Real Estate (Regulation & Development) Act, 2016

The Real Estate (Regulation and Development) Act, 2016 came into force on May 1, 2016. The Central and state governments are liable to notify the Rules under the Act within a statutory period of six months.

This article will give details about the Real Estate (Regulation & Development) Act, 2016 within the context of the IAS Exam

Overview of Real Estate (Regulation & Development) Act, 2016

Land, Rights over Land, Land Improvements – Fall under the ‘State List’(Under 7th schedule) of the constitution.

Regulating contracts and transfer of property – Fall under Concurrent List(Under 7th schedule) of the constitution. The above act deals with this.


Bring about transparency in the real estate sector, thereby encouraging investments by foreign and domestic financial institutions and protecting the interests of home buyers

Key Issues in the Real Estate Sector:

1).The lengthy approval process for project clearances

2). Lack of clear land titles

3). Prevalence of black money

4). Diversion of funds received by the developer towards one project to more lucrative ones

5). Construction work has come to a standstill or the developer has left without completing the project

6). Developer changes the layout or building plans after purchase

7). Legal disputes (It had to be settled in the courts)

8). Endemic issues – For Ex recessive conditions in the past few years.

9). The distress caused by two drought years has also cut demand in the rural and semi-urban segment.

Provisions under the Act:

1). Mandatory Registration: Property transactions will now be subject to a regulator — the state-level Real Estate Regulatory Authority (RERA).RERAs are intended to perform the same role for your property transactions as the SEBI does for security transactions in the capital markets. Every developer launching any residential project with an area of over 500 square metres or eight apartments, has to register it with RERA and upload all the project details to the RERA site before he initiates any sale. The details uploaded by the developer must include the number and types of homes for sale, site and layout, payment schedules, schedule of completion and quarterly updates on the status of the project too. Thus, RERA maintains comprehensive records for every project across the entire chain, from the conceptualization of the project to its completion. Real estate agents dealing in these projects also need to register with RERAs.This will provide greater transparency in project-marketing and execution

Each State will also have an Appellate Tribunal to adjudicate and deal with real estate disputes.

Real Estate Appellate Tribunal

(Will handle appeals from RERA)(Have to adjudicate cases within 60 days)

RERA (Real Estate Regulatory Authority)

(Have to dispose complaints within 60 days)

The RERA and the Appellate Tribunals have to be set up within 1 year.

2). Developers to deposit 70 per cent of the sums received from buyers, in a separate bank account (Escrow Account) earmarked for each project. It must only be used for the construction of that project. Any amount from the account can only be withdrawn after it is certified by an engineer, an architect and a chartered accountant that the withdrawal is in proportion to the stage of completion of the project.

3). Builders will have to quote prices based on carpet area and not super built-up area, while carpet area has been clearly defined in the Act to include usable spaces like kitchen and toilets. It will help the home buyers get a clearer picture of the space.

Act now has a clear definition of the carpet area: “…the net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment.”

4). In case the builder would like to change the layout or plans after the sale, he will need the approval of two-thirds of the buyers in that project, to make such tweaks.

5). Penalties: Both the buyer and the promoter have to pay penal interest at similar rates, for missed payment obligations or delayed completion. Incorrect or incomplete disclosure will attract a penalty of 5% of the project cost. In fact, the project may even be cancelled if rules are regularly flouted. In case developers renege on any of their commitments, buyers can complain to the RERAs for redress.

6). In case a developer leaves a project half way, the association of allottees will have the right to refuse and get back their money along with interest. The allottees can also demand that a government authority get the project completed either through another developer or some other means.

Responsibility of the States:

1). Every state will have to form its own rules and regulator (RERA), based on the Act’s guidelines


1). It seeks to enforce the contract between the developer and buyer and act as a fast track mechanism to settle disputes.

2). Some states have enacted laws to regulate real estate projects. The Bill differs from these state laws on several grounds. It will override the provisions of these state laws in case of any inconsistencies.

Drawbacks and Apprehensions:

1). Who will ensure how much is 70% of the total project cost? Also, the state government can alter this amount to less than 70%.

2). The Bill mandates that 70% of the amount collected from buyers of a project be used only for construction of that project. In certain cases, the cost of construction could be less than 70% and the cost of land more than 30% of the total amount collected.  This implies that part of the funds collected could remain unutilized, necessitating some financing from other sources. This could raise the project cost.

3). Builders argue that it will be difficult to sell units on the basis of carpet area in an under-construction property in which many units have been already sold on the basis of super built-up area.

4). Developers say that the main cause of delay is slow approvals from government agencies.

5). Under the Act, if the registration is revoked by the regulatory authority, who will complete the construction?

6). A few consumer activists believe that the real estate regulator may not be effective in the matter of handling complaints. The complaints are already being handled by consumer courts. So they say that there is nothing new. Also, the consumer courts were not effective in the redressal of complaints. They express the same reservations about the regulatory authority also.

7).  Does not address important issues like the lengthy process for project approvals, lack of clear land titles, the prevalence of black money etc

8). Since state-level governance is very uneven, this will work patchily. Some states will set up efficient Tribunals and Regulatory Boards; others will not.

9). Many politicians have interests in real estate. That could work both for, and against the concepts of the new Act. Some smart and not-so-crooked politicians will back the new act and use it to accelerate activity. Others will try to hold up the new legislation or subvert it.


1). A single-window clearance is needed from the government side to avoid unfavourable penalty on the developers

Good legislation doesn’t necessarily lead to good outcomes unless the implementation is good. However, the Act is a step in the right direction, and most stakeholders believe that it will help boost home buyers’ confidence. Let’s hope that it brings much-needed relief to the realty sector.

KeywordsState List, Concurrent List, black money, Real Estate Regulatory Authority, Appellate Tribunal, carpet area, super built-up area

How to approach for the Civil Services exam

  • General Studies 2:
    • a. Government policies and issues arising out of their design and implementation
    • b. Regulatory bodies
  • General Studies 3:
    • a. Land reforms

Practice Questions:

1). Are there buyers for the Real Estate (Development and Regulation) Act, 2016? Critically Analyse.

2). Will the new Real Estate Act be a game-changer? Discuss

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