How the 4 mandatory RERA guidelines for Promoters/Developers affects you?

September 27, 2017


Real Estate Regulatory Act has laid down several guidelines for the realty industry for the Developer, Consultant and Home Buyer. You should be aware of how the 4 important RERA guidelines for the Promoter / Developer would affect your decision making capability for buying your dream home. 


  1. Developer has to maintain a separate account (need not be an escrow account) wherein 70% of the money received from the allottees has to be deposited for the purpose of construction and land cost. So far what has been happening in the realty industry is that some industrious developers launch a project and they use the money from that project to launch other projects. Let us consider a scenario here. A Developer 'D' launches 'Project 1'. It becomes a runaway success and 100% of the stock is sold out. 'D' starts the construction of the project. While the construction of Project 1 is  about 50% complete, 'D' comes across two more land parcels which are located in prime areas. Owing to the success of 'Project 1', 'D' gets ambitious and uses the funds from 'Project 1' to buy these two land parcels and launches two more projects - 'Project 2' and 'Project 3'. Say, owing to a bad turn of events such as an economic meltdown or some financial policy change, 'D' is unable to successfully sell in both Projects. Now, 'D' becomes cash strapped and is unable to finish the construction of 'Project 1' despite getting the requisite funds from allottees in 'Project 1'. This RERA rule ensures that funds of 'Project 1' go towards the construction and land acquisition cost of only 'Project 1' and ensuring timely delivery of Project 1 and thereby preventing diversion of funds. 


  2. The promoter is required to withdraw any amount from the project account proportional to the stage of construction completion. So if the construction is 30% complete, the developer can withdraw up to 30% of the project funds, provided  the withdrawal request has been verified by an engineer, an architect and a chartered accountant in practice certifying that the withdrawal percentage is in proportion to the % of completion of project construction


  3. The Developer cannot accept a sum of more than 10% of the apartment or plot cost as an advance or token fee during the application. If the Developer wants to collect more than 10% as advance, then they have to enter into an agreement (Sale agreement or Agreement for Sale) with the allottee or Home buyer and the appropriate government (State/Union Territory) has to define the basic guidelines for Agreement of Sale between Promoter/Developer and allottee


  4. The Developer would be liable for structural defects for 5 years from the date of handing over the possession of the property to the allotees. Moreover the Developer is required to take insurance towards the land title and the project construction


Conclusion: The general trend today is to buy a home in a ready-to-move project because we don’t want to invest our hard earned money with the uncertainty of project hand over date. So even though the cost might be higher and the choice of apartments fewer, we wait till we are able confirm the project completion. RERA exactly answers our fears and ensures timely delivery of projects. As a Home buyer, henceforth, you can confidently buy in under construction projects and benefit from the price advantage and the choice of properties as well.


Check out our other article on 5 things you should know about RERA as a Home Buyer/Allottee


If you would like to know the list of projects approved in Tamilnadu, please visit (TN RERA site)

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