Contents Summary Content Page 1 Analysis & Impact of the Real Estate (Regulation and Development) Act, 2016 Study Circle Meet, Bangalore Branch of SIRC – May 4, 2016 Presented By: Sandeep Jhunjhunwala, FCA
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 Role of Chartered Accountants The Finale - Hits and Misses Overall Analysis Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala
3 Need and Objective Content Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala
4 A step closer to happy home-buying Content Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala Absence of professionalism, standardization and adequate consumer protection Lack of uniform regulatory environment Absence 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” – RBI Governor
5 The Build up to the Act Content Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala 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 *Source: Press Information Bureau, Government of India
6 Preamble and Structure An Act to: Act has 92 sections divided into 10 chapters as below: Chapter I Preliminary Section 1 – 2 (Sec 2 notified) Long Title Structure Chapter II Reg of RE Projects and RE Agents Section 3 – 10 (Yet to be notified) Chapter III Functions and Duties of Promoter Section 11 – 18 (Yet to be notified) 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 Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala for matters connected therewith or incidental thereto Chapter IV Rights and Duties of Allottees Section 19 (Yet to be notified) 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 (Sec 71/ 72 notified) Chapter IX Finance, Accounts, Audit and Reports Section 73 - 78 Chapter X Miscellaneous Section 79 – 92 (Sec 81-92 notified) *Section 89: Act to have an overriding effect
7 Whom does it apply to… Content Residential + Commercial Projects Projects on land of 500 sq mts or more > 8 units No completion certificate issued Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala 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 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 – Does not cover sale of ready to occupy property in the resale market The Ministry of Housing & Urban Poverty Alleviation has set April 30, 2017 as the deadline for all States to establish Real Estate Regulatory Authority/ Appellate Tribunal and October 31, 2016 for States to frame Rules under this Act *States given the right to lower the ceiling of 500 sq mts and 8 units; seems to exclude industrial RE such as factories, mines and farms
8 Developer X is planning to develop one project in 20 acre of land with three sizes - 1385 sq ft, 1550 sq ft and 1700 sq ft. In the first phase, the Developer has decided to build flats of 1385 sq ft and after 1 year and 2 years of launching this, flats of dimensions 1550 sq ft and 1700 sq ft would be built up respectively. Can a single registration be taken? This would be considered as 3 different projects and each phase has to be registered as a standalone/ separate project Case Study - I Content Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala
9 Real Estate Regulatory Authority Content Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala
10 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 RERA 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 to perform the functions of RERA RERA would 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 One of the functions of RERA is 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 Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala RERA is intended to perform the same role for property/ RE transactions as the SEBI does for security transactions in the capital markets
11 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 agent Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala
12 Impact on Promoters/ Developers Content Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala
13 Registration Content Promoter RERA Registration Certificate Make an application Grant of certificate within 30 days Deemed Registration Failure to register within 30 days No project promotions/ advertisements/ marketing permitted before registration Application for registration to disclose: – Brief details of the 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) Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala * 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 (Force Majeure conditions). The period of extension in aggregate not to exceed 1 year.
14 Registration Content Legal title to the land proposed to be developed and details Land is free from encumbrances and details 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 escrow) in a scheduled bank and that it would be utilized only for cost of construction and the land cost Undertake to obtain pending approvals 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 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 Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala Over-leveraging by developers is the primary reason for delays – they typically divert funds from one project to another. Section 4(2)(l)(d) of the Act uses the word “seventy percent” and not “at least 70 percent”. It appears from the intention of the requirement that the promoter can deposit more than 70 percent of the amount realized. The intention is to provide a cushion of 30 percent to the promoter so that the funds could be used to book lead for other projects. * 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 for withdrawal numbers. All 3 professionals should indicate in the certificate the extent to which they have relied on each other.
15 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 the relevant State Government Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala
16 Functions and Duties of Promoter Content • Details of registration granted by RERA and quarterly updates on list of – 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 Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala 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, eliminating any scope for any malpractices in transactions. Buyers would now be paying only for the carpet area and not the ‘super built-up area’.
17 Functions and Duties of Promoter Content • 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 • 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 Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala * 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.
18 Functions and Duties of Promoter Content • 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 • 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 Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala * The Act provides for insurance of the land title which will ensure that claims made on the land can be satisfied by the insurance companies. The Developer will not be burdened to make payments in respect thereof. So far, insurance companies have not launched such schemes but it is prevalent in some European countries. The same shall ensure marketability of the apartment to be purchased by the homebuyer.
19 Real Estate Agent Content Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala
20 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 Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala 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
21 Unfair Trade Practices Content Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala 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)
22 Allottees – Rights and Obligations Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala Content
23 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 Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala 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
24 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 Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala
25 Content Judicial Mechanism Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala
26 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 Civil courts - No jurisdiction to entertain any suit or proceedings on matters covered under the RE 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 Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala Foradjudgingthe compensationtobepaid byPromoters Required to adjudicate cases within 60 working days from the date of receipt of appeal/ application
27 Punitive Provisions Content Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala
28 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) Extending up to 5 percent of the estimated cost of the project - Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala • 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
29 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 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) Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala • 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.
30 Teething Issues/ Prevailing Concerns Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala Content
31 Teething Issues/ Prevailing Concerns Content 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 Section 88 and 89 of RERA – Contradictory – Should the stronger of the contradicting provisions in RERA and State legislation (ie one more beneficial to the buyer) should apply? 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. Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala
32 Teething Issues/ Prevailing Concerns Content Pre-withdrawal certification – 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 Projects recently approved, but not formally launched – whether this Act would apply? Calibration with Land Acquisition, Rehabilitation and Resettlement Act, 2013 Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala
33 Pertinent points relating to some definitions Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala Content
34 Pertinent points relating to some definitions Content Definition of the "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 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 – The term "Project Cost" is not defined which may lead to conflicting interpretation A need for the definition of the term ‘Structural defects’ to avoid misinterpretation in the future 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 malpractices of selling open parking areas, terraces, etc should be discontinued Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala
35 Role of Chartered Accountants Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala Content
36 Role of Chartered Accountants Content Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala Role of Chartered Accountants Section 3: Registration of RE projects with RERA Section 4: Pre- Withdrawal certification based on POC Section 4: Audits (Statutory and Internal) and IFCs Section 56: Representat ion services
37 The Finale - Hits and Misses Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala Content
38 Hits and Misses – For Consumers Content Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala 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
39 Hits and Misses – For Developers Content Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala 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 Misses • Power of RERA is disproportionately coercive and may limit the ability and incentive of the 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
40 Overall Analysis Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala Content
41 Overall Analysis Content RE industry already facing liquidity crunch and mounting inventories. It’s likely that the regulatory burden, cost of capital and compliance would increase High prices in RE - A reflection of artificial scarcity caused by over-regulation and bad regulations. Builder- babu-politician nexus, a corollary of this distorted environment 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 some of the others Could definitely revitalize consumer confidence in the over-supplied and over-priced RE market Angel legislation; should provide considerable relief to ordinary investors who are at times duped by innovative developers, builders or brokers 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 sale of projects will now be a history. Bad news for speculators. Good news for genuine buyers.Bangalore Branch of SIRC May 4, 2016 Sandeep Jhunjhunwala
42 OPEN HOUSE & DISCUSSIONS THANK YOU Sandeep Jhunjhunwala, FCA Associate Director | BMR & Associates LLP E: email@example.com M: +91 97401 55469 D: +91 80 4032 0011 Views expressed in the presentation are personal