REAL ESTATE: Unravelling the legal framework, technology & compliance requirements

Real Estate, being the second highest employment generating sector, holds significant importance in India, which is poised to become the third largest construction market in the world. However, this sector faces numerous challenges and issues.

Mr K Vaitheeswaran, Advocate and Tax Consultant:

In the pre-RERA period, there was rampant misspelling and wrong selling by a set of people. Of course, there were brilliant, genuine players across the industry, but the sector got a very bad name because of some unscrupulous and unorganized players. There were inordinate delays in delivery, issues of non-conformance to specifications, diversion of funds collected for the projects, and so on. Therefore, the Parliament felt that we need a law that completely regulates the sector, though there have been constant debates as to why you should need a law for one specific sector.

The objective of RERA is to create an authority for the regulation and promotion of real estate; bring in efficiency and transparency in the sale of real estate projects; protect the interest of consumers; and establish an effective adjudication and speedy dispute redressal mechanism. It applies to the whole of India except Jammu and Kashmir. When the law was being mooted, the Minister for Urban Development said that the real estate bill seeks to form a happy alliance between buyers and developers and that it addresses the complexities of the sector by putting in place a regulatory mechanism.

There are many developers who are guided by principles and ethics. That is why these companies are shining better. There are thousands of players in the real estate sector compared to only five or six players in the telecom sector. That was the justification of the minister for having a regulatory mechanism exclusively for the real estate sector.

RERA covers the development of land into plots or apartments as the case may be. A building may consist of apartments, which also includes the conversion of existing buildings into apartments. Redevelopment also comes under the Act. So it is important to understand that it is not just for a new project. According to RERA, the promoter is responsible, liable, and accountable. If you’re not developing for the purpose of selling, then you would not qualify as a promoter. A development authority such as a Cooperative Housing Society is also identified as a promoter.

Why is RERA significant today? A builder talks to a consumer through advertisements and people are lured by them. Now RERA says that no advertising or marketing or booking or selling or offering or inviting to purchase by a promoter can happen unless the project is registered with RERA. In the ad, the consumer can look at the RERA Registration number. If you go to the RERA website and feed that number, you will get the entire details of the project. The biggest advantage is transparency for consumers as every data about the project can be seen on the website.

Taking Care of All Stakeholders

Where the development is in phases, each phase is considered a standalone project requiring registration. In case there is an ongoing project where the construction certificate is not issued at the time of the commencement of the Act, registration must happen within three months. An application for registration is very comprehensive. RERA takes care of the consumer side and the builder side. It helps the consumer in getting the right product. The developer must give all the information in the application, which is very comprehensive and requests for authentic information and data.

RERA has an adjudicating process. Let us say an order is passed. You can appeal against the order to the adjudicating authority and escalate it to RERA appellate tribunal. RERA must publish and maintain a website of records for public viewing of all projects listed. On the website, you can see everything about the project and also about the promoter. You can know their past history, about delays or deficiency in development and delivery. RERA maintains a database for public viewing and enters names and photos of promoters who are defaulters. Even a real estate agent cannot sell a project that is not registered, and the agent must also be registered.

RERA’s Teeth

RERA get its teeth when somebody lodges a complaint. It can also, suo moto, call a promoter if it comes across discrepancies or default. It can also help the promoters, when there is a default by the allottees. It has all the powers of a civil court under the CPC plus it has the power to issue interim orders. It can issue directions, and such directions shall be binding on all concerned. The consumer can knock on the doors of RERA if something that is promised is not delivered.

RERA registration presupposes that the promoter has got all other approvals in place. The promoter must provide the development plan and details of all the facilities being offered. The location details of the project with clear demarcation of land dedicated to the project along with boundaries must be provided. They are now bringing more technology into it whereby it’s getting absolutely transparent. The entire land of the country is going to be mapped.

RERA has brought a new concept of carpet area. It is the living area in an apartment and excludes common areas, walls, and balconies. The promoter must give a declaration that he has the legal title to the land on which development is proposed.

Handling of the Funds

RERA says you must finish the project within the time you commit. The most important and interesting aspect of RERA is that 70% of the amount realized for the project has to be deposited in a separate account in a scheduled bank. This is where it ensures that funds received for one project are not misused for another purpose. Therefore, this is a very powerful and effective tool.

You can withdraw money as and when the percentage of completion increases, and for that what is required is a certificate by an engineer, a certificate by an architect, and a certificate by a chartered accountant to the effect that the withdrawal is in proportion to the percentage of completion of the project. The accounts have to be out within six months or at the end of every financial year, and the statement is required from the CA to the effect that amounts collected for a particular project have been utilized for that project and withdrawal is in compliance with the proportion to the percentage of completion. This places all the more responsibility on the Chartered Accountant certifying a project.

30 Day Deadline

RERA registration is not required when the land to be developed does not exceed 500 square meters or the number of apartments proposed to be developed does not exceed eight, including all phases. Also, if you have obtained a completion certificate prior to the commencement of the act, you don’t come under RERA. The Act also says that the authority, within a period of 30 days from the date of receipt of the application, must either grant registration or reject the application. Once registered, the authority shall provide a registration number, login ID, and password for accessing the website. If there is a failure to grant the registration or in the case of failure to reject the application within 30 days, it shall be deemed to have been registered. This puts pressure on RERA to issue registration.

You can always extend your project timeline if you’re able to demonstrate force majeure conditions that affected the project. During the COVID time, a lot of people were able to get the extension. RERA themselves voluntarily granted an extension. If a registration is revoked, the authority will debar the promoter from accessing the website in relation to that project and specify his name in the list of defaulters, display his photo, and also inform RERA in other states. This is very, very dangerous. So you can’t afford to missell, and you can’t afford not to deliver.

No major additions or alterations to the approved and sanction plan can be done unless you get the written consent of at least two-thirds of the allottees, other than the promoters.

RERA can direct the bank holding the project account to freeze the account and take further action to facilitate remaining development. But if you look at it practically, RERA’s aim is not to stop a project. Their endeavour is to ensure that the project is completed. They go out of their way to see how a settlement can be arrived at, involving the landowner, consumer, and developer, as the case may be, and in some cases, all three are involved.

Inherent Conflicts

In the real estate business, stamp duty registrations are state-specific. Unfortunately, RERA is a parliamentary law, and there are some inherent conflicts in respect of registration as per the state-level practices and what is stipulated by RERA.

Also, you cannot collect more than 10% of the cost of the apartment unless you enter into a written agreement for sale and register the agreement. Nobody wants to register a sale agreement. The construction agreement must be mandatorily registered. While the law stipulates that the promoter must get insurance for the title, it is impossible to get title insurance from an insurance company. These are some of the failures of the Act.

RERA uses the word completion certificate. In most states, there is no completion certificate. They have an occupancy certificate in some states, but CC is a concept even in GST, but CC doesn’t exist in most parts of the country.

Penalties

If a promoter does not register the project, a penalty of up to 10% of the estimated cost of the real estate project can be levied. If that order is violated or even after the order, registration is not done, it can lead to imprisonment for up to three years. That is the kind of power that RERA has. For false information or giving controversial information in the application, the promoter can be levied a penalty of up to 5% of the estimated cost of the real estate project. These are all the consequences, which a real estate agent and a promoter face for failure to comply with the order or direction of RERA. There is a penalty every day, which may be cumulatively extended up to 5% of the estimated cost. These are all quite stringent and strict penalties, and the pressure is to make you comply.

The Challenges for Promoters

Where do promoters mess up? They over-promise and under deliver. They promise delivery dates which are practically not possible. The biggest challenge in real estate projects is funding. After complying with all requirements, they need funding. If NBFCs get into a problem, it impacts the real estate market immediately. Banks have a very vague approach to real estate projects. Some of the banks are very encouraging, and some of them are extremely discouraging. So funding is a huge challenge. What is the solution?

Old loan settlement, IPOs, and REITs are new solutions that are coming into the market. Of course, overseas investors can always walk in with non-convertible debentures. The second major issue is the inventory of unsold buildings, even after complying with all requirements. If we look at unsold stock in terms of units and apartments, in Q4 of 21-22, in Chennai, the unsold stock was 75,064 units. In Q4 of 22-23, it was 74,008 units. There is always a significant pileup of unsold stock that the builder deals with, and substantial money is lost here.

There are always so many pain points in the real estate business. The prerequisite for RERA registration is comprehensive planning and obtaining permission from several authorities. All of these lead to a huge increase in cost. Delays in obtaining permissions and NOC from other agencies can affect the registration. Then there is litigation. If somebody files a petition and a court admits it, it’s the end of the story. RERA could have been a single window, but it has become an additional window.

Impact of RERA

Today, all states and UTs have notified RERA, except Nagaland. 32 states have set up the RERA authority, and 28 states have set up their appellate tribunal. Regulatory authorities of 30 states have operationalized their websites. So far, 1,08,208 real estate projects have been registered so far, and in Tamil Nadu, 16,640 projects have been registered. The number of agents registered is 77,525 agents, of which Tamil Nadu’s share is 2,870. A total of 1,11,098 complaints have been received, and the maximum complaints have come from Uttar Pradesh.

To conclude, the real estate sector is in for good times, thanks to the transparency that RERA has brought in.

Technology & Sustainability in the Real Estate Industry

Ms Pavitra Sriprakash, Chief Designer and Director, Global Design Studio of Shilpa Architects

Typically, in an architectural or real estate project, the architectural work happens before we break ground. A lot of the tech tools that I manage or work with on a daily basis happen to be at the design stage. Right now, we are experimenting with AI and Blockchain. We were fairly early adopters of trying to work with BIMs (Building Information Management Systems), but AI and Blockchain are things that are much newer, even for us. So we’re dabbling with tech, once the project is tendered.

When it goes into implementation, we find that there are many construction methodologies of new technology, which are prevalent in the market today. These help in making buildings faster and more efficiently, in monitoring them better, and in giving real-time data as to what’s going on site versus what’s planned on the design front. Finally, operations and maintenance of buildings are highly tech-enabled nowadays, which can help in maintaining the building, throughout its lifecycle.

MIVA, GFRC and 3D Modulars

On the construction side, we have technology such as MIVAN, which is aluminium formwork that helps people construct faster. Many developers embrace this, because this is a very easily repeatable format and can help people cut down their construction time. We also have GFRC panels, 3D modulars, and precast.

We are able to come up with climate-sensitive, geo-sensitive, and culturally sensitive designs that help us create a more sustainable product. Thanks to digital marketing, visioning of approved projects becomes a lot easier now. We work with the metaverse and gamified realms, and as everyone has predicted, the better you are at playing games, the easier you will find getting work done. Real-time game engines are coming into the space of architectural design and visioning. So if I can dream it, I can probably get it translated into a digital image. Rather than 2D plans, such digital images delight a customer.

We use AI tools to tell us things like how much daylight is coming into the building; are we planning enough lights or are we planning enough ACs? All these can be simulated and given to us in real-time data. You can use ChatGPT to figure out the description of the building and use it in the AI for the design of the building. We tend to run into a lot of budgeting and cost overruns, and value engineering at design is important.

You can manage complex and large projects by loading all the information that exists in a very transparent space, for everyone to be able to access. So we can do things like having smart contracts, enforcing the project scope, eliminate processing fees, etc. Basically, we’re looking at rapid construction, and time is money. We use Glass Fiber Reinforced Gypsum (GFRC) panels. This is basically like a drywall system. It can be pre-loaded and made into a panel offsite. It can be brought and quickly assembled. Modular and precast systems have been around for a while. The other one is the light gauge steel frame.

MIVAN is a commercial brand name for aluminium formwork. What this means is that every floor of a building can be made into a mould and poured with concrete. Once this is done, you can take it to the next level.  As long as every floor of the building is the same, you can use MIVAN beautifully. It cuts down the curing time, and it doesn’t have to be 21 days per floor to move to the next level. It’s really a rapid way of constructing.

Monitoring through BIMS

The next part is monitoring the work that is going on at the site. We have many new apps that are coming up, which help project managers to track the project, monitor the attendance of workers and their efficiencies. You can track everything remotely. You can have an integrated design project where all team members sit in various parts of the world, but they’re still able to track that one project. We’ll also tie into the part where the auditors come in, making payments and managing the budgets. The digital twin technology is tied in with both BIMs and the modelling software. A digital twin using AI-based visualization software is loaded completely with the data of the building to be constructed, but it exists virtually.

Some of the new products tend to harness renewable energy from either solar sources or from people walking on them. Sensor-based intervention for water efficiency has been around for a while. Now we are pushing this envelope to control the environment of the entire building. We have temperature monitors, humidity sensors, and CO2 monitoring systems. All these things can be linked to the Integrated Building Management System or IBMS. This then functions with the digital twin, dishes out data about the actual efficiencies on a daily basis, and helps you manage the dashboard.

Ms M Samhita, Managing Director, Ela Green Buildings

Sustainability relies heavily on technology today. People often get confused when we talk about a sustainable building. They think it must have red brick or rammed earth or something like that. But today, we build millions of square feet in a span of a year or less than that. In that scenario, technology becomes very critical to bring in concepts of green, efficiency and climate-responsive design. For sustainable buildings, there are three phases we must look at—design, construction, and operation.

There’s a lot of push from the global market as well as our country’s leadership to achieve net zero. We’re working on green and climate-resilient buildings. Just one or two initiatives in a building like rainwater harvesting will not suffice. We need a holistic approach. We have rating systems and tools to define green buildings. The rating systems have been in place globally for a while. From the early 2000s, India slowly started adopting green building rating systems. Today, we have billions of square feet that are certified green. We have the Indian Green Building Council (IGBC) and LEED, which is Leadership for Energy and Environmental Design. The new ratings focus on the environment and also the people using the space, because that has raised more concerns post the pandemic, on building health and safety.

The next important part is Codes. In fact, India did not have an energy code for buildings until recently. It was in 2007 when the first code was developed by India. Not all of the entire country is following codes. While the rating system is a voluntary approach, compliance with codes is mandatory.

Optimisation from Modelling

There are many tools that are available today for airflow modeling and other energy-efficient design. Tamil Nadu has notified the energy conservation building code made by the Bureau of Energy Efficiency. It is still not included in the combined building rules. The implementation is still pending. It is important for designers to incorporate that.

We have many case studies of how various tools have helped us. We designed a small building of about 30,000 square feet in Nungambakkam, Chennai. We worked closely with the architect, and he asked us to come up with suggestions. Very rarely does that happen for us as consultants. Normally the design is frozen, and we are expected to work backward. We created the energy model, did a couple of iterations—one with the solar canopy and without a solar canopy, worked out various cases with high-performance glass with shading devices and without shading devices, with regular bricks and with concrete blocks and so on.

In all, we did nine cases. We could bring down the consumption from 954 megawatt-hours per annum in the worst-case scenario to 459 megawatt-hours per annum in the best-case scenario. Considering the cost involved, we settled for an optimum solution whereby we could achieve 620 megawatt-hours per annum. In the energy bill, Rs.4 lakhs was saved every month. This is the kind of impact that an energy simulation tool can give us.

Waste Management

100% of construction waste can be diverted or recycled, and it can be managed properly on-site. There are simple ways in which we can do it. One is, prior to construction, how do we ensure that the site can be prepared in such a fashion where we minimize pollution control, where we don’t have to trouble the other neighbouring sites? During construction, waste management and resource optimization are important. You can buy treated water from neighbouring sites and use it for spraying on the roadway, so that you don’t generate too much dust.

Using precast and dry construction/factory-made panels that are coming now, we can reduce waste. All this must be planned at the design stage, because the structural elements are fixed at the design stage. We can engage recycling agents and vendors who can reuse the waste materials generated on-site.

What gets measured only can get improved; otherwise, we don’t know where we stand. So technology has become very important here. We’re looking at a data-driven approach to enhance performance, and the most critical path is having a building monitoring system, where you can monitor not only energy or water consumption but also CO2, humidity, temperature, occupant well-being, satisfaction, and so many other parameters. Through continuous monitoring, we will be able to plug the leakages and improve the performance when there’s a shortfall in performance. We can even calculate how much of GHG emissions can be reduced as a result of the interventions.

In the Technical Session-3, CA V Prasanna Krishnan gave a presentation on the various GST issues in Real Estate sector. CA L Srikaanth, in Technical Session-4 spoke on the Accounting related aspects of Real Estate. In the Technical Session-5, CA T G Suresh gave an insight into Direct Taxes scenario in the Real Estate.