From Chaos to Compliance: India’s Real Estate Under RERA

Before the Real Estate (Regulation and Development) Act (RERA) was implemented in 2017, India’s real estate sector operated with minimal regulation and oversight. This article examines how property transactions were governed prior to RERA and highlights the transformative effects of this landmark legislation.

The Pre-RERA Landscape

Legal Framework

The pre-RERA real estate market in India was governed by a patchwork of legislation, including

• The Transfer of Property Act, 1882
• The Indian Contract Act, 1872
• The Registration Act, 1908
• State-specific laws and local development authority rules

This fragmented regulatory approach created inconsistencies and loopholes that were often exploited. The absence of a dedicated regulatory authority meant that enforcement was weak and inconsistent across states.

Developer-Favored Environment

Without centralized regulation, developers operated with significant advantages:

1. Project Launches Without Complete Approvals: Developers could advertise and sell properties before obtaining all necessary clearances and approvals.
2. Fund Diversion: Money collected from buyers for one project could legally be diverted to other projects or purposes, creating financial risk for buyers.
3. Arbitrary Changes: Developers could alter project specifications, layouts, and amenities after sale agreements were signed with minimal consequences.
4. Delayed Possessions: Projects frequently faced substantial delays, with buyers having little recourse beyond traditional civil litigation.
5. Hidden Charges and Costs: Buyers often encountered unexpected charges and escalations not clearly disclosed at the time of purchase.

Buyer Vulnerabilities

The absence of specific regulatory protections left homebuyers in a precarious position:

1. Limited Transparency: Information about project approvals, construction status, and title clarity was difficult to access.
2. Asymmetric Contracts: One-sided builder-buyer agreements heavily favored developers, with buyers having little negotiating power.
3. Inadequate Grievance Redressal: No specialized mechanism existed for handling real estate disputes, forcing buyers to pursue lengthy civil litigation.
4. Carpet Area Confusion: The practice of selling based on super built-up area rather than carpet area created confusion and often resulted in buyers receiving less space than anticipated.
5. Payment Schedules: Front-loaded payment plans required buyers to pay substantial amounts before construction milestones were achieved.

The Marketing Landscape

Pre-RERA marketing practices were often misleading:

• Advertisements featured amenities and specifications that differed from final delivery
• Brochures displayed images and renderings that exaggerated project quality
• Price and payment information often excluded significant costs that would be revealed later
• Promises regarding completion timelines were frequently unrealistic

Financial Practices

The financial aspects of real estate transactions lacked transparency.

• Developers could collect up to 100% payment before project completion
• No requirements existed for maintaining separate accounts for project funds
• Booking cancellations often resulted in substantial forfeiture of paid amounts
• Interest rates on delayed payments by buyers were punitive, while compensation for developer delays was minimal or non-existent

Common Issues in Pre-RERA Transactions

The unregulated environment generated several recurring problems for homebuyers:

1. Project Abandonment: Developers could abandon projects after collecting substantial payments, leaving buyers with neither homes nor adequate legal recourse.
2. Quality Concerns: With no standardized quality requirements, construction quality often fell short of promises.
3. Title Issues: Inadequate due diligence and disclosure requirements meant buyers sometimes purchased properties with unclear titles or encumbrances.
4. Possession Delays: Five- to seven-year delays became commonplace in many markets, with buyers continuing to pay both rent and EMIs.
5. Arbitrary Penalties: Developers imposed severe penalties on buyers for payment delays while facing minimal consequences for their own delays.

The Post-RERA Transformation

Regulatory Structure and Compliance

RERA introduced a comprehensive regulatory framework that addresses the previous shortcomings.

1. Mandatory Registration: All real estate projects exceeding 500 square meters or eight apartments must register with RERA before marketing or selling.
2. Disclosure Requirements: Developers must upload comprehensive project details, including approvals, site and layout plans, financial information, and construction schedules.
3. Standardized Definitions: RERA mandated the use of carpet area (actual usable space) as the standard measurement for selling property, eliminating confusion around super built-up area calculations.
4. Model Agreements: Many states have introduced standardized builder-buyer agreements that ensure fair terms for both parties.

Financial Discipline and Accountability

RERA implemented strict financial controls that transformed how project funds are managed:

1. Escrow Accounts: 70% of funds collected from buyers must be deposited in separate escrow accounts to be used only for the specified project.
2. Bank Oversight: Withdrawals from escrow accounts require certification that they match construction progress, preventing fund diversion.
3. Clear Cancellation Terms: RERA limits the forfeiture amount in case of cancellation to a reasonable percentage, protecting buyer investments.
4. Compensation for Delays: Developers must pay interest for delayed possession at prescribed rates, creating financial incentives for timely completion.

Enhanced Buyer Protection

Homebuyers enjoy significantly improved protections under RERA:

1. Disclosure and Transparency: All project information must be made available on the RERA website, enabling informed decision-making.
2. Title Clarity: Developers must provide clear title documents and disclose all encumbrances.
3. Technical Specifications: Material specifications and workmanship standards must be clearly detailed and adhered to.
4. No Major Alterations: Changes to plans require consent from two-thirds of buyers, preventing unilateral modifications.
5. Five-Year Liability: Developers are liable for structural defects for five years after possession, ensuring quality construction.

Efficient Dispute Resolution

RERA established dedicated mechanisms for addressing conflicts:

1. Specialized Forums: RERA authorities and appellate tribunals provide specialized forums for resolving real estate disputes.
2. Time-Bound Resolution: Complaints must be addressed within specified timeframes (typically 60 days), dramatically reducing resolution time compared to civil courts.
3. Adjudicating Officers: These officials have judicial powers to award compensation and interest.
4. Execution Powers: RERA authorities can enforce their orders effectively, including the ability to attach and auction properties.

Market Impact

The implementation of RERA has triggered significant market changes:

1. Industry Consolidation: Smaller, non-compliant developers have exited the market, leading to consolidation among established players.
2. Focus on Completion: Developers have prioritized completing existing projects before launching new ones.
3. End-User Market: The speculative element has diminished, creating a more stable, end-user-driven market.
4. Improved Access to Finance: Financial institutions are more confident lending to RERA-registered projects, improving liquidity.
5. Price Stabilization: Greater transparency has led to more rational pricing based on actual value rather than speculation.

Challenges in Implementation

While RERA has brought transformative changes, several challenges remain:

1. Varying State Rules: Different states have implemented RERA with varying degrees of strictness, creating an uneven landscape.
2. Legacy Projects: Projects launched before RERA face complicated transition issues.
3. Enforcement Gaps: Some states lack adequate infrastructure and resources for proper enforcement.
4. Ongoing Project Delays: External factors such as economic downturns, pandemic-related disruptions, and supply chain issues continue to cause delays.
5. Awareness Gaps: Many buyers remain unaware of their rights under RERA.

Conclusion

The implementation of RERA in 2017 represented a paradigm shift in India’s real estate sector. By introducing mandatory registration, financial discipline, standardized practices, and effective dispute resolution mechanisms, RERA has fundamentally restructured the power balance in real estate transactions.

While perfect implementation remains a work in progress, the act has successfully brought needed transparency and accountability to a sector that previously operated with limited oversight and regulation. For homebuyers, RERA has transformed the purchase experience from one fraught with uncertainty and risk to a more protected and transparent process.

As the market continues to adapt to these regulations, the real estate sector is evolving toward greater professionalism, reliability, and consumer focus—a dramatic improvement from the unregulated environment that prevailed before 2017.

Contributed By: Hetu (Intern)