Mumbai, India

Overview of the Indian Real Estate (Regulation and Development) Act, 2016

By Ruchi Khatlawala Pandya, Little & Co.

The recently passed Real Estate (Regulation and Development) Act, 2016 (Act) and rules thereof which came into force on 1 May 2017 has been notified in various states and union territories across India. This Act marks the beginning of a new era in which the buyer will be the king, while developers will also benefit from increased buyers.

It ushers in the much-desired accountability, transparency and efficiency in the real estate sector, defining the rights and obligations of both buyers and developers. The Act lays down ground rules for developers and real estate agents interacting with buyers in the future. Prior to this Act coming into force, societies, landowners, buyers etc. had to carry out a detailed background search— including the credibility and financial/technical strength of developers— before engaging in a transaction. The Centre passed this Act by using the powers vested in it by the Constitution of India.

The Act has an overriding effect on all contrary and conflicting laws. Thus, with this Act coming into force, the Maharashtra Housing (Regulation and Development) Act, 2012 is repealed. The Act doesn’t bar the jurisdiction of Consumer Forums, and/or any person whose complaint is pending before any forum established under the Consumer Protection Act, 1986, on or before the commencement of this Act, may, with the permission of such forum, withdraw the complaint pending before it and file an application before the adjudicating officer/ regulators appointed under this Act. The Act makes it mandatory for the developers to register with the regulators' website and provide complete project details, failing which the developers shall not be allowed to advertise, market, book, sell or offer for sale, any flat or premises to any person/buyer. Even for ongoing projects for which a completion certificate has not been issued, registration is mandatory under the Act. The Act not only provides guidelines for developers, but also creates a filter that will ensure that only authentic real estate agents operate in this sector, due to mandatory registration of such agents. Developers at the time of registration have to disclose names and details of real estate agents that will be employed to market the project and in doing so, only registered real estate agents can be engaged and dealt with.

Delayed projects are the most complicated and uncharted issue faced by buyers in India. With an aim to curb such delays and to ensure timely delivery of flats to buyers, this Act provides for the return of the entire money invested by buyers along with the pre-agreed interest rate mentioned in the contract which is, in fact, in accordance with the model form contract prescribed under the Act. In fact, the highlight of the Act is that, in the event of delayed projects, the onus of paying monthly interest on bank loans taken for under-construction flats by developers will now lie on the developers themselves unlike before, where such onus was cast onto the buyers. In the event a buyer does not want to back out from such a delayed project, he shall be paid interest by the developer for every month of delay, until the handing over of the possession of completed premises at a prescribed rate. Also, to ensure that the developers do not neglect the quality of work in their quest for timely completion, they will now have an enhanced liability of up to five years for structural or workmanship defects from the date of handing over possession which must be rectified by the developer within a period of thirty days from date of such notification.

The booking amounts have also been reduced to 10% and are to be paid post registration of agreements with the developers. The developers will now have to maintain a separate bank account for each of their projects where a minimum of 70% of the amount received from the investors/buyers will be deposited only to ensure that the developers can use this amount for the sole purpose of covering the cost of the project in proportion to the percentage of project completed and can withdraw such amount only after it is certified by the engineer, architect and chartered accountant engaged for the project. In its pursuit of achieving transparency, the Act provides for the maintaining of the website by the regulators, where all details of the registered project are to be recorded for public access which will not only help the buyers to make an informed choice but also lead to fair competition in the real estate sector arising from the mandatory public disclosure requirements.

The Act provides for developers to sell units only on a carpet area basis, which will result in a fair pricing system on the net usable floor area. Furthermore, the Act restricts the developer from making any addition or alteration to the approved and sanctioned plans, structural designs, specifications and amenities of the flat, plot or building without obtaining prior consent from the buyer. A specialised forum called the Real Estate Regulatory Authority and Real Estate Appellate Tribunal will be set up for resolving the grievances and disputes arising under the Act. Stringent penal provisions have been prescribed under the Act against the developers and buyers in case of any contravention or non-compliance with the provisions of the Act or orders passed by the regulators appointed under the Act.

On the flip side, the additional encumbrances in the approval process could result in delays for the project. Also, as a consequence of this Act, all necessary approvals are required to be obtained prior to project commencement, which will eventually lead to the restricted supply of new properties. The provision of 70% deposit in a separate bank account will increase developer reliance on institutional capital like bank finance, and owing to the interest rate and other charges this will lead to an increase in the project cost. In spite of these challenges, in essence, the Act is a stringent piece of legislation and is expected to curb malpractice and develop the real estate sector, such that only genuine players will be able to survive. The developers will either have to fall in line or collapse, as the buyers will no longer be cheated by their lack of knowledge and experience in the real estate sector. The Act will bring a paradigm shift in the real estate sector. It will also protect buyers who have purchased flats in the past. Like every new challenge, the implementation of this Act will face initial teething problems; however, in the long run, it will revamp the real estate sector in India.


Ruchi Khatlawala Pandya

Ruchi Khatlawala Pandya

Little & Co., Mumbai, India
T: +91 22 226 527 39, F: +91 22 226 599 18
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Published: July 2017 l Photo: -  saiko3p 


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