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Buyer beware: RERA and other aspects to know before you buy a house

A thorough check is needed before you zero in on a builder

Over 172 home buyers in Mumbai have approached the Maharashtra Real Estate Regulatory Authority (MahaRERA) against the builders of a project that has been stalled. The group has collectively filed eight complaints demanding that the total amount that they had paid to the builders be repaid with interest, along with a compensation of Rs 10 lakh each for ‘causing mental agony to their families’. The project, which was launched in 2010, was supposed to be ready by 2014, however, it got delayed initially over environmental clearances, and then over a personal dispute among the promoters.

Such cases of home buyers being cheated by unscrupulous builders are plenty. In fact, according to data accessed by ‘Fight for RERA’, the umbrella body of flat buyers, from research firm Liases Forras, around 60 percent of under-construction flats across 50 cities are delayed, with nearly 30 percent being delayed by two or more years.

Buying a home is a dream come true for most people – especially in cities such as Mumbai where real estate prices are sky high and much of one’s savings and salary goes into paying the down payment and home loan EMIs. Hence, dealing with fraudulent builders can be a nightmare where one’s money, and peace of mind, get lost in the process.

Hence, it becomes important to have a thorough understanding of all the legalities and checklists involved in buying a house. We take a look at what all needs to be kept in mind while buying a home and key aspects that you need to know about the RERA Act which will help nail erring builders.

Things to know about RERA:

In a landmark move to protect home buyers as well as boost investments in the real estate sector, the Real Estate (Regulation and Development) Act, 2016, was passed by the Rajya Sabha on 10 March 2016 and the Lok Sabha on 15 March 2016. The provisions of the Act include protecting all stakeholders, collecting information on all ongoing projects and providing a regulatory body for addressing grievances.  The Act and all its provisions came into effect on May 1, 2017.  Builders, on their part, need to comply with the following rules:

Registration of ongoing and new projects:  Builders have to register their new and ongoing projects (where the total area is more than 500 sq metres or more than 8 apartments is proposed to be developed at any phase) with the Regulation Authority.  Builders who have already been provided with their completion certificate or occupation certificate (OC) need not register.

Reserve funds: To ensure that funds collected for one project are not diverted to another, builders are required to park 70 percent of the money received from the buyers in a separate account which can only be used for land and construction expenses of the project. Withdrawals from the account will be allowed based on the amount of work completed, and after it has been certified by an engineer, an architect and a chartered accountant. The account will be subject to audits every six months.

Title of the land: To avoid disputes involving the land on which the project is being constructed, the promoter has to provide a clear written affidavit stating that the legal title to the land on which the project is being constructed contains legitimate documents of ownership. The promoter also has to furnish a written affidavit stating that the land is free form all encumbrances.

Disclosure of details: Once the registration has been granted by the Regulatory Authority, the builder or promoter needs to make periodic submissions on details of the project on the RERA website.

Withdrawal: The builder has to mention the duration of the project and when it will be handed over to the buyers, in a written affidavit. If the project exceeds this date, the buyer has every right to withdraw from it and get compensated the full amount that has been paid so far, without the need for filing any complaint. Even in cases where the builder’s registration has been cancelled, the buyer has the right to a full refund.

Interest on delays: In case of delays in payments, from both the buyer’s side and in giving possession from the promoter’s side, the rate of interest will be the same. In case of delays in handing over the project, RERA recommends a fine which may extend up to 10% of the estimated cost of the project, or imprisonment of 10 years, or both.

Checklist before buying a property:

Before you take the big step of placing your trust and money in the hands of a promoter, here are some things that you need to check:

Check the brand: This is the most important aspect to check. Find out about the builder’s history – the kind of projects he has developed so far, how the construction has been, has he delivered on time, or has he defaulted on any projects? Check the website and other review sites to see what people are saying about the builder’s previous projects. Check social media sites and complaint forums to see if anything negative has been said against the promoter.

Know the rate: Ensure that you know the going rate for the area that you are looking at so that you don’t get fooled into paying more.

RERA registration: Make sure that your builder is registered with RERA. Avoid going ahead with any developer who does not have a RERA registration as chances of them exiting the market and leaving the project half finished, could be higher.

Check documents: Ensure that the builder has all his documents in order before you decide on investing in a property. Important documents include the title deed, which outlines the chain of ownership of the property, the sanctioned building plan which has been approved by the local authorities, completion/occupancy certificate issued by the municipal authorities and encumbrance certificate.

Buyer-builder agreement: While RERA is now planning to draft a uniform buyer-builder agreement to end all ambiguities involving these agreements, in the absence of one most agreements tend to be one-sided in nature. Hence, it is important to go through the agreement in detail with a lawyer, in case you can. Aspects such as the construction timeline, price escalation clauses, changes in square foot area, transfer charges etc, are mention in the agreement and need to be checked in detail.

Check funds: Check if the builder has sufficient funds to complete the project. Most developers have tie-ups with banks, hence a bank funded project would be the safest to invest in. The last thing you would want is your project getting stalled because the builder does not have any money left.

Conduct a site visit: Though the builder will mention the layout and site in the plan, it is vital that you do a thorough site inspection before you go ahead with the project. It may also help to speak to other people in the locality to find out if there are any legal issues with the land.

Actual size: While a builder may sell you a 2 BHK flat for 1200 sq feet, the actual area would only be 900 sq feet. Hence, when you talk about the size of the flat, always go by the carpet area and not the super-built up area.

Check quality of construction: Ensure that you have checked the quality of construction – right from the kind of soil that the building is being built on. The soil determines the strength of the building’s foundation – clay-rich soil or black cotton soil are not recommended because they have a tendency to expand or shrink based on the amount of moisture on it. You can ask for the builder’s soil test copy before you proceed. Check the design quality with the help of an architect, ensure that the walls are of the same thickness that the developer mentions in his plan, check the quality of the paint and plaster that the developer has used  and that safety measures such as fire escape, emergency exit, wide staircases and landings, have been installed. Also, find out about water and electricity supply in the locality.

Check locality and upcoming infrastructure: Check out the location of the property you are looking at. Is it well connected, are there shops, schools, hospitals, other public amenities nearby? How safe is the neighbourhood?

Resale value: Finally, while you may invest in a property with the intention of staying in it, it is also important to ensure that the flat has a resale value in case you need to sell it in the future.