On Your Mark, Set, Go!

01 Jun 2017 CW Team

Divya Malcolm, Principal Associate, Kochhar & Co, shares a quick overview on the Act that may share some of the widespread, warped inferences.

Come August, a promoter as defined under RERA will be liable to register his real estate project to be able to offer the flats for sale. While the private sector is abuzz with activity, Maharashtra Housing and Area Development Board, City and Industrial Development Corporation of Maharashtra and their brethren too are covered by the definition of promote.

A small confession: As RERA is applicable to real estate projects in a Planning Area; convinced that there might be areas outside the Planning Areas for free play, the assistance of architects was solicited. However, the Authority has clarified that the whole of Maharashtra is a Planning Area as the Maharashtra Regional and Town Planning Act, 1976 is applicable to all of it.

Real estate agents: They can no longer live in anonymity, make false claims about projects they propose to sell. They too have until July, to get themselves registered. The promoter can but disclose the names of only those agents who are registered.

Leases or leave and license or rental arrangements of all types can go on uninterrupted at all levels. RERA covers only the sales and purchases of apartments or plots. However, what needs deliberations at a pan-India level is that none of the states have prescribed any qualifications or basic knowledge requirements for realtors.

In Maharashtra, RERA is another avatar of Maharashtra Ownership of Flat Act, 1963 (MOFA). But this does not mean that MOFA has been given a quiet burial. The Authority has vindicated us for repeatedly opining that it is alive and compliance is mandatory. Here's the rationale: Section 56 of Maharashtra Housing (Regulation and Development) Act, 2012 that repealed MOFA, was never notified. In the meantime, last year, Section 92 of RERA, which repealed the 2012 Act, was notified. Thus, all the local laws are much operative in their respective spheres. In case of any inconsistency, RERA will prevail.

Admittedly, the case of Maharashtra is unique. Perhaps the stakes are higher in the state that houses the financial capital of India. States such as Madhya Pradesh or Rajasthan shall be the real testing grounds for RERA. All three stand in juxtaposition against each other. Judged on the anvil of allowable withdrawals from the 70 per cent of the receivables deposited in the separate bank account, Madhya Pradesh comes across as the most stringent.

As far as construction cost is concerned, it has limited the scope to only 'on-site expenditure for the physical development of the project'. Does this imply that costs for servicing of mortgage debt, promotional and advertising expenses, etc, will not be construed as cost of construction? Clarity is required. Deduction towards land costs is allowed ditto as per the principal statue. There is, however, more breathing space in Rajasthan on this score.

The Rajasthan Rules elaborate upon both land costs as well as costs of construction. Revenue or area share given to a land owner in lieu of his land under any kind of agreement (including JV or JDA) is a permissible deduction so long as the land owner is not the promoter. This is in stark contrast with the Maharashtra Rules. In fact, the Maharashtra RERA on May 11, 2017, issued an order clarifying that a land owner or investor entitled to a share of revenue - in the form of land or area - will be construed as a co-promoter, and such consideration cannot be withdrawn from the designated bank account.

While a new way of doing business has been introduced, there are bound to be teething problems. But, for the time being, there is no time to lose; for this year, July will be here before June.

Divya Malcolm, Principal Associate, Kochhar & Co, shares a quick overview on the Act that may share some of the widespread, warped inferences. Come August, a promoter as defined under RERA will be liable to register his real estate project to be able to offer the flats for sale. While the private sector is abuzz with activity, Maharashtra Housing and Area Development Board, City and Industrial Development Corporation of Maharashtra and their brethren too are covered by the definition of promote. A small confession: As RERA is applicable to real estate projects in a Planning Area; convinced that there might be areas outside the Planning Areas for free play, the assistance of architects was solicited. However, the Authority has clarified that the whole of Maharashtra is a Planning Area as the Maharashtra Regional and Town Planning Act, 1976 is applicable to all of it. Real estate agents: They can no longer live in anonymity, make false claims about projects they propose to sell. They too have until July, to get themselves registered. The promoter can but disclose the names of only those agents who are registered. Leases or leave and license or rental arrangements of all types can go on uninterrupted at all levels. RERA covers only the sales and purchases of apartments or plots. However, what needs deliberations at a pan-India level is that none of the states have prescribed any qualifications or basic knowledge requirements for realtors. In Maharashtra, RERA is another avatar of Maharashtra Ownership of Flat Act, 1963 (MOFA). But this does not mean that MOFA has been given a quiet burial. The Authority has vindicated us for repeatedly opining that it is alive and compliance is mandatory. Here's the rationale: Section 56 of Maharashtra Housing (Regulation and Development) Act, 2012 that repealed MOFA, was never notified. In the meantime, last year, Section 92 of RERA, which repealed the 2012 Act, was notified. Thus, all the local laws are much operative in their respective spheres. In case of any inconsistency, RERA will prevail. Admittedly, the case of Maharashtra is unique. Perhaps the stakes are higher in the state that houses the financial capital of India. States such as Madhya Pradesh or Rajasthan shall be the real testing grounds for RERA. All three stand in juxtaposition against each other. Judged on the anvil of allowable withdrawals from the 70 per cent of the receivables deposited in the separate bank account, Madhya Pradesh comes across as the most stringent. As far as construction cost is concerned, it has limited the scope to only 'on-site expenditure for the physical development of the project'. Does this imply that costs for servicing of mortgage debt, promotional and advertising expenses, etc, will not be construed as cost of construction? Clarity is required. Deduction towards land costs is allowed ditto as per the principal statue. There is, however, more breathing space in Rajasthan on this score. The Rajasthan Rules elaborate upon both land costs as well as costs of construction. Revenue or area share given to a land owner in lieu of his land under any kind of agreement (including JV or JDA) is a permissible deduction so long as the land owner is not the promoter. This is in stark contrast with the Maharashtra Rules. In fact, the Maharashtra RERA on May 11, 2017, issued an order clarifying that a land owner or investor entitled to a share of revenue - in the form of land or area - will be construed as a co-promoter, and such consideration cannot be withdrawn from the designated bank account. While a new way of doing business has been introduced, there are bound to be teething problems. But, for the time being, there is no time to lose; for this year, July will be here before June.