_Indian state of Karnataka notifies RERA rules to lift uncertainty

Karnataka has recently notified its RERA rules. The rules bring clarity on issues but dilution of ongoing projects has taken the sheen off the rules.

July 26, 2017

Karnataka is the latest entrant to the exclusive club of states that have notified RERA rules. The state capital Bengaluru is one of the largest and most stable real estate markets in the country. The notification of RERA rules, by the state, should lift the uncertainty about the manner and form in which RERA rules will be implemented in the state.

With the rules now being notified, the veil has been lifted and developers and homebuyers, in Karnataka, are aware of what they need to deal with in the days to come.

Most of the provisions of the draft rules prepared by the state were in line with the provisions of the Central Act. The recently notified rules however, have diluted the definition of ongoing projects in the state. On the other matters however, the recently notified rules have provided more clarity to both homebuyers and developers.

The finer details. The draft rules framed by the state were silent about the fee that promoters of a real estate project need to pay at the time of getting their project registered. The recently notified rules have dealt in great detail on the quantum of fee that promoters need to pay at the time of getting their project registered. The fees promoters need to pay are as follows:

In case of a group housing project, `5 per square metre for projects where the area of land to be developed does not exceed 1,000 square metres; or `10 per square metre for projects where the area of land to be developed exceeds 1,000 square metres. The fee in the latter case will not exceed `5 lakh.
In case of mixed-use development (commercial and residential) projects the fee will be `10 per square metre where the area of land to be developed does not 1,000 square metres; in other cases the fee will be `15 per square metre but shall not be more than `7 lakh.
In case of commercial projects, the fee will be `20 per square metre for projects where the area of land to be developed does not exceed 1,000 square metres; in other cases the fee will be `25 per square metre but will not exceed `10 lakh.
For plotted developments, the fee will be `5 per square metre but shall not exceed `2 lakh.

Not only do the notified rules get into granular details on the fee that promoters need to pay, when getting their project registered but they also dwell on what happens if the promoter decides to withdraw his application. As in the case of the rules for Maharashtra, the notified rules for Karnataka also dwell on this matter in detail. Notified rules by Delhi and Gujarat do not speak on this matter.

As per the rules for Karnataka, in case a promoter decides to withdraw the application for registration of a project, before the expiry of 30 days from the date of submission, a refund of the registration fee after subtracting the processing fee to the extent of 10% or `50,000, whichever is higher.

Even in the case of Maharashtra, a promoter can withdraw his application for registration within 30 days and in such cases, the registration fee to the extent as specified by the regulations framed by the Authority, shall be retained as administrative charges and the remaining amount shall be refunded to the promoter. The recently notified rules for Karnataka bring further clarity on other aspects as well.

Providing more clarity. In the draft rules, the fee that real estate agents needed to pay, to get themselves registered, was dependent on where they planned to operate—within the jurisdiction of Bangalore Metropolitan Region Development Authority (BMRDA) or outside it. The recently notified rules do not make any such distinction.

The rules clearly state that in case the real estate is an individual, then the registration fee will be `25,000 and `2 lakh in other cases. Till now the rules notified by Karnataka are largely in line with the Central Act and in a few instances they have brought about further refinements. On a very important issue, however, Karnataka has diluted the provisions of the Central Act.

On a different note. The Central Act clearly states that projects that have not received an occupation certificate as of 1 May 2017 will be covered under RERA. All the states that have notified their rules are in line with the Central Act, especially with regards this particular provision. The rules notified by Karnataka however, look the other way.

As per the notified rules an ongoing project will be exempted from RERA if it meets any of the four criteria as listed down. These four criteria are as follows:

In respect of layouts where the streets and civic amenities sites have been handed over to the local and planning authority.
With regards apartments where common areas have been handed over to the registered association, majority of which are allottees.
Where all development works have been completed as per the Act and certified by the competent agency and application has been filed with the competent authority for issue of completion/occupation certificate.
Where all development works have been completed as per the Act and certified by the competent agency and sales/lease deeds of 60% of the apartments/houses/plots have been registered and executed.
Where partial occupancy certificate is obtained for the completed part of the project.

These provisions will to a great extent shake consumer confidence, which RERA was expected to restore. With inclusion of these provisions in the notified rules, homebuyers for sure will feel sidelined. There is no denying the fact that some of the ongoing projects will not be covered by RERA. Thus the onus will be on the developers to get their act together and complete these projects, so that these too get lapped up by homebuyers, at some point in future.

In the far north of the country, Haryana and Uttar Pradesh, too have diluted the definition of an ongoing project under RERA. The new state government in Uttar Pradesh has decided to take a fresh look at the ruled formulated by the previous government. In Haryana, where rules are still in a draft stage but should get notified soon, a group of homebuyers have threatened to move the High Court, if the state government dilutes the RERA rules at the time of its notification.

Conclusion. The rules notified by Karnataka no doubt give more clarity on the matter but dilution of ongoing projects has taken the sheen off the rules. Going forward the website of the Karnataka Real Estate Regulatory Authority (KRERA) will be up soon.

In the meantime, the state government has appointed the principal secretary, department of housing, government of Karnataka as the interim regulator of the KRERA. Going forward, we expect other states, which house major real estate markets, like Haryana and Uttar Pradesh too, to notify their rules and have the necessary systems in place. Such measures would ensure that the beleaguered real estate sector would slowly gain the necessary momentum that it so dearly misses in the present day.