Important Real Estate Laws (Acts) and Regulations in India in 2024

Real Estate laws and regulations are one of the gears in the real estate sector machinery, being aware of important rules and regulations is very important for every real estate stakeholder including Agents and home-buyers. Here, starting with discussing briefly on importance of the Real estate sector and its growth, this blog will highlight the most important laws that operate in the real estate sector.

The Indian real estate sector has witnessed a paradigm shift over the years and is poised to hit a market value of $ 1 Trillion by the year 2030. Be it residential, commercial, hospitality, or housing, the sector offers countless opportunities for both developers and homebuyers. This change can be attributed to the new policies, schemes, and regulations that have considered the needs and requirements of both homebuyers and developers. Furthermore, the expansive use of real estate digital marketing has attracted an audience that has historically found it difficult to invest in the infrastructure and real estate sector.

Purchasing homes, however, requires a thorough understanding of real estate laws. In this article, we will discuss some of the important legislation pertaining to the real estate sector and its key provisions.

1. Real Estate (Regulation and Development) Act, 2016

Counted as one of the most revolutionary real estate laws in India, the Real Estate (Regulation and Development) Act or RERA act came into force in 2017. It offers a two-fold objective: protecting the rights of homebuyers and boosting investments in the real estate sector. The act also paved way for the formation of an adjudicating dispute resolution body—the Real Estate Regulatory Authority.

RERA is an overly broad act; however, given the importance it holds for homebuyers, we have listed down some of the major provisions of this act.

• It mandates the registration of all projects with regulatory authorities that have 8 apartments or a minimum of 500 sq.mt plot size.
• Establishment of RERAs in states to bring transparency and accountability in the real estate sector.
• To appeal against the decisions taken by RERA, the Act provides for the establishment of a Real Estate Appellate Tribunal.
• The act also adds a cap (10%) on the amount that builders can ask as advance payment.
• Developers must park 70% of funds collected from homebuyers in an escrow account. This amount will be used only for project construction.
• Developers are responsible for repairing damaged structures for 5 years post-sales.

Limitations

Though the act is a step taken in the right direction, there are a few limitations it holds. Some of them have been given a rundown below:

• Projects started post the enactment of the RERA act needs to follow the provisions. The projects pre-RERA, completed, or are stalled due to financial constraints do not fall under the act.
• Registration is not mandatory for real estate projects which are less than 500 square meters.
• Possible delay in new projects due to mandatory clearances. This can also be accentuated due to the tussle between central and state governments as RERA has been enacted under the concurrent list of the constitution.

Despite the flaws, the act is revolutionary in many ways. It mandates obtaining clearances before starting a project, necessitates selling properties based on carpet area and not built-up area, encourages timely delivery of projects, forces builders to submit accurate details, and paves way for providing after-sales services to the homebuyers.

2. Transfer of Property Act, 1882

Another important addition in the list of real estate laws in India is the Transfer of Property Act, 1882. Enacted by the erstwhile British government, the act deals with the transfer of immovable properties by companies and individuals for inter-vivo i.e. between living persons. The act permits transfer of property in only 6 ways:

• Sale
• Gifts
• Lease
• Exchange
• Mortgage
• Actionable Claim

There are also some provisions under this act pertaining to the immovable properties which cannot be transferred. This includes property transfers by wills, inheritance, insolvency, forfeiture, and easement rights. The transfer of Property Act also prohibits the transfer of land in favour of an unborn child.

What should you do as a seller?

If you are transferring your property through real estate agents or have taken the responsibility to do it yourself, then there are certain aspects that you need to consider. As far as the Transfer of Property Act is concerned, Section 54 of the act mandates you to do the following:

• You must disclose any material defect and pay all public charges before transferring the property.
• You must provide all the information and submit documents related to the property title to the buyer.
• You also must take the responsibility of handling documents and property between the contract date and handover.

3. Right to Fair Compensation & Transparency in Land Acquisition, Rehabilitation & Resettlement Act, 2013 (LARR)

LARR is one of the most important real estate laws in India that you must know about. This act came into force in 2014 by replacing the Land Acquisition Land of 1894.

Land acquisition, in simpler terms, is when the central or state governments acquire private lands for developing infrastructure. In return for the land, the landowners are paid fair compensation and their rehabilitation is taken care of.

We have listed down the key provisions of this act below:

• Governments acquire the land to transfer it to private companies; however, the land should be used for public purposes.
• The consent of majority of the landowners is required before acquiring the land.
• It also mandates offering higher compensation to those whose lands were taken over by the government.
• These provisions are not applicable to lands acquired under acts like the Railways Act, 1989; Atomic Energy Act, 1962; SEZ act, 2005, etc.

Earlier, in the cases where the land compensation was decided 5 years prior to the enactment of LARR but was not paid, the land acquisition process lapsed. It was then required to start the acquisition process afresh, thereby offering higher compensation to the landowners. However, as per the Supreme Court’s latest order, the acquisition process lapses if the physical possession is not given or fair compensation is not paid to the owners.

4. SEBI (Real Estate Investment Trusts) Regulations, 2014

Introduced by the Securities and Exchange Board of India (SEBI) in 2008, the Real Estate Investment Trust (REIT) is a new yet legitimate way of attracting investments in the real estate sector.

Simply put, REITs are companies that manage, finance, or own projects which have the potential to generate a steady income. Based on the investment model, you can earn a fixed income by either renting the commercial spaces or by investing in mortgage-backed securities.

Though at nascent stages in India, REITs have gained traction across the globe. When it comes to the real estate laws, the REITs are guided by the provisions of the Indian Trusts Act of 1992 but are regulated by SEBI.

Also, the SEBI Real Estate Investment Trusts (REIT) Regulations, 2014, have significantly changed how real estate investing works in India by establishing a detailed system for REITs. These rules ensure that REITs function honestly, clearly, and according to predefined standards, protecting investor interests and advancing the growth of the real estate sector.

 According to the Indian Trusts Act, REITs in India are legally designed to protect investors and handle trust assets efficiently. Essential roles, like the Sponsor Group, Re-designated Sponsor, Manager, and Trustee, are created to guarantee smooth and productive operations while considering stakeholder interests.

 When listing REITs, specific criteria must be fulfilled, such as asset values, minimum numbers of unit holders, and initial or follow-up offer sizes. At least 80% of a REIT’s assets need to be in completed, profit-making properties; the rest may be invested elsewhere within allowed limits. These regulations also cover valuations and income distribution plans.

 Each year, investors receive full valuations and semi-yearly updates regarding asset values and the REIT’s financial situation. Dividend distribution policies mandate paying out at least 90% of net taxable earnings as dividends, rewarding shareholders, and fostering long-term investment dedication. Ultimately, the implementation of the SEBI REIT Regulations (2014) has helped expand the Indian real estate industry by providing a dependable and open investment atmosphere.

5. Foreign Exchange Management Act, 1999 (FEMA Act)

There are scores of Non-resident Indians who want to purchase properties in India. However, with an array of real estate laws in place, purchasing properties can be a taxing process. According to the provisions of the FEMA act, NRIs can purchase immovable properties in India. Payments for such properties/lands must be submitted through the non-resident bank accounts. NRIs are also entitled to own agricultural lands if they have inherited the same from close relatives—as defined in the Income Tax Act, 1961.

NRIs, besides getting residential properties, should be able to avail of loans up to 80% of the property value; the money from such loans is credited into the developer’s account and not the NRI’s account. Such a format allows for timely payment to be channeled in a couple of ways, like forwarding the income through inward remittance, rental income, or even crediting the money to the account of a close relative.

Also, NRIs may remit profits that were made in the process of selling an immovable property and returning to their home country, but with certain restrictions. Particularly, the repatriated amount should not exceed the amount of the property bought, and the property should be obtained as per the FEMA orders. Such a legal device empowers NRIs to realize appreciation for their assets and, at the same time, provides for compliance with FEMA norms.

The provisions of the FEMA Act on NRIs buying apartments in India not only make direct investments possible for them but also ensure that the investments are carried out properly in accordance with the country’s economic and regulatory objectives. Thus, NRIs who abide by these guidelines will not only enjoy the prosperity that comes with investment in India’s real estate market but also build the economy of the country.

6. Registration Act, 1908

The Registration act of 1908 provides a comprehensive list of land documents, instruments, deeds, or transactions that must be registered with the competent authorities. It also elucidates the penalties that one may have to bear if documents are not registered in concurrence with the law. Immovable property gift instruments and immovable property lease (exceeding 1 year) are some of the many documents which must be registered compulsorily.

Real Estate Laws: 2020 Highlights

2020 has been a mixed bag for residential as well as commercial real estate. To revive the industry, the government has either made various announcements or has proposed draft acts related to the land and real estate laws. Enlisted are some of the 2020 highlights that you must know:

On 30^th October 2020, the NITI Aayog released a draft model and act on land tilling. It allows the state governments to establish and administer the title registration system for immovable properties. The primary objective of the draft is to reduce the number of land-related litigations and ease the land acquisition process of infrastructure projects.

In 2020, the honorable Supreme Court of India ruled that the land acquisition process (under the Land Acquisition, Rehabilitation & Resettlement Act, 2013) lapses if the physical possession is not given or fair compensation is not paid to the owners. This was one of the major yet controversial amendments to the real estate laws.

The SEBI (Real Estate Investment Trusts) (Second Amendment) Regulations, 2020 altered certain provisions of the 2014 act. Some of these amendments have been given a rundown below:

1. Other than the sponsor(s), no other entity can hold the units of REIT.
2. The maximum subscription of any investor should not exceed 25% of the total capital of the unit.
3. “De-classification of the sponsor(s)” status for listed REITs has been introduced in the act.
4. To broaden the definition of a “strategic investor,” the terms insurance company and mutual fund over have been introduced.

From building a new project and transferring immovable properties to reducing litigation load and allowing NRIs to invest, there are scores of real estate laws in India. While they come with their own set of advantages, there are still a few loopholes that need to be addressed. This will facilitate a transparent developing-buying-selling process system across the real estate sector.