How RERA Will Ensure Your Developer Is Financially Sound

How RERA Will Ensure Your Developer Is Financially Sound

How RERA Will Ensure Your Developer Is Financially Sound

You do not have to be an expert to know that before you settle for a real estate developer, you must do a background check. The most important check includes his financial situation. A financially sound developer would be able to manage his cash flows better. This would help check instances of project delays which have in the past lend a bad name to the real estate sector.

Did you know that the real estate law has made it easier for prospective homebuyers to ensure that the developer has the financial wherewithal to bear the cost of land and construction? The Real Estate (Regulation & Development) Act, 2016, mandates every developer to set aside finances to mitigate risks.

Prepared to review risks

Developers will have to carry out periodic reviews, targeted towards the proactive identification of uncertain events or conditions around key areas of time, cost, quality compliance, etc.

Gear up to tackle costs during a disaster

After identifying these unforeseen events or conditions, they will have to assess their impact on the cost of a project.

Plan ahead to spend on audits

Developers will also have to carry out periodic audits during the life cycle of projects to measure the performance of the project.

Need for project management officers (PMO)

Developers will have to hire a PMO, responsible for defining and maintaining the standards of project management, including the implementation of consistent project management practices, monitoring and reporting performance indicators of projects around time, cost, quality, etc.

Need for customer relationship managers (CRM)

To manage and analyse customer interactions and data, developers will have to invest heavily. They will have to factor in the cost.

During registration of project

A developer will have to set aside money even during the application for registration. For example, in Maharashtra, the promoter “shall pay a registration fee, calculated on the area of the land proposed to be developed at the rate of, Rs 10 per square metre, subject to a minimum of Rs 50,000, only and a maximum of Rs 10 lakh. The fees for registration of real estate project shall be paid through the NEFT or the RTGS system, or any other digital transaction mode”.

In Madhya Pradesh, this sum is calculated at Rs 10 per sqft for residential projects where area of land proposed to be developed doesn't exceed 1000 sq mt or Rs 20 per sq mt for residential projects where area exceed 1000 sq mt. 

It is Rs 50 per sqmt for commercial or other projects where area of land exceeds 1,000 sqmt.

If the developer wants to withdraw his registration

The developer can apply for withdrawal of application for registration before 30 days of its submission. In such cases, the registration fee will be retained as administrative charges towards processing while the remaining amount will be refunded. This is in the case of Maharashtra.

In Madhya Pradesh, registration fee up to 10 per cent or Rs 50,000, whichever is more, will be deducted as processing fee, and the remaining amount would be refunded within 30 days.

When withdrawing money from a separate account

For new projects: Three certificates would be required to be submitted to the bank --- one from the architect, certifying the stage of project completion; one from an engineer, certifying the cost; one from a chartered accountant, certifying the proportion of the cost incurred on construction and land cost to the total estimated cost of the project. The total estimated cost of the project multiplied by such proportion shall determine the highest amount which can be withdrawn by the developer from the separate account. After the project receives an occupancy certificate, the developer can withdraw the remaining amount.

For ongoing projects: Seventy per cent of cost collected from buyers should be deposited in the separate account.

If the estimated receivables of the ongoing project are less than the estimated cost of completion of the project, 100 per cent of the amount received from buyers will be deposited in the separate account.

Besides, a developer would now have to secure funds from his own pocket or as loans from banks and private equity firms. This is because the law states that a developer cannot raise more than 10 per cent of the project cost from prospective homebuyer unless his project his registered and the sale agreement is signed.

Last Updated: Thu Aug 10 2017

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