The project life cycle constitutes various phases. It begins with approvals for commencement of a project and RERA registration with the regulating Authority. Therefore, this becomes essential to understand and resolve conflicts. To avoid controversies that might arise requires a phase-wise RERA registration.
Phase-wise RERA Registration
Section 3 of the RERA Act says about the requirement of RERA registration. The section states the following:
- The promoter cannot advertise, market, book, sell or offer for sale, or invite persons to purchase in any manner any plot, apartment or building, in the real estate project, in any planning area, without registering in the real estate project with a Real Estate Regulatory Authority established under the Act.
- Provided that the projects which are ongoing on the date of commencement of this Act and for which the completion certificate has not been issued, the promoter must make an application to the Authority for registration of the said project within three months commencement of this Act.
The reading of the section suggests that every ongoing project in the planning area is required to be registered within 3 months of commencement of this Act. But this must be organized in harmony with the section that says that only those ongoing projects require registration, which has started advertisement/marketing/booking by any means prior to introducing RERA. The decision about registering the project in multiple phases or is a critical matter.
Points kept in mind for Phase-wise RERA registration
The essential factors which are kept in mind while evaluating the optimum option are listed below:
Amount of Penalty
Generally, the penalty gets levied on the estimated cost of the project. In the case of phase-wise registration, the estimated cost will get limited to the area registered as projects, i.e., phase-wise RERA registration. In case of default, the obligations of any one phase, the entire project will not bear the cost.
Additions or Alterations in Plan
The Act requires the previous written consent of at least two-thirds of the allottees in case of any alterations or additions (other than minor additions or alterations as defined under Act) in the project plans and building specifications. In the case of phase-wise RERA registration, the said requirement can be complied with more rapidly as the requirement of two-thirds of allottees will be limited to the phase rather than the project.
Timeline to Complete the Project
The project completion requires to be provided at the time of registration of a project. In case of a single registration of the entire project, any internal delay in any completion of different blocks or towers can be adjusted within the timeline of project completion, which is usually decided to keep certain contingencies in mind. In the case of phase-wise registration, the promoter is exposed to delays on multiple phases.
Project Accounting
If the company maintains a single set of books of accounts of the entire project, the direct costs and the common expenses need to be bifurcated amongst all the phases by taking a proper basis in case different registrations are taken for each phase.
Marketability of the Phases vis-a-vis Entire Project
Marketing strategies would require restructuring in phase-wise RERA registration. The promoter needs to display the separate RERA number for each phase on banners and hoardings, the document and plans for advertisement, social media marketing, etc.
Read our article:Guide on RERA Registration for Real Estate Agents
Formation of Association of Allottees Phase-Wise RERA registration
The Act requires the formation of an association of allottees and transfer of common areas within 3 months of the issue of occupancy certificate. The requirement to create an association of allottees would be triggered on completion of each phase separately, thereby increasing the compliance burden and giving up the control over the part phase of the project at an early stage.
The cost factor, Cash Flow and Project Finance Requirement
In case of phase-wise RERA registration, a separate bank account needs to be maintained for each project (i.e., phase), as per the provisions. Once a project gets completed, the promoter can take control of a separate bank account and withdraw the balance amount from the same, once the phase is complete. However, in case of a single registration for the entire project, there is a possibility that the funds may get blocked pending project completion, especially in scenarios where the project margin is more than 30%.
Implication under Income Tax, GST, etc.
The concept of registering a project in phases is only limited to RERA. For all other statues, the entire project is offered for taxation, and eligibility of benefits may have to be calculated considering the entire project and not phase-wise. However, now that RERA[1] is considering each phase as a separate real estate project, one may think of taking the same stand in other statues, if found beneficial.
Projects not to be registered under RERA
The projects which are not required to be registered under RERA have been specified under Section 3 are as below:
- When an area of land proposed to be developed does not exceed 500 square meters, or the number of apartments proposed to be developed does not exceed eight inclusive of all phases. Both the conditions would have to be satisfied if one decides not to register the project
- Where the promoter has received completion certificate for a real estate project before commencement of this Act (01st May 2016)
- Renovation or repair or re-development which does not involve marketing, advertising selling or new allotment of any apartment, plot or building under the real estate project
However, some of the states have taken the view that even unregistered projects will be subjected to penal actions under RERA if found requisite for consumer protection, which is the core objective behind the implementation of RERA.
Conclusion
It can be construed that the requirement of registration of the project in the planning area will be triggered only when the entity wants to advertise/market/book/sell/offer for sale/receive advance money/invite customers by any means. So, the section covers the entire gamut of activities.
However, it may be important to note some key actions like financing either in the form of a bank loan or other means and taking approvals required for the project’s commencement from competent authorities, which may be taken before RERA registration.
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