End of Real Estate Blues in India

* Summary:
The real estate market is the most preeminent topic of
discussion in the recent times. With the new real estate
regulations coming into force in India, the investors see a
ray of hope for their long drawn dreams to come true. The
main takeaways from this article shall include the insights
into the Real Estate (Regulation and Development) Act,
2016 along with the legal and investment issues pertaining
to the real estate sector.

Index

Sr. Particulars Page

No. No.
1. Introduction 2

2. Legal Issues 5

3. Highlights of the Act 7

4. Investment in Real Estate 10

Sector
5. Conclusion 12

1
1. Introduction:
The real estate sector refers to development, sale
and purchase of land for residential and commercial
purposes. The real estate market is one of the most globally
recognized sectors. For the Indian population, the real
estate sector is a blessing, as it is one of the largest
employer. It is divided majorly into residential and
commercial real estate. Further, the real estate sector plays
an important role in providing adequate infrastructure for a
nation and thus, also includes hospitality and retail real
estate. The real estate market is progressing in leaps and
bounds and as per the India Brand Equity Foundation1, the
real estate market in India is expected to reach up to US $
180 billion by 2020. In the past decade, the growth in the
construction sector has almost doubled, from 5.69% in
2004-05 to 9.57% in 2009-102.
Factors such as huge population, rising income
level, increasing foreign investment and rapid urbanization
have contributed majorly towards the growth of the real
estate sector in India. The returns on investments in real
estate are more volatile than one can imagine. The research
conducted by the Forbes India states that Mumbai is the
most ideal destination for investment in real estate market
where the Colaba locality in the city of Mumbai earns on
an average 10 year return of 8.07% with the lowest being
2.09% (1996-2006) and the highest being 14.37% (2003-

1
India Brand Equity Foundation (IBEF) is a trust established by
the Department of Commerce, Ministry of Commerce and
Industry, Government of India whose main objective is to
promote awareness about ‘Made in India’ label in overseas
markets. Available at - www.ibef.org.
2
Report on “Real Estate Sector in India” available at -
http://www.ibef.org/industry/real-estate-india.aspx.
2
2013).3 The returns are far more volatile for a shorter
period of five or eight years. The real estate market
includes both, short term as well as long term investments
majorly from the non-resident Indians (NRI’s). Further, the
study points out that Bengaluru being the center of India’s
high- tech industry, is expected to be the most favored
destination for property investment for NRIs in coming
years.
The real estate projects of various states were
governed by the respective state government authorities
under their respective state, town and country planning or
apartment ownership acts. Due to such structure of
governance there was lack of uniformity in dealing with
real estate rules and matters in the country as a whole. The
different state laws governing the real estate issues had
many loop holes through which the developers could
conveniently escape, keeping the investors and genuine
purchasers on the fence. The investment in the real estate
sector could never be monitored thoroughly and also there
was lack of transparency between the developer, the
investor/ purchaser and the regulatory authority. In India,
real estate is considered as an ideal destination for
investment but for years it has existed without any
regulatory body or authority and thus, resulted in rising
prices of the property, delayed completion of projects and
high risk of returns.
The Real Estate (Regulation and Development) Act,
2016, (the Act) was enacted with the aim to empower the
purchasers and reduce the delay to take appropriate actions
against developers. The Act regulating real estate activities

3
https://data.gov.in/
3
provides for more transparency and is a consumer centric
law. It ensures that the fraudulent developers do not bring
into effect their wrongful intentions to fraud the investors/
purchasers and get away with the same. It also aims at
making the real estate norms uniform for all the states and
regularizes the contracts between the investors/ buyers and
developers in the real estate industry. This central Act
assures the investors/ purchasers safety and protection and
also about standardization of the business practices
followed.
The implementation of the said act will take a while as
each state is required to constitute its own regulatory
authorities and appellate tribunals which shall be treated as
special court to deal exclusively with matters pertaining to
developers and investors / purchasers ensuring speedy
disposal of cases, within 60 days from the date of admitting
the said case. Other issues involved in the real estate
market and aspects of the Act are discussed herein below.

4
2. Legal Issues involved in the Real Estate Sector:
The present real estate sector of India is speculative and
involves various stages and intermediaries and thus,
provides ample scope of fraud in real estate transactions.
This has resulted in complexity of real estate projects, such
as - i) incomplete real estate projects, ii) delayed
completion or delivery of real estate projects, iii) poor
quality of delivered real estate projects, iv)
unaccountability of the real estate promoters, builders
and/or developers, etc. Other obstacles in the real estate
sector include; i) obtaining approvals and procedural
difficulties, ii) funding or investment in real estate projects,
iii) availability of land with clear, marketable and
transferable title, and iv) applicability of tax laws and other
applicable laws, etc. In addition to the above, the real estate
sector also includes lack of standardization and
unprofessionalism. Due to huge investment involved in the
real estate sector, the aforesaid complexities need to be
considered well so as to improve business standards in the
real estate sector. A regulatory authority is need of the hour
for the real estate sector in India and thus, the Act was
enacted by the Government of India (GoI)4.
The Act was brought into force by the GoI with the main
objective to protect the consumer’s interest, regulate inflow
of money into the sector and ensure timely execution of the
real estate projects. The Act provides for setting up of
regulatory authority as the Real Estate Regulatory
Authorities (RERA) at state and union territory (‘UT’)

4
The Real Estate (Regulation and Development) Act, 2016 No.
16 of 2016 was given Presidential assent on 25th April 2016 and
was published in Official Gazette for general information on 26th
March 2016.
5
levels5. Post enactment the States and UTs are required to
set up RERA within one year from the date of the Act
coming into force and also, form respective real estate
regulation and development rules within six months from
the date of enactment of the Act6. The said rules are in the
process of being formed7. However, till date the entire Act
has not been enforced except for the provisions related to
formation of RERA and rules governing RERA in States
and UTs along with a few more provisions8 which are dealt
in detail in the next paragraphs.

5
Section 20 (1) of the Act.
6
Section 84 (1) of the Act.
7
Draft Union Territories of Chandigarh, Andaman and Nicobar
Islands, Daman and Diu, Dadra and Nagar Haveli,
Lakshadweep’ Real Estate (Regulation and Development) Rules,
2016 prepared by the Ministry of Housing and Urban Poverty
Alleviation (MHUPA), Government of India, available at
http://www.naredco.in/notification/pdfs/Draft_Rules-seeking-
comments.pdf
8
Notification dated 26th April 2016 issued by MHUPA, available
at
http://mhupa.gov.in/writereaddata/Real_Estate_RegulationDevel
opment_2016.pdf
6
 3. Highlights of Act:
The enforcement of the Act is a revolution in India’s real
estate sector. As stated above it focuses exclusively on
consumer’s interest. The significant provisions of the Act
are highlighted as follows:

a. Uniformity:-
The Act has uniform applicability throughout India, except
for the state of Jammu and Kashmir, to which the act in
general does not apply. All types of real estate projects
including commercial as well as residential real estate
projects, existing as well as upcoming real estate projects
are brought under one umbrella.9

b. Transparency:-
As per the Act, every State is required to establish RERA
so as to regulate the issues pertaining to the real estate
sector within its jurisdiction and formulate real estate
regulation and development rules which shall be binding on
RERA of the respective State. Also, RERA is authorized
under the Act to create a web based online system for
submission of application for registration of the prospective
real estate projects, within one year from the date of its
establishment10. Upon registration of the project, the
promoters are required to publish their prospectus along
with the registration number provided by RERA on the said
website.

9
Section 1(3) read with Section 2(zn) and Section 3 of the Act.
10
Section 4(3) of the Act.
7
c. Iron-fisted provisions:-
Section 3 of the Act, makes it mandatory for all real estate
projects including the existing ones to be registered with
the RERA. Such practice makes the developers/ promoters
accountable for their actions, as they are required to
disclose and declare all the details of the prospective and/or
existing projects11. Similarly, the Act provides for
registration of real estate agents such as, property dealers,
brokers, middlemen, etc. who facilitate transactions in
respect of and/or transfer of property by way of sale to
prospective buyers and seller12.
However, having stated the aforesaid norms of
registration for all the real estate projects, the Act provides
for certain exceptions, where registration of the projects is
not required. The said instances are when- i) the area of the
project does not exceed 500 sq. mtr or the number of
apartments to be developed is not more than 8, ii) the real
estate project has received building completion certificate
before commencement of the Act, and iii) real estate
projects are in respect of renovation, repair or re-
development.13

d. Auxiliary advantages:
Emergence of the Act, ensures that construction shall be
completed within the time stipulated by the developers. The
developers and the purchasers/ investors are equally
penalized for making default in completion of the project
within the stipulated time or for making delayed payments

11
Section 4 of the Act.
12
Section 2(zm) read with Section 9 of the Act.
13
Section 3 (2) of the Act
8
to the developers, respectively. The developers are also
bound under the act to not only submit the details of the
Real Estate project but also his personal details, photo of
promoters, location detail with demarcation of land and
time frame for completion of the project. The Act ensures
that construction is completed on time and given the
structure of the Act, it will bring more investments into the
real estate market which shall stabilize the prices in the
market.

9
4. Investment in Real Estate Sector:
Investment in the real estate market includes
purchasing, owning, managing, renting and/or selling real
estate for gaining profits and returns from such
investments. For investment in real estate, a thorough study
of the market is essential, otherwise, such investment may
become risky. It is pertinent to note that there is no straight
jacket formula for a safe investment in the real estate
market as there are many factors which are needed to be
evaluated before initiating such investments. Also,
liquidation of investment in real estate market is limited as
compared to other investments. In spite of such wimpy
conditions in the real estate sector, the Indian real estate
sector has witnessed high growth of investments in recent
times due to increase in demand for office as well as
residential spaces. The construction development sector in
India, as per the Department of Industrial Policy and
Promotion’s data, has received a whopping US $ 24.19
billion, Foreign Direct Investment in the period of April
2000 to March, 2016.
On the world map, India has marked its significance as
a land of opportunity for business and investment. In mid-
September 2015, Mr. Raghuram Rajan, Governor, Reserve
Bank of India, said that India is an island of relative calm in
an ocean of turmoil while the fellow BRICS (Brazil,
Russia, India, China and South Africa) have deep
problems. The recent government data is in affirmation
with our esteemed governor, which shows an economic
growth of 7.4% in the second quarter of the current
financial year. The statistics have helped to position India
on the global market as an ideal investment destination

10
which further helps to improve India’s diplomatic and trade
relation globally. Even though the statistics showcase India
as the optimal investment destination, there is very little or
no guarantee for definite returns on real estate investments.
This is mainly because of the rise in the number of
fraudulent developers and also because of the minute
glitches in the acts governing the provisions for
investments in real estate.

However, the Act aims at stitching the glitches and

making not just investment in real estate more efficient but
all transactions coming under the purview of the Act. The
Act assures the investors of their funds to be utilized for the
purpose they have been invested for, as it mandates the
developers to deposit 70% of the funds collected from the
investors in a separate escrow account to meet the
construction costs. This enables transparency between the
developers and investors. Also, the developers are expected
to disclose the nitty gritties of the real estate project to the
investors and their respective state government. On account
of such pellucidity due to the Act, the investors will be
empowered to fearlessly invest in the real estate market as
there are no means through which the investors can be
cheated upon. The Act also ensures that the grievances of
the investors shall be heard upon more expeditiously than
before. On account of the above reasons, the investors shall
be encouraged to invest in the Indian real estate market
which shall be a blessing for the real estate sector and the
Indian economy at large.

11
5. Conclusion:
The Act has prepared the Indian real estate sector and
more particularly the developers to shift gears and accept
fresh challenges by responding to an increasingly well-
informed consumer base and acknowledging the rapid
globalization. One of the main reasons for increased
transparency between the developers and the investors is
the growing flow of FDI into the Indian real estate. In order
to attract more funding in the Real Estate sector, the
developers have revamped their accounting and
management systems so as to meet the due diligence
standards.14

14
‘Emerging Trends in Real Estate Asia Pacific 2016’ report by
PricewaterhouseCoopers (PwC) India.
12