it apply to… Content Residential + Commercial Projects Projects on land of 500 sq mts or more > 8 units No completion certificate issued Act applies to: – Commercial RE projects including shops, offices, showrooms, godowns – Residential Apartments – Plotted Developments – Ongoing projects in respect of which completion certificates have not been issued - Retrospectivity? – Challenge of "impossibility of performance" in absence of a regulatory body in many states – No sales from May 1? RE projects developed in phases would require registration for each phase separately Exemptions: – Projects being developed on land less than 500 sq mts (0.05 hectare or 0.12 acre) – Number of units does not exceed 8 (all phases) – Obtained completion certificate for the project before the commencement of the Act – Redevelopment RE projects where no new allotments are to be made – Renovation/ Repair - Not involving marketing, advertisement, selling or allotment of any apartment, plot or building – Sale of ready to occupy property in the resale market – States given the right to “lower” the ceiling of 500 sq mts and 8 units; – RE Act seems to exclude industrial RE such as factories, mines and farms ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 10 Whom does it apply to… Content Residential + Commercial Projects Projects on land of 500 sq mts or more > 8 units No completion certificate issued Outside the purview – Projects developed to be leased (ie not for sale) – Unsold projects in respect of which CC has been received – Projects outside the "Planning Area” may not need registration Promoter - In case of Joint Development Agreement (JDA), both land owner and builder should be jointly responsible under the Act; may need separate registrations and liable to discharge functions and responsibilities independently The Ministry of Housing & Urban Poverty Alleviation had set October 31, 2016 for States to frame Rules under this Act and April 30, 2017 as the deadline to establish Real Estate Regulatory Authority/ Appellate Tribunal – Almost all states are non-compliant State Governments have started framing rules appurtenant to the law – only few have notified, most at draft/ planning stage – States given the right to “lower” the ceiling of 500 sq mts and 8 units; – RE Act seems to exclude industrial RE such as factories, mines and farms ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 11 Real Estate Regulatory Authority Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 12 Real Estate Regulatory Authority (‘RERA’) Content RE Act provides for establishment of the RERA in all states to regulate projects being developed in that state, which shall have the powers of the Civil Court while trying any suit To be set up by the State Government(s) within a period of 1 year from the date of this Act coming into force Until the establishment of RERA, the State Government shall designate any Regulatory Authority (or Secretary of the Housing Department) to perform the functions of RERA - Delhi and Haryana nominated RERA to act as the nodal agency to co-ordinate efforts regarding development of the RE sector and render necessary advice to the State Government to ensure the growth and promotion of a transparent, efficient and competitive RE sector To recommend to the local authorities and State Government, the creation of a single window system for project approvals The RE Act does not contain concrete steps to address the long standing demand of the developers for a single window system. Structurally, therefore, the RERA results in a fundamental imbalance, where the Developer is put under onerous obligations on various aspects related to the development of the project but there is a lack of an appropriate mechanism that ensures timely approvals towards the same RERA is intended to perform the same role for property/ RE transactions as the SEBI does for security transactions in the capital markets ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 13 RERA - Functions and Powers Content Registration and regulation of RE projects Maintenance of a database on its website for public viewing of all registered RE project, details of developers and RE agents Fixation of standard fees to be levied on the allottees, promoters or RE agents Ensure compliance of its regulations and other obligations cast upon the promoters, allottees and RE agents FUNCTIONS SECTION 34 POWERS SECTION 35 - 38 May suo moto or on receipt of complaint, call for information and conduct investigation May issue interim orders during the pendency of proceedings Has the power to impose penalty or interest in regard to the contravention of the of the obligations cast upon: – Developers – Allottees or – RE agentICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 14 Impact on Promoters/ Developers Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 15 Registration Content Promoter RERA Registration Certificate Make an application Grant of certificate within 30 days Deemed Registration Failure to register within 30 days Project promotions/ advertisements/ marketing/ selling/ booking not permitted before registration with RERA – FAQ: Not even SMS/ emails Application for registration to disclose: – Brief details of enterprise ie name, registered address, type of enterprise – Details of projects launched in the past 5 years, litigations, status of other projects and delays – Copy of commencement certificate, sanction plan, layout plan, development plan to be executed etc – Location details of project, clear demarcation of the land proposed to be developed – Proforma of allotment letter, agreement for sale, and the conveyance deed proposed to be signed with the allottees – Number, type and carpet area of apartment and area of garages/ parking area – Details of RE agents, contractors, architect, structural engineer etc – Declaration supported by an affidavit, signed by the promoter (details on next slide) – Registration to be granted for a specified period (time period within which the developer expects to complete the project). – Extension possible upon application in reasonable circumstances without promoter's faults (including “Force Majeure” conditions). Period of extension in aggregate not to exceed 1 year. Builder can’t sell units prior to obtaining commencement certificate, as it is a mandatory document for obtaining registration. Usually it takes 3-4 months post initiation of construction activities (plinth level construction) to get commencement certificate ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 16 What is a phase for the purpose of registration? Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala OngoingProjects Residential (Multiple towers, wings, premium blocks etc) + Club House Residential + Commercial+ Retail+ Club House Large projects – Township +Residential+ Commercial +Hospitals+Schools – The Real Estate (Regulation and Development) Act 2016 does not define phases – Defines “Project“ [Section 2(zj)] and “Real Estate Project“ [Section 2(zn)] – Mentions that where RE project is developed in phases, every such phase shall be considered a standalone RE project requiring separate registrations – Maharashtra RERA Rules: "Phase of a Real Estate Project" may consist of a building or a wing of the building in case of building with multiple wings or defined number of floors in a multi-storeyed building – Different phases would act like individual projects and this would help developers deal with multiple project execution hurdles like time taken for government approvals, long term project financing, construction delays etc
Contents Summary Content Page 17 Registration Content Legal title to the land proposed to be developed and details thereof Land is free from encumbrances or details thereof, as the case may be Time period within which the project is proposed to be completed 70 percent of the amounts realized from the project shall be deposited in a separate account (not an escrow account - confirmed by FAQs) in a scheduled bank and that it would be utilized only for cost of construction and land cost Undertake to obtain pending approvals in a timely manner DECLARATION BY DEVELOPER Restriction on usage of funds Developer mandated to deposit the funds collected from the allottees in a separate bank account and any withdrawal from the separate bank account would have to be certified by an Engineer, Architect and a Chartered Accountant* that the withdrawal is in proportion to the percentage of completion (PoC) of the project – Deemed Escrow! Further, mandatory audit of accounts within 6 months from the end of FY - Auditor to verify and specifically certify usage of funds as per PoC method The Pre-withdrawal certificate needs to be signed by 3 professionals. The CA will have to rely on the Architect and Engineer for PoC. The Architect and Engineer in turn would have to rely on the CA to certify withdrawal numbers. What if there is no overall collective consensus? Certain local statutes such as the Maharashtra Ownership of Flats (Regulation of the Promotion of Construction, Sale, Management & Transfer) Act, 1963 had a similar provision that required the promoter to maintain a separate bank account for the receivables from the project, which was not implemented in practice by the promoters, who considered funds received from allottees of various projects as fungible. ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 18 70 percent condition – An illustration Content Cost Assumptions Land cost 20 Construction cost 20 Overheads, Interest, Others* 30 Project Cost 70 Sale Assumptions Land 50 Construction 50 Sale value 100 Payment and Construction Schedule Agreement Instalment % Completion 10% 0 1st Milestone 25% 20% 2nd Milestone 25% 40% 3rd Milestone 25% 70% 4th Milestone 10% 85% Possession 5% 100% Particulars Cumulative cash flow Amount that needs to be deposited (70%) % completion X Project cost (cumulative) Retentions (Restricted Cash) Agreement 10.00 7.00 0 7.0 Instalment 1 35.00 24.50 14.0 10.5 Instalment 2 60.00 42.00 28.0 14.0 Instalment 3 85.00 59.50 49.0 10.5 Instalment 4 95.00 66.50 59.5 7.0 Possession 100.00 70.00 70.0 0 How will this work in JD arrangements (Revenue as well as Area sharing)? ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala Float - Collateral for other projects? *Draft Rules in Karnataka permit withdrawal only for onsite expenditure for the physical development of the project. Such rules, if implemented could further restrict the quantum of cash withdrawal, thereby increasing the restricted cash component.
Contents Summary Content Page 19 Components of cost - MahaRERA Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala • Acquisition cost, lease charges overhead cost, marketing cost, legal cost and supervision cost • Premium paid to obtain development rights, FSI, additional FSI, fungible FSI, and any other incentive under DCR • Acquisition of TDR • Consideration payable to the outgoing developer to relinquish ownership and title rights over such land parcels • Amounts payable to State Government or Competent Authority towards stamp duty, transfer charges • Premium payable as per annual statement of rates (ASR) for redevelopment of land owned by public authorities Land Cost • On-site and off-site expenditure for development of project • Payment of taxes, fees, charges, premiums, interest etc • Principal sum and interest payable to financial institutions, scheduled banks, NBFCs or money lenders (apart from land cost) • Rehabilitation Scheme: expenditure incurred towards clearance of land or encumbrances for temporary transit accommodation, construction of rehab building, overhead cost, ASR linked premium, fees, charges and security deposits to authorities Construction Cost
Contents Summary Content Page 20 Registration Content Promoter is in default of the requirements of the Act/ Rules/ Regulations Violates terms and conditions of the approval given by the competent authorities (local authorities - BDA, BBMP etc) Involved in "unfair practice or irregularities" – Explanation to Section 7 Opportunity of being heard with 30 days’ speaking notice, in writing REVOCATION Consequenc eses of Revocation Debar the promoter from accessing its website Listing of developer as defaulters Freezing Bank accounts Inform RERA in other States/ UTs about such revocation Handover of the development to Association of allottees/ Competent Authorities upon consultation with State Govt Right of first refusal for completing the construction lies with the Association of allottees ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 21 Functions and Duties of Promoter Content • Details of registration granted by RERA and quarterly updates on – Number/ types of apartments or plots booked, approvals granted, status of the project etc Webpage on RERA website • Sanctioned plan, layout plan, stage wise schedule of completion of the project including the provisions for civic infrastructure like water, sanitation and electricity Information to the allottees • Responsible for all obligations, responsibilities and functions under the provisions of the Act or the rules and regulations • Responsible for obtaining leasehold certificate, completion/ occupancy certificate • Providing and maintaining essential services until take over of the maintenance by the Association of allottees • Execute a registered conveyance deed of the apartment, plot or building within 3 months from the date of issue of occupancy certificate • After executing agreement for sale, not to mortgage or create a charge on the apartment, plot or building • Cancellation of allotment only in terms of the agreement for sale General – Under this Act, Developers can sell units only on carpet area, which means the net usable floor area of an apartment. This excludes the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment. – 'Carpet area' would be the basis for RE purchases. Buyers would now be paying only for the carpet area and not the ‘super built-up area’. – Exclusive balcony and open terrace area should mean the area belonging and to be used by the specific allotee. • Responsible for compensation for loss or damage caused due to incorrect/ false statement made in prospectus or notice of advertisement or in relation to the model apartment, plot or building Veracity of Advertisement ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 22 Advertising - Caution List Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala Disclaimer prior to exhibiting mock/ sample flats Careful use of adjectives for describing the project Mentioning carpet area as defined under RERA Review and monitoring emails/ written communications sent by the marketing/ agent team Appropriate disclaimers in booking forms/ pamphlets
Contents Summary Content Page 23 Advertising - Caution List* Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala Carpet area – "We have the best in class construction technology. Our carpet area efficiency is 75%" Facilities – "Project includes access to 5 star club within the property" – With fee? Without fee? – Is it part of common amenities? – Fully loaded gymnasium!Over promise – "Sir don’t worry we are on track for completion. Although the agreement is for handover in 24 months, we will handover by 18 months" – "50 percent appreciation in 24 months" – Assured Rentals – Investment hotbed - Is the claim backed? – Amenities in the project - Restaurants – But the plan has only one restaurant – 5 Star clubhouse/ Concierge services - Is it certified? Brochures – "10 minutes from international Airport" – What time of the day? What speed? What traffic conditions? Certified by an external agency? Misstatements Model Flats – Personalized furniture and fixtures used only for display purposes (Not a part of actual delivery) – Finishing of walls, flooring etc – Brands used for fixtures and appliances – Standard and non-standard amenities * Illustrative/ Indicative only
Contents Summary Content Page 24 Functions and Duties of Promoter Content • Prohibited from taking more than 10 percent of cost of apartment, plot or building as advance payment from allottees without first entering into a written agreement for sale* and registering the same Advance Payment/ Application Fee • Any structural alteration/ addition to the sanctioned plan can now be made only with the previous written consent of at least 2/3rd of the allottees (other than the Developer) • Minor additions or alterations permissible due to architectural and structural reasons Alteration • Transfer/ Assignment of majority rights and liabilities in respect of RE projects to third party would now require period written consent of 2/3rd allottees and RERA • No extension of time to the intending promoter in order to comply with all the pending obligations of the erstwhile promoter Transfer/ Assignment * The Developer needs to accept payments from Allottees only by crossed account payee cheques or Demand Drafts or through internet banking such as RTGS/ NEFT/eCMS in view of Section 269SS of the Income tax Act, 1961. Similarly, refunds on cancellation of allotments, if any, should be made through the same channels to comply with Section 269T of the Income tax Act, 1961. • Payment of interest to the allottees in cases of default (rate of interest for this purpose has been fixed at the same rate which the allottees would have to pay in the case of default) Interest • Any failure on the part of Developer to hand over the possession of the property in accordance with the agreement for sale would empower the Allottees (at their will) to withdraw from the project and demand refund of the amount paid along with interest Handover • Obtain insurance as may be notified by the appropriate Government, including in respect of the title of land and construction of RE projects Insurance ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 25 Functions and Duties of Promoter Content • Claim of compensation due to defective title of land etc not subject to the law of limitation provided under any other law No limitation • Fixing structural defects or any other defect in workmanship, quality or provision of services or any other obligations of the promoter as per the agreement for sale for 5 years after handing over possession to the allottees without any further charges • Defect needs to be rectified within 30 days and failure to rectify such defects within 30 days entitles the allottees to compensation Defect liability 5 years to be considered from: – Date of possession of the respective unit or all units in the apartment or handing over of common area to the association of allottees? – What if there are unsold units or units sold subsequently in later years. Whether liability for structural defect would be considered from the date of last unit sold? Are 30 days enough for rectification? Identifying the contractor, deploying labour and completion of rectification within 30 days seems far fetched ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala • Display sanctioned and layout plans along with specifications at marketing and all other offices of the promoter from which booking or sale of any plot, apartment or building, is being carried out • Dimensions of such sanctioned & layout plans to be displayed shall be at least 3 ft X 2 ft Display
Contents Summary Content Page 26 Real Estate Agent Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 27 Real Estate Agent Content Every RE agent is required to be registered with RERA for facilitating sale, purchase of any RE project RE Agent shall not facilitate purchase or sale of RE project not registered with RERA Maintain and preserve books of accounts, records and documents as may be prescribed Not involve in any unfair trade practices Facilitate the possession of all the information and documents to the allottee Section 2(zm) - "Real Estate Agent" means any person, who negotiates or acts on behalf of one person in a transaction of transfer of his plot, apartment or building, as the case may be, in a real estate project, by way of sale, with another person or transfer of plot, apartment or building, as the case may be, of any other person to him and receives remuneration or fees or any other charges for his services whether as commission or otherwise and includes a person who introduces, through any medium, prospective buyers and sellers to each other for negotiation for sale or purchase of plot, apartment or building, as the case may be, and includes property dealers, brokers, middlemen by whatever name called ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 28 Unfair Trade Practices Content Unfair Trade Practices Section 10(c) Practice of making any statement, whether orally or in writing or by visible representation (A) Falsely represents that the services are of a particular standard or grade (i) Represents that the Promoter or himself has approval or affiliation which such promoter or himself does not have (ii) Makes a false or misleading representation concerning the services (iii) Permitting publication of any advertisement in newspaper or otherwise of services that are not intended to be offered (B) ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 29 Pertinent points Content Can they piggy-back on the disclosures of the promoters? – No, they can’t Definition of ‘Real Estate Agent’ includes any person who negotiates or acts on behalf of one person in a transaction of for sale of real estate with another person and receives remuneration for his services. It includes a person who merely introduces prospective buyers and sellers to each other for negotiation for sale of real estate. – Seems to be an impractical proposition given the tens of thousands of people, having regular jobs, who sometimes moonlight as middle men for a small commission – Online portals such as 99acres.com, Housing.com, Common Floor etc should get covered (confirmed by FAQs) Consolidation is bound to happen and many may leave the field – To remain in the mainstream, certain minimum scale needs to be achieved Fate of older state laws such as the Haryana Regulation of Property Dealer and Consultancy Act, 2008 – Interestingly, this law is not listed in the list of repeals – Except for the requirement of registration (a process requiring fee) and the obligation of maintenance of a register, the instant law does not actually mainstream or bring professional standards into property brokerage – Law also silent on the qualifications of a broker/ RE agent (for instance certified trainings etc which is prevalent in European countries and the Middle East nations). State Governments focused to garner more registration fee rather (INR 500,000 as per draft rules in Karnataka!) ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 30 Allottees – Rights and Obligations Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 31 Entitlements Content Obtain information regarding sanctioned plans, layout plans with specifications Stage-wise time schedule of completion of the project Claim refund of amount paid along with interest in case of failure to provide possession of the property Claim the possession of apartment as per the time period of completion committed by the Promoter Claim the refund of amount paid in case of revocation of his registration Entitlements Section 2(d) - Allottee in relation to a real estate project includes a person to whom a plot, apartment or building, as the case may be, has been allotted, sold (whether as freehold or leasehold) or otherwise transferred by the promoter but does not include a person to whom such plot, apartment or building, as the case may be, is given on rent. Normally, a person to whom the plot, apartment, building is given on leasehold basis would be paying rent and therefore a clarity is required to that effect ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 32 Obligations Content Make payments in the manner and within time as specified in the agreement for sale Liable to pay interest on delayed payments Take possession within 2 months of issue of occupancy certificate Participation in formation of an association or society or co-operative society of allottees Participate towards registration of conveyance deed Obligations ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 33 Content Judicial Mechanism ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 34 Judicial Mechanism Content RERA Adjudicating Officer [District Judge] RE Appellate Tribunal High Court Adjudicating Officer to be appointed by RERA in consultation with the State Section 12 - Veracity of information in advertisement, notice, prospectus or model apartment Section 14 - Adherence to sanctioned plans, layout plans and project specifications by the Promoter Section 18 - Return of amount of compensation Section 19 - Rights and duties of allottees Other matters Any dispute resolution relating to matters on any violation or contravention of provisions is through the RERA or the Adjudicating Officer No recourse to civil courts on matters covered under the RE Act Consumer forums (National, State or District) not been barred from the ambit of the Act In respect of matters pending before Consumer Courts, the Appellants have the option to withdraw such complaint and file an application before the Adjudicating Officer Pre-deposit at REAT level: 30 percent of penalty for Promoters or 100 percent of interest/ compensation for allottees REAT to be headed by a sitting or retired Judge of the High Court, with one judicial and one administrative/ technical member Foradjudgingthe compensationtobepaid byPromoters Required to adjudicate cases within 60 working days from the date of receipt of appeal/ application * Section 31 – As per the definition of “aggrieved person”, even an outsider (who is not the customer or the association of allottees) could file a complaint with the Adjudicating Authority or the officer ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 35 Punitive Provisions Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 36 Defaults and Penalties Content # Nature of offence Penalty Prosecution Promoter 1 Advertise, market, sell or offer for sale or invitation to public to purchase the plot, apartment or building without registration with RERA Extending up to 10 percent of the estimated cost of RE project In case of non-deposit of penalty or continued violation - Imprisonment for a term extending up to 3 years or fine upto 10 percent of the estimated cost of the RE project or both 2 Failure to make an application for registration of RE project or providing false information Extending up to 5 percent of the estimated cost of the project - 3 Failure to comply with the orders or directions issued by RERA Penalty for per day of default, which may cumulatively extend up to 5 percent of the estimated cost of the project - 4 Failure to comply with the orders or decisions of the Appellate Tribunal Penalty for per day of default, which may cumulatively extend up to 10 percent of the estimated cost of the project Imprisonment for a term extending up to 3 years or fine 5 Contravene any other provisions other than listed above (including failure to register the agreement for sale, false advertisements etc) Extending up to 5 percent of the estimated cost of the project - • Any punishment with imprisonment may, either before or after the institution of the prosecution, be compounded by the Court on such terms and conditions and on payment of such sums as may be prescribed - Section 70 of the Act ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 37 Defaults and Penalties Content # Nature of offence Penalty Prosecution RE Agent 1 Failure to obtain registration or fails to comply with his functions as prescribed Penalty of INR 10,000 for everyday during which the default continues, cumulatively which may extend up to 5 percent of the related cost of the apartment, plot or building - 2 Failure to comply with the orders or directions issued by the RERA Penalty for per day of default, which may cumulatively extend up to 5 percent of cost of the project - 3 Failure to comply with the orders or decisions of the Appellate Tribunal Penalty for per day of default, which may cumulatively extend up to 10 percent of the estimated cost of the project Imprisonment for a term extending up to 1 years or fine Allottees 1 Failure to comply with any order or decision of RERA or Appellate Tribunal Penalty for per day of default, which may cumulatively extend up to 5 percent of cost of the project Imprisonment which may extend to 1 year or fine (imprisonment is compoundable as per Section 70) • Any punishment with imprisonment may, either before or after the institution of the prosecution, be compounded by the Court on such terms and conditions and on payment of such sums as may be prescribed - Section 70 of the Act • In the cases of companies (which is defined as per Section 69 to mean body corporate, firm, association of individuals), every person is in charge for the conduct of the business and the Company shall be deemed to be guilty of the offence. The person in charge would not be liable for punishment if it is proved that the offence was committed without his knowledge or that due diligence was exercised to prevent the commission of such offence. ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 38 Teething Issues/ Prevailing Concerns Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 39 Teething Issues/ Prevailing Concerns Content Ring Fencing of Project Receivables: Amount required towards construction is generally 40-50 percent of the collection (depending on the city); excess 20-30 percent would be lying idle in the account whereas at the same time, the developer may need to pay interest on loans borrowed for construction etc Withdrawal only for cost of construction and land: – Fund for meeting customer refunds for cancelled units? – Expenses for meeting Head office and site overheads (Karnataka Rules allows withdrawal for "onsite" expenditure only)? – Payment of taxes? – Servicing of loans (construction finance position)? – Seed capital for commencement of another projects – Should the promoter rely on balance 20-30 percent? Interpretation can be derived from Accounting Standard - 7 on "Construction Contracts" to compute the percentage completion - Does not provide for inclusion of land cost in determining the completion ratio How can a professional certify a withdrawal to be in proportion with PoC even before the withdrawal is made? Clarity needed on this aspect A. % of completion of project till date B. Amount that could be withdrawn based on (A) C. Cumulative amounts already withdrawn till date D. Amount that could be withdrawn = B – C ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 40 Teething Issues/ Prevailing Concerns Content PoC is a subjective concept – Format of certification – PoC on accounting principles (CA)/ physical progress (Architect & Engineer)? – PoC to be considered including land cost or excluding that (conflicting views from AS-7)? – PoC – Project wise/ tower wise (if multiple towers in same phase)? Seventy percent withdrawal would: – Result in negative working capital and deleveraging – Impact individual projects cash flow (may not have significant bearing on entity level cash flow) Section 4(2)(l)(D) of the Act uses the word “seventy percent” and not “at least 70 percent”. – Appears from the intention of the requirement that the promoter can deposit more than 70 percent of the amount realized – Intention could be to provide a cushion of 30 percent to the promoter so that the funds could be used to book lead for other projects Commercial properties, even if partly held for sale, shall be covered – Triggered if developer/ land owners takes "stock-in-trade" positions on commercial developments (position now common for Projects - CBDT circular dated April 25, 2017 and SC rulings of Chennai properties and Rayala Corporation) Long lease transactions/ Built-to-lease models/ SEZs – Whether long leases are regarded as "sale"? ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 41 Teething Issues/ Prevailing Concerns Content Section 11(4)(e) – Promoters responsible for formation of Association or society; within 3 months from the date of majority of units being booked. – What constitutes “Majority”? – What if allottees are not willing to form Association? Usually customers are not very keen to form Associations at the booking stage Section 11(4)(f) – Undivided proportionate title in the common area to be registered with the Association of Allottees – Current practice is to distribute the undivided share of common area to all the units in the project – Stamp Duty implications? – Indirect tax (VAT/ Service tax) implications? Who would bear the costs? Section 11(4)(g) – Outgoings collected from customers – Water/ Electricity related deposits, Khata charges, taxes etc could not be collected on an adhoc basis as the Promoter needs to pay actual amounts so collected, to the authorities – Separate disclosures in agreement? Section 11(4)(h) – Not to mortgage or create charge on apartment, plot or building subsequent to agreement for sale – Whether this would restrict the builder from mortgaging the land for arranging construction finance? ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 42 Teething Issues/ Prevailing Concerns Content Section 11(5) – Cancellation as per agreement for sale – What if the customer books the unit and does not turn up for executing the agreement for sale? Section 15 – Transfer of RE Project to third parties – Project level stake sale possible? – Requires approval from 2/3rd allottees + RERA Section 16 – Insurance – Insurance of land title to ensure that claims made on the land can be satisfied by the Insurance companies. Developer not to be burdened to make payments in respect thereof – So far, Insurance companies have not launched such schemes (prevalent in some European countries). – Shall ensure marketability of the apartment to be purchased by the homebuyer – Insurance to stand transferred to the Allottees or Association at the time of promoter entering into the agreement for sale. Currently, insurance taken by the builder is endorsed/ transferred to the lender till the date of the complete repayment of borrowing Section 17 – Conveyance deed to be executed within 3 months of the date of obtaining occupancy certificate – As per local laws, builder need not complete the common area to obtain occupancy certificate, completion of essential services suffices – Whether Association would accept the conveyance deed before completing the common area in all respects? – What is the customer has not paid the entire dues to the builder within 3 months of getting occupancy certificate? ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 43 Teething Issues/ Prevailing Concerns Content Projects recently approved, but not formally launched – whether this Act would apply? Calibration with Land Acquisition, Rehabilitation and Resettlement Act, 2013 Strict compliance with sanction plan – As per local laws, deviation up to 5 percent is accepted by the authorities States to establish state regulators within the timelines provided and implement the Act (no ratification/ consent required as this Act is not a Constitutional Amendment Act affecting the States) Act under the purview of the concurrent list and hence both the Union and the State can legislate – Fate of the State enacted real estate legislations such as the Karnataka Apartment Owners’ Act, 1972 Glaring differences in Karnataka State legislation for RE and RERA – Advance (10 percent vis-à-vis 20 percent), Defect liability period (5 years vis-à-vis 1 year), Alternation and Penalty related clauses – Home buyers could be entangled between the two laws – State laws need to be ironed out accordingly Section 88 and 89 of RERA – Contradictory? – Provisions of RERA will be in addition to and not in derogation to any other law currently applicable + Overriding principles retained – Should the stronger of the contradicting provisions in RERA and the State legislation (ie one more beneficial to the buyer) apply? – A fair reading suggests thisICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 44 Teething Issues/ Prevailing Concerns Content Doctrine of occupied field? – When on a particular subject of the concurrent list on which the State has made a law and subsequently the Union also makes a law on that subject, the field get occupied by the Union legislation and the State legislation cannot hold something contrary to the Union legislation When a state law has been passed with President's assent instead of the Governor's. In such a case, which law prevails? – Maharashtra Housing (Regulation and Development) Act has President's assent – Article 254 (2) of the Constitution of India – Provided that nothing in this clause shall prevent Parliament from enacting at any time any law with respect to the same matter including a law adding to, amending, varying or repealing the law so made by the Legislature of the State Law allows state to create one or more Real Estate Regulatory authorities as may be needed with regard to its geographical extents, diversity and real estate development activity – Consumer Protection law has a well defined spatial grid – present in every district – Real Estate Regulatory authority being a state forum would be located in the capital city – Approvals to be obtained locally and adjudication in capital city; additional benches could have been set up in cities with high degree of RE development activity ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 45 Teething Issues/ Prevailing Concerns Content Responsibility of the Regulatory Authority (Section 32, 33 and 34) – No 'assurance' function like other parties which accord development permission such as local government, PWD, Fire safety etc – Function essentially to create an information forum – Authority takes no responsibility of streamlining the approvals/ NOC process, nor does it reduce the no of approvals required for a RE project By default, the law should apply to all such projects where a completion/ occupancy certificate has not been issued. However, some states (such as Gujarat and Uttar Pradesh) have gone ahead with Rules that effectively dilute the provisions of the law: – Making the law not effective retrospectively ie projects already under development on the day of notification of the Rules being exempted – Exemption to projects where services have been handed over to the Resident Welfare Association/ Apartment Owners’ Association for maintenance – Exempting projects where development work is completed and sale/ lease deeds of 60 percent of the units/ plots have been executed State-level dilution has given leeway to realtors (New Government in Uttar Pradesh revised the rules recently) Borderline Projects? ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 46 Teething Issues/ Prevailing Concerns Content What about agreements already signed for ongoing projects? – Agreement for sale - Prior to May 1, 2017 - does it need to change as per RERA requirements (aspects such as sale of open car parking, structural defect liability etc)? If not, entitlements of the buyers would be different for the same project - Legal Bizarre! Maharashtra FAQ # 40 could be referred: Stamp duty again? – If sold on super built up area basis, disclose carpet area now and keep the consideration same? What about projects without OC which are already sold and occupied prior to May 1, 2017? Model agreement for sale - Changes permitted? If yes, to what extent? Stamp duty costs needs to be specifically excluded in the costs discussed in the agreement of sale - otherwise 70 percent rule would apply on such recoveries also (clarified by Maharashtra FAQ # 48) Draft ICDS for Real Estate transactions (May 2017): Top-up problem (could impact subvention schemes) ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 47 Pertinent points relating to some definitions Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 48 Pertinent points relating to some definitions Content Definition of the term “Promoter” – The term “cause to be constructed” suggest the inclusion of land owners as promoters in the case of Joint Development Agreements (JDAs) – Position by MahaRERA notification dated May 11, 2017 – Even a Constructor gets covered - Joint liability aspect needs to be checked – PE Investor, land owning SPV - Promoter? – Development authorities - governed by the asset disposal rules – whether municipal bodies/ Housing Boards which are engaged in providing housing under the Pradhan Mantri Awas Yojana/ Rajiv Awas Yojana get covered - FAQs suggest Yes – Separate entities for each project – No litigation history, Flaw? – Power of Attorney holder (prevalent in the northern part of India) should get covered Definition of the term “Real Estate Project” – Land as such being sold without plotting activity should not be covered and hence lies outside the ambit of this Act Financial penalty for any contravention ranges from 2 percent to 10 per cent of the project cost/ estimated project cost – "Estimated Project cost" defined under Section 2(v) of the Act to include “other charges" – A clarity on this would help avoid ambiguity at a later stage – Though FAQs provides some guidance – The term "Project Cost" is not defined which may lead to conflicting interpretationICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 49 Pertinent points relating to some definitions Content Is the audit of accounts in addition to the ones required under the Companies Act and the Income tax Act? The threshold under these legislations should not apply to the requirement of undertaking audit under RERA A need for the definition of the term ‘Structural defects’ to avoid misinterpretation in the futures A clarity in the definition of "minor additions or alterations” in the Explanation to Section 14 By including terraces, open parking areas etc as being part of "common areas", the practices of selling open parking areas, terraces, etc should be discontinued Definition of the term "Company" includes only the companies incorporated and registered under the Companies Act, 2013 – Totally disregards that the present developers are incorporated and registered under the erstwhile Companies Act,1956 and projects taken thereunder – Requires clarity whether these developers would need to comply with the provisions of this Act Definition of the term "Carpet Area" – Contrary to legislations such as the Developmental Control Regulations 1991 applicable in the state of Maharashtra which provides that internal partition walls are not to be included – Definition not compliant with IS:3861 (2007) – Does not refer to the International Property Measurement Standards (IPMS) that are now de-facto choice for most corporate real estate providersICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 50 Impact on Pricing Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 51 Impact on Pricing Content Cost of capital would go up (may be a short-term trend) – No recourse to interest free liquidity of the upfront payments received on pre-launches etc – Developers may look for equity (or mezzanine credit - mix of debt and equity) rather than structured debts to finance buying of land as paying interest may get tougher (with the new condition of selling units after project approvals + Withdrawal related restrictions) – Lease Rental discounting (LRD) could go up – Debt product offering by Banks may change – Stressed Balance sheets – Operating cost of the developers would increase Sale on the basis of carpet area alone would necessitate change in pricing policies etc Need to relook at Stamp Duty rates and premium Floor Space Index (FSI) rates on carpet area basis Developers may also collect likely penal costs indirectly from consumers Demand and supply dynamics (land prices, Demonetisation impact etc) Added cost of compliances may also indirectly impact pricing: – Disclosures (which was hitherto done only by listed entities) and ongoing compliances – Registration costs and other initial costs related to trainings, ERP etc – Insurance – Defect liability period – Additional holding cost ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 52 Real Estate Rules - A brief Analysis Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 53 Overview – Rules in Karnataka (1/2) Content Karnataka Real Estate (Regulation and Development) Rules, 2016 released for public consultation Draft Rules released on November 4, 2016 Draft rules – An exact replica of the Union government’s flawed draft rules instead of the final rules While many states have dropped the requirement of income tax return of the promoter for registering the project (owing to confidentiality aspect), the draft rules released by Karnataka Government provides for the requirement of income tax return of the promoter for preceding 3 years "Cost of construction" to mean onsite expenditure for the physical development of land - for withdrawal based on PoC method Agreement for sale – Roles, responsibilities and obligations of promoters/ allottees specified – Buyer can stop making payment if the project does not achieve the construction milestones because of promoter’s fault – Undertaking from the promoter for timely delivery of the project – Promoter required to clearly indicate date of delivery – Provision for extension of project delivery date in cases of delay caused due to "force majeure" – Date of grant of commencement certificate, land title, number of storeys and plots in the project, carpet area, common area, total price to be mentioned – Total price is escalation free except when development changes are alteredICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 54 Overview – Rules in Karnataka (2/2) Content Karnataka Government in the process of setting up the Real Estate Regulatory Authority Disclosure required for ongoing projects – For ongoing projects without completion certificate – Required to disclose status of project, extent of completion, size of apartment etc – Additional disclosures: PAN card of the promoter, audited financials of the promoter for the preceding financial year, income tax returns of the promoter for preceding 3 financial years, copy of the legal title deed/ JDA, details of encumbrances if any – In absence of RERA notified for Karnataka and this being a draft rule, currently may not be operational – States such as Maharashtra have mandated 70 percent fund parking condition for ongoing project too (absent in draft rules released by Karnataka) – Draft rules of Tamil Nadu specifically states that agreement for sale as specified by RERA not applicable to ongoing projects Requirement to update the webpage for the project within 7 days from the expiry of each quarter – Bookings made for apartments/ plots/ garages; – Status of project (with photographs); – Any approvals, etc ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 55 Overview – Maharashtra & Tamil Nadu Content The Government of Maharashtra has notified the below rules/ regulations: – Maharashtra Real Estate (Regulation and Development)(Registration of Real Estate Projects, Registration of Real Estate Agents, Rates of Interest and Disclosures on Website) Rules, 2017 vide Notification No REA 2016/ CR No 79/ DVP-2 dated April 20, 2017 – Maharashtra Real Estate Regulatory Authority, Officers and Employees (Appointment and Service Conditions) Rules, 2017 vide Notification No REA 2016/ CR No 79/ DVP-2 dated April 17, 2017 – Maharashtra Real Estate (Regulation and Development) (Recovery of Interest, Penalty, Compensation, Fine payable, Forms of Complaints and Appeal, etc) Rules, 2017 vide Notification No REA 2016/ CR No 79/ DVP-2 dated April 20, 2017 – Maharashtra Real Estate Appellate Tribunal, Officers and Employees (Appointment and Service Conditions) Rules, 2017 – Maharashtra Real Estate Regulatory Authority (Form of Annual Statement of Accounts and Annual Report) Rules, 2017 vide Notification No REA2016/ CR No 123/ DVP-2 Dated April 18, 2017 – Maharashtra Real Estate Regulatory Authority (Recruitment and Conditions of Service of Employees) Regulations, 2017 – Maharashtra Real Estate Regulatory Authority (General) Regulations, 2017 The Government of Maharashtra has also released a detailed FAQ on its website https://maharerait.mahaonline.gov.in/ The Government of Tamil Nadu had released the draft RERA Rules on January 28, 2017 Press articles indicate the Tamil Nadu Government may reduce the number of units to 5 (as against 8 suggested by the Union Act) under the final rules ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 56 Comparative Analysis Content Parameters Karnataka RE Rules Tamil Nadu RE Rules Maharashtra Rules Current status Draft, yet to be notified Draft, yet to be notified Notified Date of release* November 4, 2016 January 28, 2017 December 8, 2016 Registration fee for RE projects Not specified Registration fee payable by the promoter shall be a sum calculated at the rate as specified by the Authority from time to time No registration fee to be levied on Tamil Nadu Slum Clearance Board developed projects, Affordable Housing projects of Tamil Nadu Housing Board and Housing projects executed by Tamil Nadu Police Housing Corporation Rupee 1 per square meter for RE projects where the area of land proposed to be developed does not exceed 1,000 square meters; Rupees 2 per square meter for RE projects where the area of land proposed to be developed exceeds 1,000 square meters [Subject to a maximum limit of Rs 100,000] *Source - http://naredco.in/notifications.asp?links=gnc1 ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 57 Content Parameters Karnataka RE Rules Tamil Nadu RE Rules Maharashtra Rules Time period for registration of ongoing RE projects Ongoing projects for which completion certificate has not been obtained to apply for registration within 3 months of notification of the Act Ongoing projects for which completion certificate has not been obtained to apply for registration within 3 months of notification of the Act (“ongoing project” specifically defined in the Rules) Ongoing projects for which completion certificate has not been obtained to apply for registration within 3 months of notification of the Act Fee for extension of registration of RE project An amount equivalent to twice the registration fee along with an explanatory note setting out the reasons for delay in the completion of the project and the need for extension of registration for the project, along with documents supporting such reasons An an amount as may be specified by regulations made by the Authority along with an explanatory note setting out the reasons for delay in the completion of the project and the need for extension of registration for the project, along with documents supporting such reasons Rupee 1 per square meter for RE projects where the area of land proposed to be developed does not exceed 1,000 square meters; Rupees 2 per square meter for RE projects where the area of land proposed to be developed exceeds 1,000 square meters [Subject to a maximum limit of Rs 100,000] Comparative Analysis ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 58 Content Parameters Karnataka RE Rules Tamil Nadu RE Rules Maharashtra Rules Registration fee for RE Agents Within the jurisdiction of Bangalore Metropolitan Region Development Authority (“BMRDA”) - Rs 50,000 in case of an individual and Rs 500,000 for other than an individual Within the jurisdiction of any planning area outside the jurisdiction of the BMRDA - Rs 25,000 in case of an individual and Rs 250,000 for other than an individual Rs 25,000 in case of an individual and Rs 50,000 for anyone other than an individual A sum of Rs 10,000 in case of agent being an individual Rs 100,000 in case of agent being other than an individual Renewal of Registration Application to be filed within at least 3 months prior to the expiry of registration granted. Fee: BMRDA - Rs 25,000 and 250,000 respectively for individuals and non - individuals; others - Rs 15,000 and Rs 150,000 respectively Application to be filed within at least 3 months prior to the expiry of registration granted. Fee: Rs 5,000 in case of individual and Rs 50,000 for anyone other than an individual Application to be filed at least 60 days prior to the expiry of registration. Fee: Same as for new registration Comparative Analysis ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 59 Content Parameters Karnataka RE Rules Tamil Nadu RE Rules Maharashtra Rules Interest payable by promoter and allottee State Bank of India Prime lending rate + 2 percent Repo Rate of the Reserve Bank of India + 2 percent Prevailing State Bank of India Prime lending rate as on the date on which the amount becomes due + 2 percent Timelines for Refund 45 days from the date on which such an amount becomes due 45 days from the date on which such an amount becomes due 30 days from the date on which such an amount becomes due. Every case of such refund payment shall be reported by the concerned promoter to the Authority within 30 days Filing of appeal before the Appellate tribunal Filing fee: Rs 1,000 Filing fee: Rs 1,000 Filing fee: Rs 5,000 Penalty for non-registration by the Promoter 10 percent of the estimated cost of RE project 10 percent of the estimated cost of RE project 2 percent of the estimated cost of the RE project (may extend to 10 percent) Penalty for failure by the Promoter to comply with, or contravention of any of the orders, decisions or directions of the Appellate Tribunal 10 percent of the estimated cost of RE project 10 percent of the estimated cost of RE project 5 percent of the estimated cost of RE project (may extend to 10 percent) Comparative Analysis ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 60 Content Parameters Karnataka RE Rules Tamil Nadu RE Rules Maharashtra Rules Failure by the RE Agent to comply with, or contravention of any of the orders, decisions or directions of the Appellate Tribunal 10 percent of the estimated cost of the plot, apartment or building, as the case may be, of the RE project, for which the sale or purchase has been facilitated 10 percent of the estimated cost of the plot, apartment or building, as the case may be, of the RE project, for which the sale or purchase has been facilitated 5 percent of the estimated cost of the plot, apartment or building, as the case may be, of the RE project, for which the sale or purchase has been facilitated, subject to maximum of ten percent Failure by the allottee to comply with, or contravention of any of the orders, decisions or directions of the Appellate Tribunal 10 percent of the estimated cost of the plot, apartment or building, as the case may be 10 percent of the estimated cost of the plot, apartment or building, as the case may be (Provided that the Government may, by notification, amend the rates specified above) 5 percent of the estimated cost of the plot, apartment or building, as the case may be, subject to maximum of ten percent Comparative Analysis ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 61 Content Parameters Karnataka RE Rules Tamil Nadu RE Rules Maharashtra Rules Submission of land title search report From an advocate with experience of at least 10 years in land related matters Silent From an advocate in practice Submission of no encumbrance certificate From the concerned sub- registrar through an advocate for at least 12 years in land- related matters Updated encumbrance certificate, extract/certificate of Revenue Authorities reflecting the title of the promoter to the land on which development is proposed Non-encumbrance certificate through an advocate having experience of at least 10 years from the revenue authority not below the rank of tehshildar Comparative Analysis ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 62 Content MahaRERA – Report Card ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala 24 applications received from across the state, of which ~15 projects registered 1192 applications received for broker registration, of which 1053 registered District Project Name Promoter’s Name Certificate No Mumbai Krishna Enclave Asha Developers P51800000004 Saanvi Heights Adinath Enterprise P51800000010 Jeevan Kanchan Co-Operative Housing Society Shri Krishna Chaitanya Enterprises P51800000014 Raigad Bliss Studio Balsam Builders P52000000003 Krishna Residency S P Construction P52000000007 Thane Mayfair Vishwaraja Mayfair Housing Private Limited P51700000001 Unnathi Woods Phase VII A Unnathi Estates P51700000002 The Palms Metro Development P51700000006 N G Silver Spring RNA Builders (NG) P51700000009 Pune Sai Saroj Vighnaharta Developers P52100000008 Yashwin Jeevan Vilas Javdekar & Sanjeevani Developers LLP P52100000011 Yashwin Anand Vilas Javdekar & Sanjeevani Developers LLP P52100000012 Neelaya Naiknavare Developers Pvt Ltd P52100000013 Sai Kunj Vighnaharta Developers & Promoters P52100000015 Nagpur Green City 3 Green Space Infra Ventures P50500000005 Source: https://maharerait.mahaonline.gov.in (14:45 PM on 01/06/2017)
Contents Summary Content Page 63 Few Important FAQs* Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala FAQ’s released by the state of Maharashtra, may have persuasive value for other states
Contents Summary Content Page 64 Few important FAQs* Content 33. Is there any time limit prescribed for the promoter for formation of society or any other legal entity of home buyers? Promoter has to enable formation of Legal Entity like Cooperative Society, Company, Association, Federation etc within three months from the date on which fifty one per cent of the total number of Purchasers, in such a building or a wing, have booked their apartment. 38. Will ongoing Project have to stop sales or construction till receiving the Registration? At the end of 90 days from the date of notification of Section 3 of the Act, the promoter of an ongoing project shall not advertise, market, book, sell or offer for sale or invite persons to purchase in any manner any plot, apartment or building, unless he registers the project. CATCH 40. If an ongoing project is registered under MahaRERA, then will the Act be applicable for the entire project or will it be applicable only to units sold after registration? Registration is of the Project/Phase and hence the provisions of the Act are applicable to all units of the Project/ Phase. 46. Can project finance taken by promoters from financial institutions be withdrawn from designated 70 percent account? Yes, if this is declared at the time of registration and subject to provisions of Section 4 of the Act and Maharashtra Real Estate (Regulation and Development)(Registration of Real Estate Projects, Registration of Real Estate Agents, Rates of Interest and Disclosures on Website) Rules, 2017 made there under. However, the money withdrawn should be utilized towards construction expenses of the project, on priority. ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala FAQ’s released by the state of Maharashtra, may have persuasive value for other states
Contents Summary Content Page 65 Few important FAQs* Content 47. In case of joint development with land owner on revenue share basis or area share basis, whether land owner’s component could be withdrawn from designated account of 70 percent? The Act makes both the Promoters and the land owner or any such parties which are beneficiary of a sale of a project and receive payments from allottees, as Co-Promoters and hence liable to adhere to the provisions of the Act and Rules and Regulations made there under. 48. Whether money collected from allottees towards stamp duty, registration, share money for society, deposits for maintenance, corpus funds, infrastructure charges, parking charges etc., are required to be deposited in the designated bank account (70 percent)? Yes, since these are part of the project cost 56. What if Part OC is received for the project: is it exempt from registration? No 60. Separate Bank Account: can escrow account opened with the Bank from whom loans are availed, be treated as Separate Bank Account for a MahaRERA registered project. No. A separate bank account needs to be opened in accordance with the provisions of the Act and rules made there under. 61. Can separate account be more than one since at times, there might be multiple lenders in same project (building wise lender) though developer might register the project at one go? No. There should be one designated bank account for every registered project or registered phase of a project ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala FAQ’s released by the state of Maharashtra, may have persuasive value for other states
Contents Summary Content Page 66 Few important FAQs* Content 63. Referral bookings: Existing customers referring to others for buying the flat in same project or other project of same developer: Will they be treated as Real Estate Agent? Yes, if it is against a consideration. Real Estate Agent is clearly defined in Section 2(zm) of the Act 64. For Foreign brokers registration and advertisement outside India, will same rule apply as in India ? Yes, if it pertains to a registered project under MahaRERA. ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala FAQ’s released by the state of Maharashtra, may have persuasive value for other states
Contents Summary Content Page 67 How Rules have diluted overall essence of RERA! Content Various states have digressed to an extent that their tinkered watered-down rules violate the parent Act The Ministry of Housing and Urban Poverty Alleviation (MHUPA) had notified its rules under the Act in October 2016 Such central rules are applicable to all Union territories without their own legislature and were meant to serve as template for rules in other states Rules (draft/ final) effectively issued by some states favour RE developers/ construction industry over home-buyers Press articles suggest that: – PMO has sought a report from the Housing Ministry with respect to violation of central provisions – Amid reports that key provisions of the Act have been diluted by some states, the Central Government has forwarded the rules notified by the states to a parliamentary committee for examination Statistics reveal that home-buyers in 65 percent of ongoing projects across 8 cities - including Ahmedabad, Mumbai and NCR-Delhi are staring at a delay ranging between a few months and over 5 years State Rules littered with gaps which will make it smoother for builders to circumvent the law ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 68 How Rules have diluted overall essence of RERA! Content Few noted deviations: – Cancellation by promoter on a week’s notice – Registration fee at Re 1 per square metre (Central rules prescribed Rs 10/ Rs 50 per square meter depending on area of development) – Increase in appeal filing fee (Rs 1,000 to Rs 10,000) – Exclusion of disclosures (including pending court cases!) – Payment of 30 percent of the total cost while signing the agreement and 45 percent on reaching plinth level – Deletion of anti-discriminatory clauses (given under UT model Rules) Questions unanswered: – Clarity on how homebuyers who have not agreed to a change in building plans will be affected in the case of ongoing projects – Provision on compounding rule for penalties carries the phrase "no proceeding shall be instituted or continued" once fine has been paid - Whether this provides lifetime immunity to the developer? – Rule 42(2) of Karnataka draft Rules Madhya Pradesh and Kerala have appointed a housing regulatory authority as mandated under the law Others such as Haryana, Maharashtra, Punjab and Delhi have appointed an interim Regulatory Authority (All states have to appoint the authority by end of April 2017 as per the Act) ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 69 The Finale - Hits and Misses Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 70 Hits and Misses – For Consumers Content Hits • Increased affirmation on timely completion/ delivery of RE projects • Increase in quality of construction - Defect liability period of 5 years from the handing over of possession • Balanced builder-buyer agreements (otherwise agreements heavily loaded in favour of developer) • Regulated RE Agent/ Broker environment • Greater visibility into the developer’s delivery track record • Sale on the carpet area basis/ terms to help improve transparency in pricing and bring in standardisation Misses • Timelines for approval by the regulatory authorities not defined • May lead to slightly higher prices for RE due to the reduced competition, insurance and other ancillary costs passed on by the Developers etc • Little elbow room to utilise money collected from homebuyers. Combination of this with plethora of guidelines to be followed may put brakes on the number of new launches (in the short term) • Existing practice of soft launch may end due to the restriction on the launch of projects before getting approvals ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 71 Hits and Misses – For Developers Content Hits • A more regulated sector would bring in efficiencies and result in higher investments (FDI) and possible reduction of the cost of funds • Increased scope for eliminating casual operators, leading to the better organisation of the sector • Greater visibility into the developers’ delivery performances • Higher focus on project delivery capabilities • Overleveraging which generally result in project delays may not be possible Misses • Power of RERA- disproportionately coercive and may limit the ability/ incentive of developers to compete, especially when it involves undertaking market risks • Fixing a rigid capital reserve ratio (70 percent deposit and 10 percent booking amount) in the statute itself imposes greater liquidity constraints on developers, consequently impacting their entry into the market, subsequent expansion and project cost • Multiple forums for dispute resolution of grievances (Consumer forums, RERA, CCI) could facilitate forum-shopping and lead to conflicting jurisprudence – FAQs state not possible • Accountability of buyers/ developers/ brokers set - Government Agencies? ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 72 Role of Professionals Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 73 Role of Professionals Content Role of Professionals Section 3: Registration of RE projects with RERA (CA/ CS/ CWA/ Legal Practitioners Section 4: Pre-withdrawal certification based on PoC (CA) Section 4: Audits (Statutory and Internal) and IFCs (CA) Section 56: Representation services (CA/ CS/ CWA/ Legal Practitioners) New area of practice for all - General Advocacy, Trainings, Impact assessment etc (All) ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 74 How professionals can help? – Individual discussions with the core team (marketing and sales, accounting and compliance, construction and product strategy, customer relationship, finance, operations and design) and lawyers (internal/ external) and help in creating a project/ state specific handbook for RERA compliances – Assistance in registration of existing and new projects with the RERA authorities – Overall transitioning under RERA (documentation, sanitization of marketing collaterals etc) for the ongoing projects – Assist in modelling the utilization of installment receipts from the allottees to ensure optimum utilization of the funds available – On-call advisory services in relation to queries that may be raised from time to time – Update on key on-going changes in the RERA legislation and highlight the impact on business on a time to time basis ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala Compliance and reporting Restriction on fungibility of cash from projects Increased obligations Process changes Training
Contents Summary Content Page 75 Revisiting business and operational models – Developer's perspective Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 76 Greater than before roles under RERA regime Content Finance • Cash flow / liquidity management (70 percent clause) • Managing project wise bank accounts and withdrawal certifications • Impact on pricing • Alternate ways of funding/ sourcing equity partners • Insurance • Monitor cost and schedule overruns • Baseline schedule and budgets (determination of estimated costs etc) • Auditing of project accounts (RERA Audit) • Institutionalize periodic RERA checks Legal • Aligning of agreement of sale/ affidavits/ declarations/ transaction documents as per RERA • Deep land due diligences • Registrations/ Extensions/ Updation of details on RERA website • Formation of association of allotees within 3 months from the date of majority of units being booked • No mortgage or charges etc prejudicial to customers’ interest • Vendor Management (renegotiating back to back contracts for defaults)/ Dispute Resolution/ Cyber Security • Ring-fencing senior management/ promoters liabilities Design • Prioritize design development and delivery capabilities • Fix structural defects or any other defect in workmanship, quality or provision of services or any other obligations of the promoter – 5 year warranty period • Minor vs major additions/ alterations (changes) to the structure as per sanctioned plan – careful consideration • Institutionalize periodic RERA checks • Finalisation of FSI • Common space allocation such as podium, club-house etc Operations • Strengthen delivery and management capabilities around execution, monitoring, handover and operations • Managing alterations and additions • Empanelment of channel partners (including architects, engineers, real estate agents etc) • Institutionalize periodic RERA checks & process compliance audits • Redefine indemnities and liabilities for channel partners and associates • Changes in ERP, MIS, Score cards • Process compliance Audits Marketing/Sales/CRM • No project promotions/ advertisements/ marketing before registration • Advertisement – Crisp and clear, no false info, deliver what is promised, no puffery/ oversized statements • Provide information to allotees - sanctioned plan, layout plan, stage wise schedule of completion • Sanitize marketing collaterals/ brochures etc (identify and address conflicting customer commitments) and align to RERA regime, including email and communication exchange with customers • Managing cancellations (to be compliant with the terms agreed) • Broker Management ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 77 Prioritize existing and planned projects Content Prioritize Completion Prioritize Completion Build RERA Competency (may need to comply with rules related to ongoing projects) Prioritize completion (may still need to comply with rules related to ongoing projects) Consider Revising/ Shifting (as per RERA requirements) Build RERA competency or phasing out the project Build RERA competency Final Stage <3 Months Mid-way Newly launch/ Planned < 10 Percent 10-50 Percent > 50 Percent % sold out ProjectStatus Priority status Mid Low Top ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 78 Overall Analysis Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 79 Overall Analysis Content Law in its tone and tenor – hard on developers – would leave only serious developers in the market RE industry already facing liquidity crunch and mounting inventories. It’s likely that the regulatory burden, cost of capital and compliance would increase May help Tier-II and Tier-III developers to attract PE funding with the increase in transparency. Currently ~80 - 85 percent PE funds invest in Tier-I developers owing to good corporate governance structure Tier-II and Tier-III cities may now appear on PE investment radar Restricted use of 70 percent – Well intentioned but may have little economic merit Dispute settlement mechanism - Given the experience of consumer courts, it’s only a matter of time before the new mechanism gets as clogged as the existing Could revitalize consumer confidence in the over-supplied/ over-priced RE market Makes an agreement for sale compulsorily registrable. The Indian Registration Act, 1908 does not provide for compulsory registration of an agreement for sale Seems to penalize the developer but at the same time does not provide any real relief to the end user Silo style of operation should stub out with the requirement to make disclosures of project details Pre-launch/ Soft launch sale of projects will now be a history! Build and sell model to commence ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 80 OPEN HOUSE & DISCUSSIONS THANK YOU Sandeep Jhunjhunwala, FCA, ACS, B.Com(H) E: writetosandeepj@gmail.com M: +91 97401 55469 The views in this presentation are personal views of the Presenter. The information contained is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although, the overall endeavor is to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. This presentation is meant for general guidance only and no responsibility for loss arising to any person/ entity acting or refraining from acting as a result of any material contained in this presentation will be accepted. It is recommended that professional advice be sought based on the specific facts and circumstances. This presentation does not substitute the need to refer to the original pronouncements.
Contents Summary Content Page 81 Annexures Annexures ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 82 Key Definitions Annexures Section 2(zh) - "Planning area" means a planning area or a development area or a local planning area or a regional development plan area, by whatever name called, or any other area specified as such by the appropriate Government or any competent authority and includes any area designated by the appropriate Government or the competent authority to be a planning area for future planned development, under the law relating to Town and Country Planning for the time being in force and as revised from time to time However, several states do not have planning are defined – and several Census Towns (areas which are urban as per Census, but not under the Municipal laws of the State) are still governed by Panchayats ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 83 Key Definitions Annexures Section 14(3) - In case 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 relating to such development is brought to the notice of the promoter within a period of five years by the allottee from the date of handing over possession, it shall be the duty of the promoter to rectify such defects without further charge, within thirty days, and in the event of promoter's failure to rectify such defects within such time, the aggrieved allottees shall be entitled to receive appropriate compensation in the manner as provided under this Act. ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 84 Key Definitions Annexures Section 2 (zk) - "Promoter" means i. a person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees; or ii. a person who develops land into a project, whether or not the person also constructs structures on any of the plots, for the purpose of selling to other persons all or some of the plots in the said project, whether with or without structures thereon; or iii. any development authority or any other public body in respect of allottees of - a) buildings or apartments, as the case may be, constructed by such authority or body on lands owned by them or placed at their disposal by the Government; or b) plots owned by such authority or body or placed at their disposal by the Government, for the purpose of selling all or some of the apartments or plots; or iv. an apex State level co-operative housing finance society and a primary co-operative housing society which constructs apartments or buildings for its Members or in respect of the allottees of such apartments or buildings; or v. any other person who acts himself as a builder, coloniser, contractor, developer, estate developer or by any other name or claims to be acting as the holder of a power of attorney from the owner of the land on which the building or apartment is constructed or plot is developed for sale; or vi. such other person who constructs any building or apartment for sale to the general public. Explanation - For the purposes of this clause, where the person who constructs or converts a building into apartments or develops a plot for sale and the persons who sells apartments or plots are different persons, both of them shall be deemed to be the promoters and shall be jointly liable as such for the functions and responsibilities specified, under this Act or the rules and regulations made thereunderICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 85 Forms under RERA Annexures Agreement for Sale Declaration by Promoter Registration certificate for a project Revocation of Registration of project Registration of Real Estate Agent FAQs on RERA released by MHUPA, Govt of India ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 86 MahaRERA imposes fine! Annexures ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
Contents Summary Content Page 87 About the Speaker – Sandeep Jhunjhunwala Annexures ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala Sandeep is an Associate Director with tax practice of BMR & Associates LLP, Bangalore. Sandeep has more than 10 years of experience in consulting in varied fields of tax and regulatory matters. After completing internship with S.R Batliboi & Associates (network firm of Ernst & Young in India), Sandeep has worked with KPMG in its M&A tax practice and with corporate tax and regulatory practice of Grant Thornton in Bangalore, prior to joining BMR in 2014. Sandeep specialises in advising clients with tax optimised business and operational structures. He has worked on a number of leading corporates in the information technology, real estate, entertainment, communication and manufacturing sectors and has been extensively involved in tax and regulatory advisory, compliance support, planning opportunities and litigation support on direct tax and regulatory matters. He has been a speaker at various professional forums such as ASSOCHAM, CII, BCIC, RICS etc and regularly contributes on tax and regulatory matters for national and international publications. He is also a visiting faculty for taxation at the Bangalore Chapters of the Institute of Chartered Accountants of India and the Institute of Company Secretaries of India. Sandeep is a Graduate in Commerce from St Xavier's College and a Chartered Accountant and Company Secretary by qualification.

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Real Estate Regulations - What lies within - Sandeep Jhunjhunwala - ICMAI

  • 1.
    Contents Summary Content Page 1 Real EstateRegulations – What lies within? Bangalore Chapter of the Institute of Cost Accountants of India June 7, 2017 Presented By: Sandeep Jhunjhunwala
  • 2.
    Contents Summary Content Page 2 Presentation Overview Summary Needand Objective The Build up to the Act Preamble and Structure Whom does it apply to? Real Estate Regulatory Authority Impact on Developers Real Estate Agents/ Channel Partners Allottees – Rights and Obligations Judicial Mechanism Punitive Provisions Teething Issues/ Prevailing Concerns Pertinent points relating to some definitions Impact on Pricing A look at the Rules and deviations The Finale - Hits and Misses Overall Analysis ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 3.
    Contents Summary Content Page 3 Need andObjective Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 4.
    Contents Summary Content Page 4 A stepcloser to happy home-buying Content "Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world" - Franklin D. Roosevelt, US president "The best investment on Earth is Earth" - Louis Glickman, Real Estate investor "Don’t wait to buy real estate. Buy real estate and wait"- Will Rogers, Actor In India – Homebuyer activism, Trust-deficit, deliberate delays, defective land titles, fly-by-night operators, unregulated/ unorganized/ fragmented markets, no provision of compensation from the Government side, fraudulent advertisements, opaque records, pseudo-agents, long drawn litigation, curative (and not preventive laws)…….ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 5.
    Contents Summary Content Page 5 A stepcloser to happy home-buying Content Lack of standardization and adequate consumer protection Lack of uniform regulatory environment Dearth of transparency and accountability in transactions High levels of risk perception by investors/ consumers Redundant/ Static land laws Consumers forced to sign on dotted lines Making project investment ready for REITs Steering in transparency into real estate transactions Elimination of information asymmetry and ensuring full and fair disclosures Provide respite to flat purchasers against the practice of fly-by-night developers Protect consumer interests Ensure timely execution of the projects Provide a speedy/ robust dispute resolution mechanism Need Objectives Though the Consumer Protection Act, 1986 is available as a forum to the buyers in the RE market, the resource is only curative and is not adequate to addresses all the concerns of the buyers and promoters "We need action on real side (as) also on transparency on land acquisition, transparency on construction and on sales” – Former RBI Governor ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 6.
    Contents Summary Content Page 6 The Buildup to the Act Content Date Event January 20, 2009 National conference of Ministers of Housing, Urban Development and Municipal Affairs of States and UTs proposing a law for RE sector July, 2011 Ministry of Law & Justice suggested central legislation for RE sector under specified entries of concurrent list of the Constitution for regulation of contracts and transfer of property June 4, 2013 Union Cabinet approved the Real Estate Bill, 2013 August 14, 2013 Real Estate Bill, 2013 introduced in Rajya Sabha September 23, 2013 Bill was referred to the Department related Standing Committee February 2014 Report of the Standing Committee tabled in Rajya Sabha on February 13, 2014 and in Lok Sabha on February 17, 2014 February 9, 2015 Attorney General upheld the validity of central legislation for RE sector and the competence of the Parliament April 7, 2015 Union Cabinet approved official amendments based on Standing Committee Report March 6, 2015 Real Estate Bill, 2013 and official amendments referred to the Select Committee of Rajya Sabha July 30, 2015 Select Committee of Rajya Sabha tabled its Report along with Real Estate Bill, 2015 December 9, 2015 Union Cabinet approved the Real Estate Bill, 2015 as reported by the Select Committee of Rajya Sabha for further consideration of the Parliament March 10, 2016 Real Estate Bill, 2015 passed by Rajya Sabha March 15, 2016 Lok Sabha passed the Real Estate Bill, 2015 March 25, 2016 The President of India accorded his assent to the Real Estate Bill, 2015 March 26, 2016 Real Estate (Regulation and Development) Act, 2016 published in the Gazette for public information April 27, 2016 69 Sections (Sections 2, 20-39, 41-58, 71-78, 81-92) of the Act notified by the Ministry of Housing & Urban Poverty Alleviation bringing the Act into force with effect from May 1, 2016 - Remaining to come into force on May 1, 2017 *Source: Press Information Bureau, Government of India ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 7.
    Contents Summary Content Page 7 The Buildup to the Act and thereafter Content Date Event October 28, 2016 Issues Real Estate (Regulation and Development) Removal of Difficulties Order, 2016 October 31, 2016 Real Estate General Rules, 2016 and Agreement for Sale Rules, 2016 notified for UT of Andaman & Nicobar Islands, Chandigarh, Dadra & Nagar Haveli, Daman & Diu and Lakshadweep *Source: Press Information Bureau, Government of India UTs, Gujarat, Uttar Pradesh, Madhya Pradesh, Andhra Pradesh and Odisha have notified the Rules National Capital Territory of Delhi has not notified rules yet (though it has been finalised) Haryana and Delhi have designated interim real estate regulatory authority for addressing disputes Maharashtra Govt has approved RERA rules, law ministry to give final nod; Karnataka/ West Bengal/ Tamil Nadu/ Rajasthan - draft rules UTs: Andaman & Nicobar Islands, Dadra & Nagar Haveli, Daman & Diu, Lakshadweep and Chandigarh As per Section 84 of the Act, the State Governments were required to notify rules within 6 months from the date of commencement of RE Act ie May 1, 2016 – States Miss the Bus! ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 8.
    Contents Summary Content Page 8 Preamble andStructure An Act to: Act has 92 sections divided into 10 chapters as below: Chapter I Preliminary Section 1 – 2 Long Title Structure Chapter II Reg of RE Projects and RE Agents Section 3 – 10 Chapter III Functions and Duties of Promoter Section 11 – 18  ensure sale of plot, apartment, building, RE project in an efficient/ transparent manner  protect the interest of consumers in the RE sector  establish an adjudicating mechanism for speedy dispute redressal  establish Real Estate Regulatory Authority for regulation/ promotion of RE sector Content  establish the Appellate Tribunal to hear appeals from decisions, directions or orders of the Real Estate Regulatory Authority  for matters connected therewith or incidental thereto Chapter IV Rights and Duties of Allottees Section 19 Chapter V The Real Estate Regulatory Authority Section 20 – 40 Chapter VI Central Advisory Council Section 41 - 42 Chapter VII The Real Estate Appellate Tribunal Section 43 – 58 Chapter VIII Offences, Penalties and Adjudication Section 59 – 72 Chapter IX Finance, Accounts, Audit and Reports Section 73 – 78 Chapter X Miscellaneous Section 79 – 92 *Section 89: Act to have an overriding effect ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 9.
    Contents Summary Content Page 9 Whom doesit apply to… Content Residential + Commercial Projects Projects on land of 500 sq mts or more > 8 units No completion certificate issued Act applies to: – Commercial RE projects including shops, offices, showrooms, godowns – Residential Apartments – Plotted Developments – Ongoing projects in respect of which completion certificates have not been issued - Retrospectivity? – Challenge of "impossibility of performance" in absence of a regulatory body in many states – No sales from May 1? RE projects developed in phases would require registration for each phase separately Exemptions: – Projects being developed on land less than 500 sq mts (0.05 hectare or 0.12 acre) – Number of units does not exceed 8 (all phases) – Obtained completion certificate for the project before the commencement of the Act – Redevelopment RE projects where no new allotments are to be made – Renovation/ Repair - Not involving marketing, advertisement, selling or allotment of any apartment, plot or building – Sale of ready to occupy property in the resale market – States given the right to “lower” the ceiling of 500 sq mts and 8 units; – RE Act seems to exclude industrial RE such as factories, mines and farms ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 10.
    Contents Summary Content Page 10 Whom doesit apply to… Content Residential + Commercial Projects Projects on land of 500 sq mts or more > 8 units No completion certificate issued Outside the purview – Projects developed to be leased (ie not for sale) – Unsold projects in respect of which CC has been received – Projects outside the "Planning Area” may not need registration Promoter - In case of Joint Development Agreement (JDA), both land owner and builder should be jointly responsible under the Act; may need separate registrations and liable to discharge functions and responsibilities independently The Ministry of Housing & Urban Poverty Alleviation had set October 31, 2016 for States to frame Rules under this Act and April 30, 2017 as the deadline to establish Real Estate Regulatory Authority/ Appellate Tribunal – Almost all states are non-compliant State Governments have started framing rules appurtenant to the law – only few have notified, most at draft/ planning stage – States given the right to “lower” the ceiling of 500 sq mts and 8 units; – RE Act seems to exclude industrial RE such as factories, mines and farms ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 11.
    Contents Summary Content Page 11 Real EstateRegulatory Authority Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 12.
    Contents Summary Content Page 12 Real EstateRegulatory Authority (‘RERA’) Content RE Act provides for establishment of the RERA in all states to regulate projects being developed in that state, which shall have the powers of the Civil Court while trying any suit To be set up by the State Government(s) within a period of 1 year from the date of this Act coming into force Until the establishment of RERA, the State Government shall designate any Regulatory Authority (or Secretary of the Housing Department) to perform the functions of RERA - Delhi and Haryana nominated RERA to act as the nodal agency to co-ordinate efforts regarding development of the RE sector and render necessary advice to the State Government to ensure the growth and promotion of a transparent, efficient and competitive RE sector To recommend to the local authorities and State Government, the creation of a single window system for project approvals The RE Act does not contain concrete steps to address the long standing demand of the developers for a single window system. Structurally, therefore, the RERA results in a fundamental imbalance, where the Developer is put under onerous obligations on various aspects related to the development of the project but there is a lack of an appropriate mechanism that ensures timely approvals towards the same RERA is intended to perform the same role for property/ RE transactions as the SEBI does for security transactions in the capital markets ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 13.
    Contents Summary Content Page 13 RERA -Functions and Powers Content Registration and regulation of RE projects Maintenance of a database on its website for public viewing of all registered RE project, details of developers and RE agents Fixation of standard fees to be levied on the allottees, promoters or RE agents Ensure compliance of its regulations and other obligations cast upon the promoters, allottees and RE agents FUNCTIONS SECTION 34 POWERS SECTION 35 - 38 May suo moto or on receipt of complaint, call for information and conduct investigation May issue interim orders during the pendency of proceedings Has the power to impose penalty or interest in regard to the contravention of the of the obligations cast upon: – Developers – Allottees or – RE agentICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 14.
    Contents Summary Content Page 14 Impact onPromoters/ Developers Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 15.
    Contents Summary Content Page 15 Registration Content Promoter RERA Registration Certificate Make an application Grantof certificate within 30 days Deemed Registration Failure to register within 30 days Project promotions/ advertisements/ marketing/ selling/ booking not permitted before registration with RERA – FAQ: Not even SMS/ emails Application for registration to disclose: – Brief details of enterprise ie name, registered address, type of enterprise – Details of projects launched in the past 5 years, litigations, status of other projects and delays – Copy of commencement certificate, sanction plan, layout plan, development plan to be executed etc – Location details of project, clear demarcation of the land proposed to be developed – Proforma of allotment letter, agreement for sale, and the conveyance deed proposed to be signed with the allottees – Number, type and carpet area of apartment and area of garages/ parking area – Details of RE agents, contractors, architect, structural engineer etc – Declaration supported by an affidavit, signed by the promoter (details on next slide) – Registration to be granted for a specified period (time period within which the developer expects to complete the project). – Extension possible upon application in reasonable circumstances without promoter's faults (including “Force Majeure” conditions). Period of extension in aggregate not to exceed 1 year. Builder can’t sell units prior to obtaining commencement certificate, as it is a mandatory document for obtaining registration. Usually it takes 3-4 months post initiation of construction activities (plinth level construction) to get commencement certificate ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 16.
    Contents Summary Content Page 16 What isa phase for the purpose of registration? Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala OngoingProjects Residential (Multiple towers, wings, premium blocks etc) + Club House Residential + Commercial+ Retail+ Club House Large projects – Township +Residential+ Commercial +Hospitals+Schools – The Real Estate (Regulation and Development) Act 2016 does not define phases – Defines “Project“ [Section 2(zj)] and “Real Estate Project“ [Section 2(zn)] – Mentions that where RE project is developed in phases, every such phase shall be considered a standalone RE project requiring separate registrations – Maharashtra RERA Rules: "Phase of a Real Estate Project" may consist of a building or a wing of the building in case of building with multiple wings or defined number of floors in a multi-storeyed building – Different phases would act like individual projects and this would help developers deal with multiple project execution hurdles like time taken for government approvals, long term project financing, construction delays etc
  • 17.
    Contents Summary Content Page 17 Registration Content Legal titleto the land proposed to be developed and details thereof Land is free from encumbrances or details thereof, as the case may be Time period within which the project is proposed to be completed 70 percent of the amounts realized from the project shall be deposited in a separate account (not an escrow account - confirmed by FAQs) in a scheduled bank and that it would be utilized only for cost of construction and land cost Undertake to obtain pending approvals in a timely manner DECLARATION BY DEVELOPER Restriction on usage of funds Developer mandated to deposit the funds collected from the allottees in a separate bank account and any withdrawal from the separate bank account would have to be certified by an Engineer, Architect and a Chartered Accountant* that the withdrawal is in proportion to the percentage of completion (PoC) of the project – Deemed Escrow! Further, mandatory audit of accounts within 6 months from the end of FY - Auditor to verify and specifically certify usage of funds as per PoC method The Pre-withdrawal certificate needs to be signed by 3 professionals. The CA will have to rely on the Architect and Engineer for PoC. The Architect and Engineer in turn would have to rely on the CA to certify withdrawal numbers. What if there is no overall collective consensus? Certain local statutes such as the Maharashtra Ownership of Flats (Regulation of the Promotion of Construction, Sale, Management & Transfer) Act, 1963 had a similar provision that required the promoter to maintain a separate bank account for the receivables from the project, which was not implemented in practice by the promoters, who considered funds received from allottees of various projects as fungible. ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 18.
    Contents Summary Content Page 18 70 percentcondition – An illustration Content Cost Assumptions Land cost 20 Construction cost 20 Overheads, Interest, Others* 30 Project Cost 70 Sale Assumptions Land 50 Construction 50 Sale value 100 Payment and Construction Schedule Agreement Instalment % Completion 10% 0 1st Milestone 25% 20% 2nd Milestone 25% 40% 3rd Milestone 25% 70% 4th Milestone 10% 85% Possession 5% 100% Particulars Cumulative cash flow Amount that needs to be deposited (70%) % completion X Project cost (cumulative) Retentions (Restricted Cash) Agreement 10.00 7.00 0 7.0 Instalment 1 35.00 24.50 14.0 10.5 Instalment 2 60.00 42.00 28.0 14.0 Instalment 3 85.00 59.50 49.0 10.5 Instalment 4 95.00 66.50 59.5 7.0 Possession 100.00 70.00 70.0 0 How will this work in JD arrangements (Revenue as well as Area sharing)? ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala Float - Collateral for other projects? *Draft Rules in Karnataka permit withdrawal only for onsite expenditure for the physical development of the project. Such rules, if implemented could further restrict the quantum of cash withdrawal, thereby increasing the restricted cash component.
  • 19.
    Contents Summary Content Page 19 Components ofcost - MahaRERA Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala • Acquisition cost, lease charges overhead cost, marketing cost, legal cost and supervision cost • Premium paid to obtain development rights, FSI, additional FSI, fungible FSI, and any other incentive under DCR • Acquisition of TDR • Consideration payable to the outgoing developer to relinquish ownership and title rights over such land parcels • Amounts payable to State Government or Competent Authority towards stamp duty, transfer charges • Premium payable as per annual statement of rates (ASR) for redevelopment of land owned by public authorities Land Cost • On-site and off-site expenditure for development of project • Payment of taxes, fees, charges, premiums, interest etc • Principal sum and interest payable to financial institutions, scheduled banks, NBFCs or money lenders (apart from land cost) • Rehabilitation Scheme: expenditure incurred towards clearance of land or encumbrances for temporary transit accommodation, construction of rehab building, overhead cost, ASR linked premium, fees, charges and security deposits to authorities Construction Cost
  • 20.
    Contents Summary Content Page 20 Registration Content Promoter isin default of the requirements of the Act/ Rules/ Regulations Violates terms and conditions of the approval given by the competent authorities (local authorities - BDA, BBMP etc) Involved in "unfair practice or irregularities" – Explanation to Section 7 Opportunity of being heard with 30 days’ speaking notice, in writing REVOCATION Consequenc eses of Revocation Debar the promoter from accessing its website Listing of developer as defaulters Freezing Bank accounts Inform RERA in other States/ UTs about such revocation Handover of the development to Association of allottees/ Competent Authorities upon consultation with State Govt Right of first refusal for completing the construction lies with the Association of allottees ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 21.
    Contents Summary Content Page 21 Functions andDuties of Promoter Content • Details of registration granted by RERA and quarterly updates on – Number/ types of apartments or plots booked, approvals granted, status of the project etc Webpage on RERA website • Sanctioned plan, layout plan, stage wise schedule of completion of the project including the provisions for civic infrastructure like water, sanitation and electricity Information to the allottees • Responsible for all obligations, responsibilities and functions under the provisions of the Act or the rules and regulations • Responsible for obtaining leasehold certificate, completion/ occupancy certificate • Providing and maintaining essential services until take over of the maintenance by the Association of allottees • Execute a registered conveyance deed of the apartment, plot or building within 3 months from the date of issue of occupancy certificate • After executing agreement for sale, not to mortgage or create a charge on the apartment, plot or building • Cancellation of allotment only in terms of the agreement for sale General – Under this Act, Developers can sell units only on carpet area, which means the net usable floor area of an apartment. This excludes the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment. – 'Carpet area' would be the basis for RE purchases. Buyers would now be paying only for the carpet area and not the ‘super built-up area’. – Exclusive balcony and open terrace area should mean the area belonging and to be used by the specific allotee. • Responsible for compensation for loss or damage caused due to incorrect/ false statement made in prospectus or notice of advertisement or in relation to the model apartment, plot or building Veracity of Advertisement ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 22.
    Contents Summary Content Page 22 Advertising -Caution List Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala Disclaimer prior to exhibiting mock/ sample flats Careful use of adjectives for describing the project Mentioning carpet area as defined under RERA Review and monitoring emails/ written communications sent by the marketing/ agent team Appropriate disclaimers in booking forms/ pamphlets
  • 23.
    Contents Summary Content Page 23 Advertising -Caution List* Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala Carpet area – "We have the best in class construction technology. Our carpet area efficiency is 75%" Facilities – "Project includes access to 5 star club within the property" – With fee? Without fee? – Is it part of common amenities? – Fully loaded gymnasium!Over promise – "Sir don’t worry we are on track for completion. Although the agreement is for handover in 24 months, we will handover by 18 months" – "50 percent appreciation in 24 months" – Assured Rentals – Investment hotbed - Is the claim backed? – Amenities in the project - Restaurants – But the plan has only one restaurant – 5 Star clubhouse/ Concierge services - Is it certified? Brochures – "10 minutes from international Airport" – What time of the day? What speed? What traffic conditions? Certified by an external agency? Misstatements Model Flats – Personalized furniture and fixtures used only for display purposes (Not a part of actual delivery) – Finishing of walls, flooring etc – Brands used for fixtures and appliances – Standard and non-standard amenities * Illustrative/ Indicative only
  • 24.
    Contents Summary Content Page 24 Functions andDuties of Promoter Content • Prohibited from taking more than 10 percent of cost of apartment, plot or building as advance payment from allottees without first entering into a written agreement for sale* and registering the same Advance Payment/ Application Fee • Any structural alteration/ addition to the sanctioned plan can now be made only with the previous written consent of at least 2/3rd of the allottees (other than the Developer) • Minor additions or alterations permissible due to architectural and structural reasons Alteration • Transfer/ Assignment of majority rights and liabilities in respect of RE projects to third party would now require period written consent of 2/3rd allottees and RERA • No extension of time to the intending promoter in order to comply with all the pending obligations of the erstwhile promoter Transfer/ Assignment * The Developer needs to accept payments from Allottees only by crossed account payee cheques or Demand Drafts or through internet banking such as RTGS/ NEFT/eCMS in view of Section 269SS of the Income tax Act, 1961. Similarly, refunds on cancellation of allotments, if any, should be made through the same channels to comply with Section 269T of the Income tax Act, 1961. • Payment of interest to the allottees in cases of default (rate of interest for this purpose has been fixed at the same rate which the allottees would have to pay in the case of default) Interest • Any failure on the part of Developer to hand over the possession of the property in accordance with the agreement for sale would empower the Allottees (at their will) to withdraw from the project and demand refund of the amount paid along with interest Handover • Obtain insurance as may be notified by the appropriate Government, including in respect of the title of land and construction of RE projects Insurance ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 25.
    Contents Summary Content Page 25 Functions andDuties of Promoter Content • Claim of compensation due to defective title of land etc not subject to the law of limitation provided under any other law No limitation • Fixing structural defects or any other defect in workmanship, quality or provision of services or any other obligations of the promoter as per the agreement for sale for 5 years after handing over possession to the allottees without any further charges • Defect needs to be rectified within 30 days and failure to rectify such defects within 30 days entitles the allottees to compensation Defect liability 5 years to be considered from: – Date of possession of the respective unit or all units in the apartment or handing over of common area to the association of allottees? – What if there are unsold units or units sold subsequently in later years. Whether liability for structural defect would be considered from the date of last unit sold? Are 30 days enough for rectification? Identifying the contractor, deploying labour and completion of rectification within 30 days seems far fetched ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala • Display sanctioned and layout plans along with specifications at marketing and all other offices of the promoter from which booking or sale of any plot, apartment or building, is being carried out • Dimensions of such sanctioned & layout plans to be displayed shall be at least 3 ft X 2 ft Display
  • 26.
    Contents Summary Content Page 26 Real EstateAgent Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 27.
    Contents Summary Content Page 27 Real EstateAgent Content Every RE agent is required to be registered with RERA for facilitating sale, purchase of any RE project RE Agent shall not facilitate purchase or sale of RE project not registered with RERA Maintain and preserve books of accounts, records and documents as may be prescribed Not involve in any unfair trade practices Facilitate the possession of all the information and documents to the allottee Section 2(zm) - "Real Estate Agent" means any person, who negotiates or acts on behalf of one person in a transaction of transfer of his plot, apartment or building, as the case may be, in a real estate project, by way of sale, with another person or transfer of plot, apartment or building, as the case may be, of any other person to him and receives remuneration or fees or any other charges for his services whether as commission or otherwise and includes a person who introduces, through any medium, prospective buyers and sellers to each other for negotiation for sale or purchase of plot, apartment or building, as the case may be, and includes property dealers, brokers, middlemen by whatever name called ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 28.
    Contents Summary Content Page 28 Unfair TradePractices Content Unfair Trade Practices Section 10(c) Practice of making any statement, whether orally or in writing or by visible representation (A) Falsely represents that the services are of a particular standard or grade (i) Represents that the Promoter or himself has approval or affiliation which such promoter or himself does not have (ii) Makes a false or misleading representation concerning the services (iii) Permitting publication of any advertisement in newspaper or otherwise of services that are not intended to be offered (B) ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 29.
    Contents Summary Content Page 29 Pertinent points Content Canthey piggy-back on the disclosures of the promoters? – No, they can’t Definition of ‘Real Estate Agent’ includes any person who negotiates or acts on behalf of one person in a transaction of for sale of real estate with another person and receives remuneration for his services. It includes a person who merely introduces prospective buyers and sellers to each other for negotiation for sale of real estate. – Seems to be an impractical proposition given the tens of thousands of people, having regular jobs, who sometimes moonlight as middle men for a small commission – Online portals such as 99acres.com, Housing.com, Common Floor etc should get covered (confirmed by FAQs) Consolidation is bound to happen and many may leave the field – To remain in the mainstream, certain minimum scale needs to be achieved Fate of older state laws such as the Haryana Regulation of Property Dealer and Consultancy Act, 2008 – Interestingly, this law is not listed in the list of repeals – Except for the requirement of registration (a process requiring fee) and the obligation of maintenance of a register, the instant law does not actually mainstream or bring professional standards into property brokerage – Law also silent on the qualifications of a broker/ RE agent (for instance certified trainings etc which is prevalent in European countries and the Middle East nations). State Governments focused to garner more registration fee rather (INR 500,000 as per draft rules in Karnataka!) ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 30.
    Contents Summary Content Page 30 Allottees –Rights and Obligations Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 31.
    Contents Summary Content Page 31 Entitlements Content Obtain information regarding sanctionedplans, layout plans with specifications Stage-wise time schedule of completion of the project Claim refund of amount paid along with interest in case of failure to provide possession of the property Claim the possession of apartment as per the time period of completion committed by the Promoter Claim the refund of amount paid in case of revocation of his registration Entitlements Section 2(d) - Allottee in relation to a real estate project includes a person to whom a plot, apartment or building, as the case may be, has been allotted, sold (whether as freehold or leasehold) or otherwise transferred by the promoter but does not include a person to whom such plot, apartment or building, as the case may be, is given on rent. Normally, a person to whom the plot, apartment, building is given on leasehold basis would be paying rent and therefore a clarity is required to that effect ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 32.
    Contents Summary Content Page 32 Obligations Content Make paymentsin the manner and within time as specified in the agreement for sale Liable to pay interest on delayed payments Take possession within 2 months of issue of occupancy certificate Participation in formation of an association or society or co-operative society of allottees Participate towards registration of conveyance deed Obligations ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 33.
    Contents Summary Content Page 33 Content Judicial Mechanism ICMAIBengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 34.
    Contents Summary Content Page 34 Judicial Mechanism Content RERA AdjudicatingOfficer [District Judge] RE Appellate Tribunal High Court Adjudicating Officer to be appointed by RERA in consultation with the State Section 12 - Veracity of information in advertisement, notice, prospectus or model apartment Section 14 - Adherence to sanctioned plans, layout plans and project specifications by the Promoter Section 18 - Return of amount of compensation Section 19 - Rights and duties of allottees Other matters Any dispute resolution relating to matters on any violation or contravention of provisions is through the RERA or the Adjudicating Officer No recourse to civil courts on matters covered under the RE Act Consumer forums (National, State or District) not been barred from the ambit of the Act In respect of matters pending before Consumer Courts, the Appellants have the option to withdraw such complaint and file an application before the Adjudicating Officer Pre-deposit at REAT level: 30 percent of penalty for Promoters or 100 percent of interest/ compensation for allottees REAT to be headed by a sitting or retired Judge of the High Court, with one judicial and one administrative/ technical member Foradjudgingthe compensationtobepaid byPromoters Required to adjudicate cases within 60 working days from the date of receipt of appeal/ application * Section 31 – As per the definition of “aggrieved person”, even an outsider (who is not the customer or the association of allottees) could file a complaint with the Adjudicating Authority or the officer ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 35.
    Contents Summary Content Page 35 Punitive Provisions Content ICMAIBengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 36.
    Contents Summary Content Page 36 Defaults andPenalties Content # Nature of offence Penalty Prosecution Promoter 1 Advertise, market, sell or offer for sale or invitation to public to purchase the plot, apartment or building without registration with RERA Extending up to 10 percent of the estimated cost of RE project In case of non-deposit of penalty or continued violation - Imprisonment for a term extending up to 3 years or fine upto 10 percent of the estimated cost of the RE project or both 2 Failure to make an application for registration of RE project or providing false information Extending up to 5 percent of the estimated cost of the project - 3 Failure to comply with the orders or directions issued by RERA Penalty for per day of default, which may cumulatively extend up to 5 percent of the estimated cost of the project - 4 Failure to comply with the orders or decisions of the Appellate Tribunal Penalty for per day of default, which may cumulatively extend up to 10 percent of the estimated cost of the project Imprisonment for a term extending up to 3 years or fine 5 Contravene any other provisions other than listed above (including failure to register the agreement for sale, false advertisements etc) Extending up to 5 percent of the estimated cost of the project - • Any punishment with imprisonment may, either before or after the institution of the prosecution, be compounded by the Court on such terms and conditions and on payment of such sums as may be prescribed - Section 70 of the Act ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 37.
    Contents Summary Content Page 37 Defaults andPenalties Content # Nature of offence Penalty Prosecution RE Agent 1 Failure to obtain registration or fails to comply with his functions as prescribed Penalty of INR 10,000 for everyday during which the default continues, cumulatively which may extend up to 5 percent of the related cost of the apartment, plot or building - 2 Failure to comply with the orders or directions issued by the RERA Penalty for per day of default, which may cumulatively extend up to 5 percent of cost of the project - 3 Failure to comply with the orders or decisions of the Appellate Tribunal Penalty for per day of default, which may cumulatively extend up to 10 percent of the estimated cost of the project Imprisonment for a term extending up to 1 years or fine Allottees 1 Failure to comply with any order or decision of RERA or Appellate Tribunal Penalty for per day of default, which may cumulatively extend up to 5 percent of cost of the project Imprisonment which may extend to 1 year or fine (imprisonment is compoundable as per Section 70) • Any punishment with imprisonment may, either before or after the institution of the prosecution, be compounded by the Court on such terms and conditions and on payment of such sums as may be prescribed - Section 70 of the Act • In the cases of companies (which is defined as per Section 69 to mean body corporate, firm, association of individuals), every person is in charge for the conduct of the business and the Company shall be deemed to be guilty of the offence. The person in charge would not be liable for punishment if it is proved that the offence was committed without his knowledge or that due diligence was exercised to prevent the commission of such offence. ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 38.
    Contents Summary Content Page 38 Teething Issues/Prevailing Concerns Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 39.
    Contents Summary Content Page 39 Teething Issues/Prevailing Concerns Content Ring Fencing of Project Receivables: Amount required towards construction is generally 40-50 percent of the collection (depending on the city); excess 20-30 percent would be lying idle in the account whereas at the same time, the developer may need to pay interest on loans borrowed for construction etc Withdrawal only for cost of construction and land: – Fund for meeting customer refunds for cancelled units? – Expenses for meeting Head office and site overheads (Karnataka Rules allows withdrawal for "onsite" expenditure only)? – Payment of taxes? – Servicing of loans (construction finance position)? – Seed capital for commencement of another projects – Should the promoter rely on balance 20-30 percent? Interpretation can be derived from Accounting Standard - 7 on "Construction Contracts" to compute the percentage completion - Does not provide for inclusion of land cost in determining the completion ratio How can a professional certify a withdrawal to be in proportion with PoC even before the withdrawal is made? Clarity needed on this aspect A. % of completion of project till date B. Amount that could be withdrawn based on (A) C. Cumulative amounts already withdrawn till date D. Amount that could be withdrawn = B – C ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 40.
    Contents Summary Content Page 40 Teething Issues/Prevailing Concerns Content PoC is a subjective concept – Format of certification – PoC on accounting principles (CA)/ physical progress (Architect & Engineer)? – PoC to be considered including land cost or excluding that (conflicting views from AS-7)? – PoC – Project wise/ tower wise (if multiple towers in same phase)? Seventy percent withdrawal would: – Result in negative working capital and deleveraging – Impact individual projects cash flow (may not have significant bearing on entity level cash flow) Section 4(2)(l)(D) of the Act uses the word “seventy percent” and not “at least 70 percent”. – Appears from the intention of the requirement that the promoter can deposit more than 70 percent of the amount realized – Intention could be to provide a cushion of 30 percent to the promoter so that the funds could be used to book lead for other projects Commercial properties, even if partly held for sale, shall be covered – Triggered if developer/ land owners takes "stock-in-trade" positions on commercial developments (position now common for Projects - CBDT circular dated April 25, 2017 and SC rulings of Chennai properties and Rayala Corporation) Long lease transactions/ Built-to-lease models/ SEZs – Whether long leases are regarded as "sale"? ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 41.
    Contents Summary Content Page 41 Teething Issues/Prevailing Concerns Content Section 11(4)(e) – Promoters responsible for formation of Association or society; within 3 months from the date of majority of units being booked. – What constitutes “Majority”? – What if allottees are not willing to form Association? Usually customers are not very keen to form Associations at the booking stage Section 11(4)(f) – Undivided proportionate title in the common area to be registered with the Association of Allottees – Current practice is to distribute the undivided share of common area to all the units in the project – Stamp Duty implications? – Indirect tax (VAT/ Service tax) implications? Who would bear the costs? Section 11(4)(g) – Outgoings collected from customers – Water/ Electricity related deposits, Khata charges, taxes etc could not be collected on an adhoc basis as the Promoter needs to pay actual amounts so collected, to the authorities – Separate disclosures in agreement? Section 11(4)(h) – Not to mortgage or create charge on apartment, plot or building subsequent to agreement for sale – Whether this would restrict the builder from mortgaging the land for arranging construction finance? ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 42.
    Contents Summary Content Page 42 Teething Issues/Prevailing Concerns Content Section 11(5) – Cancellation as per agreement for sale – What if the customer books the unit and does not turn up for executing the agreement for sale? Section 15 – Transfer of RE Project to third parties – Project level stake sale possible? – Requires approval from 2/3rd allottees + RERA Section 16 – Insurance – Insurance of land title to ensure that claims made on the land can be satisfied by the Insurance companies. Developer not to be burdened to make payments in respect thereof – So far, Insurance companies have not launched such schemes (prevalent in some European countries). – Shall ensure marketability of the apartment to be purchased by the homebuyer – Insurance to stand transferred to the Allottees or Association at the time of promoter entering into the agreement for sale. Currently, insurance taken by the builder is endorsed/ transferred to the lender till the date of the complete repayment of borrowing Section 17 – Conveyance deed to be executed within 3 months of the date of obtaining occupancy certificate – As per local laws, builder need not complete the common area to obtain occupancy certificate, completion of essential services suffices – Whether Association would accept the conveyance deed before completing the common area in all respects? – What is the customer has not paid the entire dues to the builder within 3 months of getting occupancy certificate? ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 43.
    Contents Summary Content Page 43 Teething Issues/Prevailing Concerns Content Projects recently approved, but not formally launched – whether this Act would apply? Calibration with Land Acquisition, Rehabilitation and Resettlement Act, 2013 Strict compliance with sanction plan – As per local laws, deviation up to 5 percent is accepted by the authorities States to establish state regulators within the timelines provided and implement the Act (no ratification/ consent required as this Act is not a Constitutional Amendment Act affecting the States) Act under the purview of the concurrent list and hence both the Union and the State can legislate – Fate of the State enacted real estate legislations such as the Karnataka Apartment Owners’ Act, 1972 Glaring differences in Karnataka State legislation for RE and RERA – Advance (10 percent vis-à-vis 20 percent), Defect liability period (5 years vis-à-vis 1 year), Alternation and Penalty related clauses – Home buyers could be entangled between the two laws – State laws need to be ironed out accordingly Section 88 and 89 of RERA – Contradictory? – Provisions of RERA will be in addition to and not in derogation to any other law currently applicable + Overriding principles retained – Should the stronger of the contradicting provisions in RERA and the State legislation (ie one more beneficial to the buyer) apply? – A fair reading suggests thisICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 44.
    Contents Summary Content Page 44 Teething Issues/Prevailing Concerns Content Doctrine of occupied field? – When on a particular subject of the concurrent list on which the State has made a law and subsequently the Union also makes a law on that subject, the field get occupied by the Union legislation and the State legislation cannot hold something contrary to the Union legislation When a state law has been passed with President's assent instead of the Governor's. In such a case, which law prevails? – Maharashtra Housing (Regulation and Development) Act has President's assent – Article 254 (2) of the Constitution of India – Provided that nothing in this clause shall prevent Parliament from enacting at any time any law with respect to the same matter including a law adding to, amending, varying or repealing the law so made by the Legislature of the State Law allows state to create one or more Real Estate Regulatory authorities as may be needed with regard to its geographical extents, diversity and real estate development activity – Consumer Protection law has a well defined spatial grid – present in every district – Real Estate Regulatory authority being a state forum would be located in the capital city – Approvals to be obtained locally and adjudication in capital city; additional benches could have been set up in cities with high degree of RE development activity ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 45.
    Contents Summary Content Page 45 Teething Issues/Prevailing Concerns Content Responsibility of the Regulatory Authority (Section 32, 33 and 34) – No 'assurance' function like other parties which accord development permission such as local government, PWD, Fire safety etc – Function essentially to create an information forum – Authority takes no responsibility of streamlining the approvals/ NOC process, nor does it reduce the no of approvals required for a RE project By default, the law should apply to all such projects where a completion/ occupancy certificate has not been issued. However, some states (such as Gujarat and Uttar Pradesh) have gone ahead with Rules that effectively dilute the provisions of the law: – Making the law not effective retrospectively ie projects already under development on the day of notification of the Rules being exempted – Exemption to projects where services have been handed over to the Resident Welfare Association/ Apartment Owners’ Association for maintenance – Exempting projects where development work is completed and sale/ lease deeds of 60 percent of the units/ plots have been executed State-level dilution has given leeway to realtors (New Government in Uttar Pradesh revised the rules recently) Borderline Projects? ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 46.
    Contents Summary Content Page 46 Teething Issues/Prevailing Concerns Content What about agreements already signed for ongoing projects? – Agreement for sale - Prior to May 1, 2017 - does it need to change as per RERA requirements (aspects such as sale of open car parking, structural defect liability etc)? If not, entitlements of the buyers would be different for the same project - Legal Bizarre! Maharashtra FAQ # 40 could be referred: Stamp duty again? – If sold on super built up area basis, disclose carpet area now and keep the consideration same? What about projects without OC which are already sold and occupied prior to May 1, 2017? Model agreement for sale - Changes permitted? If yes, to what extent? Stamp duty costs needs to be specifically excluded in the costs discussed in the agreement of sale - otherwise 70 percent rule would apply on such recoveries also (clarified by Maharashtra FAQ # 48) Draft ICDS for Real Estate transactions (May 2017): Top-up problem (could impact subvention schemes) ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 47.
    Contents Summary Content Page 47 Pertinent pointsrelating to some definitions Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 48.
    Contents Summary Content Page 48 Pertinent pointsrelating to some definitions Content Definition of the term “Promoter” – The term “cause to be constructed” suggest the inclusion of land owners as promoters in the case of Joint Development Agreements (JDAs) – Position by MahaRERA notification dated May 11, 2017 – Even a Constructor gets covered - Joint liability aspect needs to be checked – PE Investor, land owning SPV - Promoter? – Development authorities - governed by the asset disposal rules – whether municipal bodies/ Housing Boards which are engaged in providing housing under the Pradhan Mantri Awas Yojana/ Rajiv Awas Yojana get covered - FAQs suggest Yes – Separate entities for each project – No litigation history, Flaw? – Power of Attorney holder (prevalent in the northern part of India) should get covered Definition of the term “Real Estate Project” – Land as such being sold without plotting activity should not be covered and hence lies outside the ambit of this Act Financial penalty for any contravention ranges from 2 percent to 10 per cent of the project cost/ estimated project cost – "Estimated Project cost" defined under Section 2(v) of the Act to include “other charges" – A clarity on this would help avoid ambiguity at a later stage – Though FAQs provides some guidance – The term "Project Cost" is not defined which may lead to conflicting interpretationICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 49.
    Contents Summary Content Page 49 Pertinent pointsrelating to some definitions Content Is the audit of accounts in addition to the ones required under the Companies Act and the Income tax Act? The threshold under these legislations should not apply to the requirement of undertaking audit under RERA A need for the definition of the term ‘Structural defects’ to avoid misinterpretation in the futures A clarity in the definition of "minor additions or alterations” in the Explanation to Section 14 By including terraces, open parking areas etc as being part of "common areas", the practices of selling open parking areas, terraces, etc should be discontinued Definition of the term "Company" includes only the companies incorporated and registered under the Companies Act, 2013 – Totally disregards that the present developers are incorporated and registered under the erstwhile Companies Act,1956 and projects taken thereunder – Requires clarity whether these developers would need to comply with the provisions of this Act Definition of the term "Carpet Area" – Contrary to legislations such as the Developmental Control Regulations 1991 applicable in the state of Maharashtra which provides that internal partition walls are not to be included – Definition not compliant with IS:3861 (2007) – Does not refer to the International Property Measurement Standards (IPMS) that are now de-facto choice for most corporate real estate providersICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 50.
    Contents Summary Content Page 50 Impact onPricing Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 51.
    Contents Summary Content Page 51 Impact onPricing Content Cost of capital would go up (may be a short-term trend) – No recourse to interest free liquidity of the upfront payments received on pre-launches etc – Developers may look for equity (or mezzanine credit - mix of debt and equity) rather than structured debts to finance buying of land as paying interest may get tougher (with the new condition of selling units after project approvals + Withdrawal related restrictions) – Lease Rental discounting (LRD) could go up – Debt product offering by Banks may change – Stressed Balance sheets – Operating cost of the developers would increase Sale on the basis of carpet area alone would necessitate change in pricing policies etc Need to relook at Stamp Duty rates and premium Floor Space Index (FSI) rates on carpet area basis Developers may also collect likely penal costs indirectly from consumers Demand and supply dynamics (land prices, Demonetisation impact etc) Added cost of compliances may also indirectly impact pricing: – Disclosures (which was hitherto done only by listed entities) and ongoing compliances – Registration costs and other initial costs related to trainings, ERP etc – Insurance – Defect liability period – Additional holding cost ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 52.
    Contents Summary Content Page 52 Real EstateRules - A brief Analysis Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 53.
    Contents Summary Content Page 53 Overview –Rules in Karnataka (1/2) Content Karnataka Real Estate (Regulation and Development) Rules, 2016 released for public consultation Draft Rules released on November 4, 2016 Draft rules – An exact replica of the Union government’s flawed draft rules instead of the final rules While many states have dropped the requirement of income tax return of the promoter for registering the project (owing to confidentiality aspect), the draft rules released by Karnataka Government provides for the requirement of income tax return of the promoter for preceding 3 years "Cost of construction" to mean onsite expenditure for the physical development of land - for withdrawal based on PoC method Agreement for sale – Roles, responsibilities and obligations of promoters/ allottees specified – Buyer can stop making payment if the project does not achieve the construction milestones because of promoter’s fault – Undertaking from the promoter for timely delivery of the project – Promoter required to clearly indicate date of delivery – Provision for extension of project delivery date in cases of delay caused due to "force majeure" – Date of grant of commencement certificate, land title, number of storeys and plots in the project, carpet area, common area, total price to be mentioned – Total price is escalation free except when development changes are alteredICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 54.
    Contents Summary Content Page 54 Overview –Rules in Karnataka (2/2) Content Karnataka Government in the process of setting up the Real Estate Regulatory Authority Disclosure required for ongoing projects – For ongoing projects without completion certificate – Required to disclose status of project, extent of completion, size of apartment etc – Additional disclosures: PAN card of the promoter, audited financials of the promoter for the preceding financial year, income tax returns of the promoter for preceding 3 financial years, copy of the legal title deed/ JDA, details of encumbrances if any – In absence of RERA notified for Karnataka and this being a draft rule, currently may not be operational – States such as Maharashtra have mandated 70 percent fund parking condition for ongoing project too (absent in draft rules released by Karnataka) – Draft rules of Tamil Nadu specifically states that agreement for sale as specified by RERA not applicable to ongoing projects Requirement to update the webpage for the project within 7 days from the expiry of each quarter – Bookings made for apartments/ plots/ garages; – Status of project (with photographs); – Any approvals, etc ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 55.
    Contents Summary Content Page 55 Overview –Maharashtra & Tamil Nadu Content The Government of Maharashtra has notified the below rules/ regulations: – Maharashtra Real Estate (Regulation and Development)(Registration of Real Estate Projects, Registration of Real Estate Agents, Rates of Interest and Disclosures on Website) Rules, 2017 vide Notification No REA 2016/ CR No 79/ DVP-2 dated April 20, 2017 – Maharashtra Real Estate Regulatory Authority, Officers and Employees (Appointment and Service Conditions) Rules, 2017 vide Notification No REA 2016/ CR No 79/ DVP-2 dated April 17, 2017 – Maharashtra Real Estate (Regulation and Development) (Recovery of Interest, Penalty, Compensation, Fine payable, Forms of Complaints and Appeal, etc) Rules, 2017 vide Notification No REA 2016/ CR No 79/ DVP-2 dated April 20, 2017 – Maharashtra Real Estate Appellate Tribunal, Officers and Employees (Appointment and Service Conditions) Rules, 2017 – Maharashtra Real Estate Regulatory Authority (Form of Annual Statement of Accounts and Annual Report) Rules, 2017 vide Notification No REA2016/ CR No 123/ DVP-2 Dated April 18, 2017 – Maharashtra Real Estate Regulatory Authority (Recruitment and Conditions of Service of Employees) Regulations, 2017 – Maharashtra Real Estate Regulatory Authority (General) Regulations, 2017 The Government of Maharashtra has also released a detailed FAQ on its website https://maharerait.mahaonline.gov.in/ The Government of Tamil Nadu had released the draft RERA Rules on January 28, 2017 Press articles indicate the Tamil Nadu Government may reduce the number of units to 5 (as against 8 suggested by the Union Act) under the final rules ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 56.
    Contents Summary Content Page 56 Comparative Analysis Content ParametersKarnataka RE Rules Tamil Nadu RE Rules Maharashtra Rules Current status Draft, yet to be notified Draft, yet to be notified Notified Date of release* November 4, 2016 January 28, 2017 December 8, 2016 Registration fee for RE projects Not specified Registration fee payable by the promoter shall be a sum calculated at the rate as specified by the Authority from time to time No registration fee to be levied on Tamil Nadu Slum Clearance Board developed projects, Affordable Housing projects of Tamil Nadu Housing Board and Housing projects executed by Tamil Nadu Police Housing Corporation Rupee 1 per square meter for RE projects where the area of land proposed to be developed does not exceed 1,000 square meters; Rupees 2 per square meter for RE projects where the area of land proposed to be developed exceeds 1,000 square meters [Subject to a maximum limit of Rs 100,000] *Source - http://naredco.in/notifications.asp?links=gnc1 ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 57.
    Contents Summary Content Page 57 Content Parameters KarnatakaRE Rules Tamil Nadu RE Rules Maharashtra Rules Time period for registration of ongoing RE projects Ongoing projects for which completion certificate has not been obtained to apply for registration within 3 months of notification of the Act Ongoing projects for which completion certificate has not been obtained to apply for registration within 3 months of notification of the Act (“ongoing project” specifically defined in the Rules) Ongoing projects for which completion certificate has not been obtained to apply for registration within 3 months of notification of the Act Fee for extension of registration of RE project An amount equivalent to twice the registration fee along with an explanatory note setting out the reasons for delay in the completion of the project and the need for extension of registration for the project, along with documents supporting such reasons An an amount as may be specified by regulations made by the Authority along with an explanatory note setting out the reasons for delay in the completion of the project and the need for extension of registration for the project, along with documents supporting such reasons Rupee 1 per square meter for RE projects where the area of land proposed to be developed does not exceed 1,000 square meters; Rupees 2 per square meter for RE projects where the area of land proposed to be developed exceeds 1,000 square meters [Subject to a maximum limit of Rs 100,000] Comparative Analysis ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 58.
    Contents Summary Content Page 58 Content Parameters KarnatakaRE Rules Tamil Nadu RE Rules Maharashtra Rules Registration fee for RE Agents Within the jurisdiction of Bangalore Metropolitan Region Development Authority (“BMRDA”) - Rs 50,000 in case of an individual and Rs 500,000 for other than an individual Within the jurisdiction of any planning area outside the jurisdiction of the BMRDA - Rs 25,000 in case of an individual and Rs 250,000 for other than an individual Rs 25,000 in case of an individual and Rs 50,000 for anyone other than an individual A sum of Rs 10,000 in case of agent being an individual Rs 100,000 in case of agent being other than an individual Renewal of Registration Application to be filed within at least 3 months prior to the expiry of registration granted. Fee: BMRDA - Rs 25,000 and 250,000 respectively for individuals and non - individuals; others - Rs 15,000 and Rs 150,000 respectively Application to be filed within at least 3 months prior to the expiry of registration granted. Fee: Rs 5,000 in case of individual and Rs 50,000 for anyone other than an individual Application to be filed at least 60 days prior to the expiry of registration. Fee: Same as for new registration Comparative Analysis ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 59.
    Contents Summary Content Page 59 Content Parameters KarnatakaRE Rules Tamil Nadu RE Rules Maharashtra Rules Interest payable by promoter and allottee State Bank of India Prime lending rate + 2 percent Repo Rate of the Reserve Bank of India + 2 percent Prevailing State Bank of India Prime lending rate as on the date on which the amount becomes due + 2 percent Timelines for Refund 45 days from the date on which such an amount becomes due 45 days from the date on which such an amount becomes due 30 days from the date on which such an amount becomes due. Every case of such refund payment shall be reported by the concerned promoter to the Authority within 30 days Filing of appeal before the Appellate tribunal Filing fee: Rs 1,000 Filing fee: Rs 1,000 Filing fee: Rs 5,000 Penalty for non-registration by the Promoter 10 percent of the estimated cost of RE project 10 percent of the estimated cost of RE project 2 percent of the estimated cost of the RE project (may extend to 10 percent) Penalty for failure by the Promoter to comply with, or contravention of any of the orders, decisions or directions of the Appellate Tribunal 10 percent of the estimated cost of RE project 10 percent of the estimated cost of RE project 5 percent of the estimated cost of RE project (may extend to 10 percent) Comparative Analysis ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 60.
    Contents Summary Content Page 60 Content Parameters KarnatakaRE Rules Tamil Nadu RE Rules Maharashtra Rules Failure by the RE Agent to comply with, or contravention of any of the orders, decisions or directions of the Appellate Tribunal 10 percent of the estimated cost of the plot, apartment or building, as the case may be, of the RE project, for which the sale or purchase has been facilitated 10 percent of the estimated cost of the plot, apartment or building, as the case may be, of the RE project, for which the sale or purchase has been facilitated 5 percent of the estimated cost of the plot, apartment or building, as the case may be, of the RE project, for which the sale or purchase has been facilitated, subject to maximum of ten percent Failure by the allottee to comply with, or contravention of any of the orders, decisions or directions of the Appellate Tribunal 10 percent of the estimated cost of the plot, apartment or building, as the case may be 10 percent of the estimated cost of the plot, apartment or building, as the case may be (Provided that the Government may, by notification, amend the rates specified above) 5 percent of the estimated cost of the plot, apartment or building, as the case may be, subject to maximum of ten percent Comparative Analysis ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 61.
    Contents Summary Content Page 61 Content Parameters KarnatakaRE Rules Tamil Nadu RE Rules Maharashtra Rules Submission of land title search report From an advocate with experience of at least 10 years in land related matters Silent From an advocate in practice Submission of no encumbrance certificate From the concerned sub- registrar through an advocate for at least 12 years in land- related matters Updated encumbrance certificate, extract/certificate of Revenue Authorities reflecting the title of the promoter to the land on which development is proposed Non-encumbrance certificate through an advocate having experience of at least 10 years from the revenue authority not below the rank of tehshildar Comparative Analysis ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 62.
    Contents Summary Content Page 62 Content MahaRERA –Report Card ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala 24 applications received from across the state, of which ~15 projects registered 1192 applications received for broker registration, of which 1053 registered District Project Name Promoter’s Name Certificate No Mumbai Krishna Enclave Asha Developers P51800000004 Saanvi Heights Adinath Enterprise P51800000010 Jeevan Kanchan Co-Operative Housing Society Shri Krishna Chaitanya Enterprises P51800000014 Raigad Bliss Studio Balsam Builders P52000000003 Krishna Residency S P Construction P52000000007 Thane Mayfair Vishwaraja Mayfair Housing Private Limited P51700000001 Unnathi Woods Phase VII A Unnathi Estates P51700000002 The Palms Metro Development P51700000006 N G Silver Spring RNA Builders (NG) P51700000009 Pune Sai Saroj Vighnaharta Developers P52100000008 Yashwin Jeevan Vilas Javdekar & Sanjeevani Developers LLP P52100000011 Yashwin Anand Vilas Javdekar & Sanjeevani Developers LLP P52100000012 Neelaya Naiknavare Developers Pvt Ltd P52100000013 Sai Kunj Vighnaharta Developers & Promoters P52100000015 Nagpur Green City 3 Green Space Infra Ventures P50500000005 Source: https://maharerait.mahaonline.gov.in (14:45 PM on 01/06/2017)
  • 63.
    Contents Summary Content Page 63 Few ImportantFAQs* Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala FAQ’s released by the state of Maharashtra, may have persuasive value for other states
  • 64.
    Contents Summary Content Page 64 Few importantFAQs* Content 33. Is there any time limit prescribed for the promoter for formation of society or any other legal entity of home buyers? Promoter has to enable formation of Legal Entity like Cooperative Society, Company, Association, Federation etc within three months from the date on which fifty one per cent of the total number of Purchasers, in such a building or a wing, have booked their apartment. 38. Will ongoing Project have to stop sales or construction till receiving the Registration? At the end of 90 days from the date of notification of Section 3 of the Act, the promoter of an ongoing project shall not advertise, market, book, sell or offer for sale or invite persons to purchase in any manner any plot, apartment or building, unless he registers the project. CATCH 40. If an ongoing project is registered under MahaRERA, then will the Act be applicable for the entire project or will it be applicable only to units sold after registration? Registration is of the Project/Phase and hence the provisions of the Act are applicable to all units of the Project/ Phase. 46. Can project finance taken by promoters from financial institutions be withdrawn from designated 70 percent account? Yes, if this is declared at the time of registration and subject to provisions of Section 4 of the Act and Maharashtra Real Estate (Regulation and Development)(Registration of Real Estate Projects, Registration of Real Estate Agents, Rates of Interest and Disclosures on Website) Rules, 2017 made there under. However, the money withdrawn should be utilized towards construction expenses of the project, on priority. ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala FAQ’s released by the state of Maharashtra, may have persuasive value for other states
  • 65.
    Contents Summary Content Page 65 Few importantFAQs* Content 47. In case of joint development with land owner on revenue share basis or area share basis, whether land owner’s component could be withdrawn from designated account of 70 percent? The Act makes both the Promoters and the land owner or any such parties which are beneficiary of a sale of a project and receive payments from allottees, as Co-Promoters and hence liable to adhere to the provisions of the Act and Rules and Regulations made there under. 48. Whether money collected from allottees towards stamp duty, registration, share money for society, deposits for maintenance, corpus funds, infrastructure charges, parking charges etc., are required to be deposited in the designated bank account (70 percent)? Yes, since these are part of the project cost 56. What if Part OC is received for the project: is it exempt from registration? No 60. Separate Bank Account: can escrow account opened with the Bank from whom loans are availed, be treated as Separate Bank Account for a MahaRERA registered project. No. A separate bank account needs to be opened in accordance with the provisions of the Act and rules made there under. 61. Can separate account be more than one since at times, there might be multiple lenders in same project (building wise lender) though developer might register the project at one go? No. There should be one designated bank account for every registered project or registered phase of a project ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala FAQ’s released by the state of Maharashtra, may have persuasive value for other states
  • 66.
    Contents Summary Content Page 66 Few importantFAQs* Content 63. Referral bookings: Existing customers referring to others for buying the flat in same project or other project of same developer: Will they be treated as Real Estate Agent? Yes, if it is against a consideration. Real Estate Agent is clearly defined in Section 2(zm) of the Act 64. For Foreign brokers registration and advertisement outside India, will same rule apply as in India ? Yes, if it pertains to a registered project under MahaRERA. ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala FAQ’s released by the state of Maharashtra, may have persuasive value for other states
  • 67.
    Contents Summary Content Page 67 How Ruleshave diluted overall essence of RERA! Content Various states have digressed to an extent that their tinkered watered-down rules violate the parent Act The Ministry of Housing and Urban Poverty Alleviation (MHUPA) had notified its rules under the Act in October 2016 Such central rules are applicable to all Union territories without their own legislature and were meant to serve as template for rules in other states Rules (draft/ final) effectively issued by some states favour RE developers/ construction industry over home-buyers Press articles suggest that: – PMO has sought a report from the Housing Ministry with respect to violation of central provisions – Amid reports that key provisions of the Act have been diluted by some states, the Central Government has forwarded the rules notified by the states to a parliamentary committee for examination Statistics reveal that home-buyers in 65 percent of ongoing projects across 8 cities - including Ahmedabad, Mumbai and NCR-Delhi are staring at a delay ranging between a few months and over 5 years State Rules littered with gaps which will make it smoother for builders to circumvent the law ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 68.
    Contents Summary Content Page 68 How Ruleshave diluted overall essence of RERA! Content Few noted deviations: – Cancellation by promoter on a week’s notice – Registration fee at Re 1 per square metre (Central rules prescribed Rs 10/ Rs 50 per square meter depending on area of development) – Increase in appeal filing fee (Rs 1,000 to Rs 10,000) – Exclusion of disclosures (including pending court cases!) – Payment of 30 percent of the total cost while signing the agreement and 45 percent on reaching plinth level – Deletion of anti-discriminatory clauses (given under UT model Rules) Questions unanswered: – Clarity on how homebuyers who have not agreed to a change in building plans will be affected in the case of ongoing projects – Provision on compounding rule for penalties carries the phrase "no proceeding shall be instituted or continued" once fine has been paid - Whether this provides lifetime immunity to the developer? – Rule 42(2) of Karnataka draft Rules Madhya Pradesh and Kerala have appointed a housing regulatory authority as mandated under the law Others such as Haryana, Maharashtra, Punjab and Delhi have appointed an interim Regulatory Authority (All states have to appoint the authority by end of April 2017 as per the Act) ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 69.
    Contents Summary Content Page 69 The Finale- Hits and Misses Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 70.
    Contents Summary Content Page 70 Hits andMisses – For Consumers Content Hits • Increased affirmation on timely completion/ delivery of RE projects • Increase in quality of construction - Defect liability period of 5 years from the handing over of possession • Balanced builder-buyer agreements (otherwise agreements heavily loaded in favour of developer) • Regulated RE Agent/ Broker environment • Greater visibility into the developer’s delivery track record • Sale on the carpet area basis/ terms to help improve transparency in pricing and bring in standardisation Misses • Timelines for approval by the regulatory authorities not defined • May lead to slightly higher prices for RE due to the reduced competition, insurance and other ancillary costs passed on by the Developers etc • Little elbow room to utilise money collected from homebuyers. Combination of this with plethora of guidelines to be followed may put brakes on the number of new launches (in the short term) • Existing practice of soft launch may end due to the restriction on the launch of projects before getting approvals ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 71.
    Contents Summary Content Page 71 Hits andMisses – For Developers Content Hits • A more regulated sector would bring in efficiencies and result in higher investments (FDI) and possible reduction of the cost of funds • Increased scope for eliminating casual operators, leading to the better organisation of the sector • Greater visibility into the developers’ delivery performances • Higher focus on project delivery capabilities • Overleveraging which generally result in project delays may not be possible Misses • Power of RERA- disproportionately coercive and may limit the ability/ incentive of developers to compete, especially when it involves undertaking market risks • Fixing a rigid capital reserve ratio (70 percent deposit and 10 percent booking amount) in the statute itself imposes greater liquidity constraints on developers, consequently impacting their entry into the market, subsequent expansion and project cost • Multiple forums for dispute resolution of grievances (Consumer forums, RERA, CCI) could facilitate forum-shopping and lead to conflicting jurisprudence – FAQs state not possible • Accountability of buyers/ developers/ brokers set - Government Agencies? ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 72.
    Contents Summary Content Page 72 Role ofProfessionals Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 73.
    Contents Summary Content Page 73 Role ofProfessionals Content Role of Professionals Section 3: Registration of RE projects with RERA (CA/ CS/ CWA/ Legal Practitioners Section 4: Pre-withdrawal certification based on PoC (CA) Section 4: Audits (Statutory and Internal) and IFCs (CA) Section 56: Representation services (CA/ CS/ CWA/ Legal Practitioners) New area of practice for all - General Advocacy, Trainings, Impact assessment etc (All) ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 74.
    Contents Summary Content Page 74 How professionalscan help? – Individual discussions with the core team (marketing and sales, accounting and compliance, construction and product strategy, customer relationship, finance, operations and design) and lawyers (internal/ external) and help in creating a project/ state specific handbook for RERA compliances – Assistance in registration of existing and new projects with the RERA authorities – Overall transitioning under RERA (documentation, sanitization of marketing collaterals etc) for the ongoing projects – Assist in modelling the utilization of installment receipts from the allottees to ensure optimum utilization of the funds available – On-call advisory services in relation to queries that may be raised from time to time – Update on key on-going changes in the RERA legislation and highlight the impact on business on a time to time basis ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala Compliance and reporting Restriction on fungibility of cash from projects Increased obligations Process changes Training
  • 75.
    Contents Summary Content Page 75 Revisiting businessand operational models – Developer's perspective Content ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 76.
    Contents Summary Content Page 76 Greater thanbefore roles under RERA regime Content Finance • Cash flow / liquidity management (70 percent clause) • Managing project wise bank accounts and withdrawal certifications • Impact on pricing • Alternate ways of funding/ sourcing equity partners • Insurance • Monitor cost and schedule overruns • Baseline schedule and budgets (determination of estimated costs etc) • Auditing of project accounts (RERA Audit) • Institutionalize periodic RERA checks Legal • Aligning of agreement of sale/ affidavits/ declarations/ transaction documents as per RERA • Deep land due diligences • Registrations/ Extensions/ Updation of details on RERA website • Formation of association of allotees within 3 months from the date of majority of units being booked • No mortgage or charges etc prejudicial to customers’ interest • Vendor Management (renegotiating back to back contracts for defaults)/ Dispute Resolution/ Cyber Security • Ring-fencing senior management/ promoters liabilities Design • Prioritize design development and delivery capabilities • Fix structural defects or any other defect in workmanship, quality or provision of services or any other obligations of the promoter – 5 year warranty period • Minor vs major additions/ alterations (changes) to the structure as per sanctioned plan – careful consideration • Institutionalize periodic RERA checks • Finalisation of FSI • Common space allocation such as podium, club-house etc Operations • Strengthen delivery and management capabilities around execution, monitoring, handover and operations • Managing alterations and additions • Empanelment of channel partners (including architects, engineers, real estate agents etc) • Institutionalize periodic RERA checks & process compliance audits • Redefine indemnities and liabilities for channel partners and associates • Changes in ERP, MIS, Score cards • Process compliance Audits Marketing/Sales/CRM • No project promotions/ advertisements/ marketing before registration • Advertisement – Crisp and clear, no false info, deliver what is promised, no puffery/ oversized statements • Provide information to allotees - sanctioned plan, layout plan, stage wise schedule of completion • Sanitize marketing collaterals/ brochures etc (identify and address conflicting customer commitments) and align to RERA regime, including email and communication exchange with customers • Managing cancellations (to be compliant with the terms agreed) • Broker Management ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 77.
    Contents Summary Content Page 77 Prioritize existingand planned projects Content Prioritize Completion Prioritize Completion Build RERA Competency (may need to comply with rules related to ongoing projects) Prioritize completion (may still need to comply with rules related to ongoing projects) Consider Revising/ Shifting (as per RERA requirements) Build RERA competency or phasing out the project Build RERA competency Final Stage <3 Months Mid-way Newly launch/ Planned < 10 Percent 10-50 Percent > 50 Percent % sold out ProjectStatus Priority status Mid Low Top ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 78.
    Contents Summary Content Page 78 Overall Analysis Content ICMAIBengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 79.
    Contents Summary Content Page 79 Overall Analysis ContentLaw in its tone and tenor – hard on developers – would leave only serious developers in the market RE industry already facing liquidity crunch and mounting inventories. It’s likely that the regulatory burden, cost of capital and compliance would increase May help Tier-II and Tier-III developers to attract PE funding with the increase in transparency. Currently ~80 - 85 percent PE funds invest in Tier-I developers owing to good corporate governance structure Tier-II and Tier-III cities may now appear on PE investment radar Restricted use of 70 percent – Well intentioned but may have little economic merit Dispute settlement mechanism - Given the experience of consumer courts, it’s only a matter of time before the new mechanism gets as clogged as the existing Could revitalize consumer confidence in the over-supplied/ over-priced RE market Makes an agreement for sale compulsorily registrable. The Indian Registration Act, 1908 does not provide for compulsory registration of an agreement for sale Seems to penalize the developer but at the same time does not provide any real relief to the end user Silo style of operation should stub out with the requirement to make disclosures of project details Pre-launch/ Soft launch sale of projects will now be a history! Build and sell model to commence ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 80.
    Contents Summary Content Page 80 OPEN HOUSE& DISCUSSIONS THANK YOU Sandeep Jhunjhunwala, FCA, ACS, B.Com(H) E: [email protected] M: +91 97401 55469 The views in this presentation are personal views of the Presenter. The information contained is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although, the overall endeavor is to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. This presentation is meant for general guidance only and no responsibility for loss arising to any person/ entity acting or refraining from acting as a result of any material contained in this presentation will be accepted. It is recommended that professional advice be sought based on the specific facts and circumstances. This presentation does not substitute the need to refer to the original pronouncements.
  • 81.
  • 82.
    Contents Summary Content Page 82 Key Definitions Annexures Section2(zh) - "Planning area" means a planning area or a development area or a local planning area or a regional development plan area, by whatever name called, or any other area specified as such by the appropriate Government or any competent authority and includes any area designated by the appropriate Government or the competent authority to be a planning area for future planned development, under the law relating to Town and Country Planning for the time being in force and as revised from time to time However, several states do not have planning are defined – and several Census Towns (areas which are urban as per Census, but not under the Municipal laws of the State) are still governed by Panchayats ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 83.
    Contents Summary Content Page 83 Key Definitions Annexures Section14(3) - In case 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 relating to such development is brought to the notice of the promoter within a period of five years by the allottee from the date of handing over possession, it shall be the duty of the promoter to rectify such defects without further charge, within thirty days, and in the event of promoter's failure to rectify such defects within such time, the aggrieved allottees shall be entitled to receive appropriate compensation in the manner as provided under this Act. ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 84.
    Contents Summary Content Page 84 Key Definitions Annexures Section2 (zk) - "Promoter" means i. a person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees; or ii. a person who develops land into a project, whether or not the person also constructs structures on any of the plots, for the purpose of selling to other persons all or some of the plots in the said project, whether with or without structures thereon; or iii. any development authority or any other public body in respect of allottees of - a) buildings or apartments, as the case may be, constructed by such authority or body on lands owned by them or placed at their disposal by the Government; or b) plots owned by such authority or body or placed at their disposal by the Government, for the purpose of selling all or some of the apartments or plots; or iv. an apex State level co-operative housing finance society and a primary co-operative housing society which constructs apartments or buildings for its Members or in respect of the allottees of such apartments or buildings; or v. any other person who acts himself as a builder, coloniser, contractor, developer, estate developer or by any other name or claims to be acting as the holder of a power of attorney from the owner of the land on which the building or apartment is constructed or plot is developed for sale; or vi. such other person who constructs any building or apartment for sale to the general public. Explanation - For the purposes of this clause, where the person who constructs or converts a building into apartments or develops a plot for sale and the persons who sells apartments or plots are different persons, both of them shall be deemed to be the promoters and shall be jointly liable as such for the functions and responsibilities specified, under this Act or the rules and regulations made thereunderICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 85.
    Contents Summary Content Page 85 Forms underRERA Annexures Agreement for Sale Declaration by Promoter Registration certificate for a project Revocation of Registration of project Registration of Real Estate Agent FAQs on RERA released by MHUPA, Govt of India ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 86.
    Contents Summary Content Page 86 MahaRERA imposesfine! Annexures ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala
  • 87.
    Contents Summary Content Page 87 About theSpeaker – Sandeep Jhunjhunwala Annexures ICMAI Bengaluru Chapter June 7, 2017 Sandeep Jhunjhunwala Sandeep is an Associate Director with tax practice of BMR & Associates LLP, Bangalore. Sandeep has more than 10 years of experience in consulting in varied fields of tax and regulatory matters. After completing internship with S.R Batliboi & Associates (network firm of Ernst & Young in India), Sandeep has worked with KPMG in its M&A tax practice and with corporate tax and regulatory practice of Grant Thornton in Bangalore, prior to joining BMR in 2014. Sandeep specialises in advising clients with tax optimised business and operational structures. He has worked on a number of leading corporates in the information technology, real estate, entertainment, communication and manufacturing sectors and has been extensively involved in tax and regulatory advisory, compliance support, planning opportunities and litigation support on direct tax and regulatory matters. He has been a speaker at various professional forums such as ASSOCHAM, CII, BCIC, RICS etc and regularly contributes on tax and regulatory matters for national and international publications. He is also a visiting faculty for taxation at the Bangalore Chapters of the Institute of Chartered Accountants of India and the Institute of Company Secretaries of India. Sandeep is a Graduate in Commerce from St Xavier's College and a Chartered Accountant and Company Secretary by qualification.