Understanding RERA: A Simplified Guide for Homebuyers and Developers

Published on: July 18, 2025

The Indian real estate sector, once largely unregulated, often presented a challenging landscape for homebuyers. Delays, diversions of funds, lack of transparency, and one-sided agreements were common occurrences, leaving many consumers vulnerable. To address these systemic issues and foster a more equitable and efficient real estate market, the Indian government enacted the Real Estate (Regulation and Development) Act, 2016 (RERA).

This landmark legislation, which came into effect fully on May 1, 2017, has significantly reshaped the way real estate projects are developed, marketed, and sold across the country.

What is RERA Act and how does it work?
RERA, or the Real Estate Regulatory Authority, is the regulatory body established under the Real Estate (Regulation and Development) Act, 2016. Its primary objective is to regulate the real estate sector, ensure transparency, protect the interests of homebuyers, and promote healthy investment in the industry.

Here's a breakdown of how RERA works to achieve these goals:

1. Mandatory Project Registration:
One of the most crucial aspects of RERA is the mandatory registration of all real estate projects with the respective state's RERA authority. This applies to both residential and commercial projects exceeding 500 square meters or having more than eight apartments. Developers cannot advertise, market, or sell any unit in an unregistered project.

How it works: Developers must submit detailed information about their projects, including:

Approved plans and layouts

Land status and legal clearances

Construction timelines and schedules

Details of amenities and specifications

Names of the project's architect, engineer, and other professionals

Past project details of the promoter

This information is then made publicly available on the RERA website, allowing potential homebuyers to access crucial data and make informed decisions.

2. Escrow Account Requirement:
To prevent the diversion of funds, RERA mandates that developers deposit a minimum of 70% of the amounts collected from buyers into a separate "escrow account" maintained in a scheduled bank. These funds can only be utilized for the construction and land costs of that specific project.

How it works: Withdrawals from this escrow account are strictly monitored and require certification from an engineer, an architect, and a chartered accountant, ensuring that the money is used solely for the intended purpose of the project. This provision significantly reduces the risk of project delays due to financial mismanagement.

3. Standardization of Carpet Area:
Before RERA, there was no uniform definition of "carpet area," leading to confusion and potential overcharging of buyers. RERA has standardized the definition of carpet area as the net usable floor area of an apartment, excluding the area covered by external walls, service shafts, exclusive balconies, or open terraces, but including the area covered by internal partition walls.

How it works: This standardization ensures that buyers pay only for the actual usable space, bringing clarity and fairness to property pricing.

4. Timely Project Completion and Possession:
Project delays were a significant pain point for homebuyers prior to RERA. The Act imposes strict timelines for project completion as declared by the developer during registration.

How it works: If a developer fails to deliver possession within the agreed-upon timeline, they are liable to pay compensation to the buyer, which includes interest for every month of delay. This provision incentivizes developers to adhere to their commitments and speeds up project delivery.

5. Transparency and Disclosure:
RERA promotes a high degree of transparency in real estate transactions. Developers are required to provide comprehensive information about the project on the RERA website and cannot make any changes to the plans without the consent of the buyer (for minor alterations) or a majority of allottees (for major changes).

How it works: This ensures that buyers are fully aware of what they are investing in and prevents developers from making misleading claims or unilaterally altering project specifications.

6. Defect Liability Period:
RERA holds developers accountable for the quality of construction. If any structural defects or defects in workmanship, quality, or provision of services are brought to the notice of the developer within five years from the date of possession, the developer is obligated to rectify them free of charge within 30 days.

How it works: This provision offers a crucial safety net for homebuyers, ensuring the quality and integrity of their purchased property.

7. Grievance Redressal Mechanism:
RERA establishes a robust and expedited grievance redressal mechanism. Buyers, developers, and real estate agents can file complaints with the RERA authority in their respective state. If dissatisfied with the RERA authority's decision, an appeal can be filed with the Real Estate Appellate Tribunal.

How it works: This provides a faster and more efficient avenue for resolving disputes compared to traditional lengthy court processes.

8. Regulation of Real Estate Agents:
Real estate agents and brokers are also brought under the ambit of RERA and are required to register with the authority. They are mandated to provide accurate information to buyers and refrain from misleading advertising.

How it works: This ensures professionalism and accountability among real estate agents, reducing fraudulent practices.

Benefits of RERA:
For Homebuyers:

Increased Transparency: Access to comprehensive project details, including approvals, timelines, and financial status, enables informed decision-making.

Reduced Project Delays: Strict timelines and penalties ensure timely possession of properties.

Financial Security: The escrow account mechanism protects buyers' investments from diversion.

Standardized Practices: Uniform calculation of carpet area and standardized sale agreements reduce ambiguity.

Effective Grievance Redressal: A dedicated forum for dispute resolution offers a quicker and more efficient recourse.

Enhanced Accountability: Developers are legally bound to fulfill their commitments and rectify defects.

Protection Against Fraud: Mandatory registration and disclosures significantly reduce the risk of fraudulent projects and misrepresentation.

For Real Estate Developers:

Increased Buyer Confidence: Transparency and accountability lead to greater trust among homebuyers, boosting sales and investment in legitimate projects.

Level Playing Field: RERA helps weed out unscrupulous developers, creating a fair environment for reputable players.

Improved Industry Image: The regulation has professionalized the real estate sector, enhancing its credibility and attracting more institutional investment.

Streamlined Processes: While initially requiring more compliance, RERA can lead to more organized project planning and execution in the long run.

Reduced Legal Disputes: Clearer regulations and a structured dispute resolution mechanism can potentially reduce the number of prolonged legal battles.

Conclusion:
RERA has undoubtedly been a transformative force in the Indian real estate sector. By bringing in much-needed regulation, transparency, and accountability, it has empowered homebuyers and fostered a more trustworthy environment for real estate transactions. While challenges in implementation and awareness may still exist in some areas, the RERA Act stands as a crucial step towards a mature and consumer-centric real estate market in India. As a homebuyer or a developer, understanding the provisions and implications of RERA is not just beneficial, but essential for navigating the complexities of the real estate landscape.