The Real Estate (Regulation and Development) Act, 2016, which came into force on May 1, 2017, will bring an estimated 83,000 registered builders in India under its purview. It will ensure that the interests of home buyers are protected. The Act empowers homebuyers to exit a project at any stage and get back their money. But what net amount will a buyer get if he gives up a project?
Under the Act, a developer is required to refund or pay compensation to allottees with an interest rate of State Bank of India’s highest marginal cost of lending rate plus two per cent, within 45 days of it becoming due. Interest rates are expected to range around 11-12 per cent.
The allottee shall have the right to cancel/withdraw his allotment in the project as provided in the Act: Provided that where the allottee proposes to cancel/withdraw from the project without any fault of the promoter, the promoter herein is entitled to forfeit the booking amount paid for the allotment. The balance amount of money paid by the allottee shall be returned by the promoter to the allottee within 45 days of such cancellation.
How will the developer repay the money? Since the developer has also collected government taxes and duties which he has put into the government coffers, how will he return the money? For some indirect taxes, a developer also get subsidies from the government, where will that benefit go? And, if the developer has to refund the money, how will he refund the money—from the common pool account or from some other account?
The rule says that the Builder-Buyer Agreement has to be registered for which a certain amount of Stamp Duty has to be paid. This was a practice in some states such as Maharashtra, but not a common practice across the country. Under RERA, the hardship for the buyer begins on Day 1 because he has to pay the registration cost right away, which was earlier being paid at the time of possession.
To register the Agreement to Sale, the Stamp Duty has to be paid at the local sub-registrar office. For instance, Uttar Pradesh charges 2% Stamp Duty while Haryana levies a 1.5% charge. This means if a person buys a flat for Rs 60 lakh, he ends up paying Rs 1.2 lakh as Stamp Dty (2%) at the time of the Agreement to Sale which will get offset four years down the line when he registers his Conveyance Deed.
What will happen if a buyer in the interim wants to cancel the purchase after six months or wants to sell the property? Will he get his money back, which he has paid in the form of Stamp Duty and other taxes?
It would become a sunk cost. As Stamp Duty is the domain of a state’s revenue department, a proposal was made to the states to reduce the registration amount to a nominal Rs 500 or 1,000.
In this scenario if a buyer wants to exit a project for some reason, he will not only have to give up the registration amount, he will also have to forfeit the booking amount paid to the developer. It is ironical that RERA, which has been framed to protect the interest of a homebuyer, will make exiting a project very difficult for him.
SOURCE – THE PROPERTY TIMES, BLOOMBERG, BUSINESS INSIDER, PRESS TRUST OF INDIA (PTI)