What’s ahead for buyers in deregistered projects

• Rera takes Noida project under its wing after deregistering it for delay and default
• Rera can freeze bank accounts related to the project, and the developer will need its approval for transactions.

In what is being touted as a groundbreaking decision, the Uttar Pradesh Real Estate Regulatory Authority (UP Rera) last month deregistered three phases of housing project Aranya, which was being constructed by developer Unnati Fortune Holdings Ltd in Noida, under Section 7 of the Real Estate (Regulation and Development) Act, 2016. Under the Act, every upcoming project meeting certain conditions needs to get registered with Rera of the respective state.

The homebuyers in the project approached Rera in September 2018 against the developer with complaints of project delay and alleged irregularities. Construction on the project, valued at over ₹1,500 crore and located at Sector 119, Noida, started in 2007, but about 12 years later, it is still not complete. In its order, UP Rera stated that it has found severe financial irregularities, diversion and siphoning of funds and double allotment of apartments in three phases of the project. The decision came after the promoter failed to provide a satisfactory response to several show-cause notices as to why the three phases of the project should not be deregistered.

This is the first time in the country that Rera has ordered the deregistration of a project under it on the grounds mentioned earlier. While the developer may now find itself in trouble, what lies ahead for the several buyers affected by Rera’s deregistration order?

Developer in the dock

Each under-construction or upcoming real estate project having more than eight apartments or which is greater than 500 square metres in size needs to get registered with the Rera under whose jurisdiction it falls. Upon registration, developer gets a registration number to use it to advertise and sell the apartments.

However, in case the developer indulges in any “unfair practices” defined in the Rera Act, the authority has the right to deregister the project in question. After the deregistration order, the concerned Rera needs to inform Rera offices in other states and Union Territories about such a revocation.

Upon deregistration, Rera is mandated to impose various restrictions and controls on the project and the developer in line with Clause 7 of the Act. For instance, Rera can freeze the bank accounts related to the project, and the developer is not allowed to make any payment or withdrawals from these accounts without the authority’s approval. In project Aranya’s case, UP Rera has frozen the “known” bank accounts related to the developer. However, implementing this is a bit of a challenge. While UP Rera initially had information of two bank accounts of the developer, it got reports of other bank accounts from homebuyers, and is still in the process to freeze them all. “Rera had information of only two bank accounts of the developer. When the homebuyer group informed that there are many others in which the developer has collected money from them, the authority requested us to provide the information. We compiled the details of around 30 bank accounts and gave it to Rera. I think they have frozen about 10 accounts so far and working on others,” said Kuheli Chatterjee, 43, a teacher and one of the homebuyers in project Aranya.

The rules also mandate Rera to debar the developer or promoter of the project from accessing the authority’s website in relation to the concerned project. Besides, UP Rera has specified the name of the defaulting promoter in the list of defaulters along with a photograph and displayed relevant information about the case, as per the rules.

Road ahead for buyers

After the deregistration of a project, the onus to complete it and provide timely possession to homebuyers shifts to the authority. In that sense, deregistration is a ray of hope for homebuyers stuck in stalled projects across the country.

“Deregistration is not an ideal choice for any of the stakeholders. It is the last resort as far as Rera is concerned. It is taken as the Brahmastra, when no other remedy is workable,” said Chatterjee.

Owner-led construction: As per the Act, the authority has to first offer homebuyers a chance to complete the construction of the project on their own. In a statement after the deregistration of project Aranya, UP Rera secretary Abrar Ahmed said, “After deregistration, there are several options before the authority, besides giving the first right of completion to buyers. If the buyers themselves are in a position to complete the project by pulling their finances together, the authority will develop a mechanism to supervise that.”

For buyers, there seems to be no other alternative. “The Noida authority has refused to take the onus and the builder has fled the country after siphoning off most of the money. A ray of hope is better than total despair. Any buyers’ committee, howsoever inefficient, cannot become as criminal like the previous owner,” said Chatterjee.

But it may not be easy for homebuyers to take on the mammoth task of getting the construction of a stalled project completed. For starters, funding may be a problem, keeping so many buyers coordinated is another task, while the actual challenges related to the construction may be another daunting factor.

“Given the financial and mental stress of being stuck in almost dead projects, some frustrated homebuyers have been of late contemplating the possibility of completing their projects themselves. But it is a mammoth task to build a real estate project, and only experts within this domain can possibly know—and be prepared for—the many inherent challenges,” said Anuj Puri, chairman, ANAROCK Property Consultants, a property consultant firm.

The decision for homebuyers to take on the construction of the project also depends on the status of the project and other factors.

“One must opt for self-completion only if the affected projects are at least 85-90% complete and the financial health of the said project is sound. In other words, the delay should have been due to reasons other than lack of funds. Only smaller-sized projects (of 200 units per project or less) can be considered a safe option for buyers opting for self-construction. Projects under litigation must be strictly avoided,” said Puri.

Authority-led construction: If the homebuyers show their inability to execute and complete the remaining construction, the onus is on the authority to complete the project. “Quite a few homebuyers are hopeful that if their states’ respective Rera authorities take over stuck projects, they may actually complete them,” said Puri.

In the case of project Aranya, UP Rera is confident that its decision is a step in the right direction and favours homebuyers. The authority is also open to provide the necessary support to homebuyers in their endeavour. “As mentioned in the Act, we have the wherewithal and mechanism in place to support homebuyers in their decision, both in case they wish to take the responsibility of the construction work or otherwise,” said Balvinder Kumar, member, UP Rera.

Since this is the first-of-its-kind decision, it’s expected to set a precedent in the field of real estate regulation. Homebuyers stuck in stalled projects and other stakeholders are keeping an eye on the developments in project Aranya.

Source : liveMint