ABSTRACT

This paper, proliferation of unregistered estate agents in the real estate market is aimed at examining the number of increasing activities and unregistered estate agents in India. To fulfill the objective the below-mentioned approach was pursued: –

This research paper is to understand the concept of a real estate agency in India, as well as to understand the historical background and its applicability. Where will also be examined the activities of a registered estate agent in the Indian real estate market? Furthermore, to have an insight into Real Estate (Regulation and Development) Act, 2016 and also to understand the legislative framework governing RERA. This paper will also help to look into the current scenarios of the real estate market in India and to study the Nigerian market. To foresee the impact of the proliferation of unregistered estate agents on the real estate market and to identify the gaps and meet the challenges that affect real estate agencies in the Indian real estate market.

INTRODUCTION

The most developing sector in the Indian economy is that of the real estate sector. It is one of the largest globally recognized sectors. The term real estate includes land that has air above it or ground below it and any building or structure above it. Real estate is also referred to as realty. It includes all the residential, housing, commercial, office, trading space such as theater, hotel, restaurant, retail outlets, industrial buildings like factories and government buildings. The Term Real estate also includes purchase and the sale of land, residential building and non-residential building. The people involved in the real estate market are mainly landlords, developers, builders, real estate agents, tenants, buyers, etc.

Real estate sector can be divided into four major categories like housing, hospitality, retail and commercial. This sector is expected to welcome investments more from Non-Resident Indians (NRIs) for long and short term. The market size of this sector is expected to increase by 19.5% CAGR (Compound annual growth rate) from 2017 to 2028.1 The Government of India has also been taking various steps to ensure development in this sector.

CONCEPTUAL DEFINITIONS

  • Proliferation- Proliferation in literary terms according to Oxford English Dictionary means rapid increase in the number of something.
  • Estate (Section 2(d) of RERA Act 2016) – The term estate means property or large area of land in a country that is owned by a family or an organization which is used for the purpose of growing crops and raising animals. 2
  • Estate agent- Collins dictionary defines the term estate agent as someone who works for a client or a company that deals in renting or selling houses and land for people.
  •  Real estate – The term real estate can be said as a property consisting of land and building on it as well as all the natural resources that grow on land including flora and fauna, crops and livestock, water and mineral deposits.
  • Market – The term market has been defined by the business dictionary as a place where demand and supply operate and buyers and sellers meet to trade goods and services for money or barter.

HISTORICAL BACKGROUND AND ITS APPLICABILITY

The Government along with the Government of respective States has taken up initiatives. The National Housing Bank was set up to provide long term loans to people to help them build their houses. It is generally concentrated in the rural sector, so that those who are unable to get a house for oneself can buy it.

The Government had started to take steps since the early 1950’s. The First Five Year Plan (1951- 1956) included institution building and providing focuses to the weaker sections of the society. By the Fourth Five Year Plan (1969-1974), HUDCO was established to provide funds for housing and urban development planning. During the Fifth Five Year Plan (1974-1979), Urban Land (Ceiling and Regulation Act) came into force which regulated and prevented the hoarding of land in the urban sector and thus making such land available for the construction of houses.

In the year 2013 Dr. Girja Vyas, Minister of Housing and Urban Poverty Alleviation, introduced a bill named RERA (Real Estate Regulation Authority). This Bill Was approved by the Rajya Sabha on 10th March 2016 and by the Lok Sabha on 15th March, 2016.3 It was 1st May 2016 when the Real Estate Regulation and Development Act 2016 came into force with 59 out of 92 Sections whereas the rest of the provisions came into force on 1st May 2017.

RERA provisions are applicable to the whole of India and it even applies to both commercial and residential sector.4 It states provisions regarding the registration of the real estate agents. The brokers segment has always been unregulated in India. An agent or a broker is a person who acts like a middleman between the buyer and the seller. If the brokers or the agents are registered with the RERA, it would provide transparency in the sector and the confidence of the home buyers would increase. This would ultimately lead to a flow of more investments as well as funds in this sector. The RERA being a Central Act, every state makes up their set of guidelines made by the Appropriate Government. Each of the brokers needs to follow these guidelines along with RERA provisions. If the agent is not registered or he is not complying with the provisions and the said guidelines, any property sold by him will not be recognized by the law and he would be entitled to a penalty as prescribed.

LEGISLATIVE FRAMEWORK GOVERNING RERA

In India the real estate sector is assumed to be growing with liberalization of the economy. The increase in business opportunities and migration of labor force has also increased the demand for commercial and housing space especially rental housing. The main factors which influence the real estate sector development are development in the retail hospitality and entertainment industries, economic services and information technology enabled services.

The real estate sector is a major factor of employment being the second largest employer after the agriculture sector. The primary reason may be because of the chain of backward and forward linkages that the sector has with all of the sectors of the economy, especially with the housing and construction sector. The ancillary industries dependent on this sector are about 250 including cement, steel, brick, timber, building materials etc.

The Indian railway state market is still in its infancy which is largely unorganized and dominated by a number of small players with very few large players having national presence. The real estate market of India as compared to the other more developed markets is characterized by smaller size and lower availability of good quality space and higher prices. State owned bodies like Delhi Development Authority (DDA) and the housing board largely control the supply of urban land leaving very limited developed space free, controllable in the hands of major players in each City.

The main impediments of growth in this sector are restrictive legislation and lack of transparency in transactions. Limited investment from the organized sector has also played a role of hindrance to the growth of the sector. Large amounts of undeclared transactions because of high stamp duty rates are a thriving parallel economy in real estate. Various Legislative Frameworks are as follows:5

Legislative issues

Hundred laws that govern different aspects of real estate are of the 19th century. Despite the plethora of laws, there are circumstances which seem to be far away from satisfactory and major amendments to the existing laws are necessary as soon as possible to make them relevant to modern day requirements. The main laws that govern real estate include:

  • Indian Contract Act 1872 – This legislation states when a party can be said to have the capacity of a contract. Person eligible to make a contract are those who is not minor or unsound mind partners of a firm, body corporate, trust, Sole Corporation, manager of undivided family and the foreigner. The requirements of a valid contract that is consideration, intention to contract and validity under the law of land must be satisfied before the same.
  • Transfer of Property Act 1882 – This Act provides general principles of realty like provisions dealing with the property through sale, exchange, mortgage, lease, gift and part performance. A person who has immovable property or any interest in it is presumed to have the notice of the title of any other person who is actually in possession of such property.
  • Registration Act 1908 – The main purpose of this Act is to conserve evidence, assurance, title, publication of documents and prevention of fraud. It includes detailed formalities for registering an instrument. The instruments which under this Act are mandatory to register includes:
  • Instrument of gift of immovable property
  • Some other non-testamentary instruments which operate to create, declare , assign , limit or extinguish any right title or interest whether in present or in future to or in an immovable property.
  • Some Other non-testamentary instruments acknowledging the receipt and payment of any consideration.
  • Leases of immovable property from year to year exceeding one year.

In the Transfer of Property Act, sales mortgage and exchange of immovable property are required to be registered and therefore all the above documents have to be in writing. Section 17 of the Act states optional registration. The document which has not been registered will not affect the property it includes and will not be received as evidence of any transaction affecting such property unless it has been registered. Thus Under Section 53(a) of the Transfer of Property Act, the doctrine of part performance has been dealt with and the provisions of Section 49 of the registration Act together protects the buyer in possession of unregistered sale deed and cannot be dispossessed.

  • Special Relief Act 1963 – This Act specifically provides for individual civil rights. An individual disposes of immovable property without his consent can recover such a position by a suit filed within six months from the date of dispossession. Unless otherwise provided in a suit of specific performance of a contract the court will assume that the contract to transfer a movable property is one in which monetary compensation would not afford adequate relief.

Proliferation of Unregistered Estate Agent In Real Estate Market

  • Urban Land Ceiling and Regulation Act (ULCRA) 1976 – This Act aims to fix a ceiling on the vacant urban land that a person in urban area can acquire and hold. A person here is defined as an individual, family, firm, company or association whether incorporated or not. The Act provides for the necessary documents to show the provisions of this Act are not attracted or should be produced before the registering officer before registration of instruments compulsory under registration Act.
  • Land Acquisition Act 1894 – This Act gives authority to the government to acquire land for public purposes such as plant development, rural planning provisions for residential purposes to the poor carrying out education for backward sections of the society, etc. The Act provides hindrance to speedy acquisition of land at reasonable prices resulting in cost overruns.
  •  The Indian Evidence Act 1872- Under this Act whenever there is a question on the status of a person whether he is the owner of a piece of immovable property, the burden of proving that the person is not the owner of such property lies on the person who states that he is not the owner.

REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016

The home buyers for consumers whose money have been stuck in the real estate project for many years welcome The RERA 2016 with much hope and gratitude. This Act also aims to bring a lot of changes under the Regulation and compliance of the promoters and brokers who are the key components forcing the Government of India to take good steps for enforcement of the act and restricting them to take benefits of innocent home buyers.

The main purpose behind RERA was to regulate the real estate sector which was earlier regarded to be unaccountable and uncontrolled by the government of India. Therefore, with the enactment of this act the unorganized sector is now organized pertaining to the rules and regulations which are enforced in India. The key components of the real estate sector like promoters, agents, etc. are required to comply with some considerable legal compliance.

This Parliamentary Act aimed at providing benefit, security and helping the home buyers against any fraud by the promoter of the housing property and it also led to increase in the investment in the real estate sector. The Act led to the formation of a Real Estate Regulatory Authority for promotion of this sector, and providing regulation for ensuring security in the sale of land or sale of the estate projects so that the interest of the potential consumers is protected against any kind of fraud. The Act also ensures speedy disposal of matter on any dispute relating to the sale and purchase of the real estate project. It also provides the setting up of an Appellate Tribunal, which will hear appeals from any decisions given by the regulatory authority. This Act was primarily formed to bring about transparency in the real estate sector and to provide confidence in the home buyers.

RERA is a national statute. Each state has to comply with it. The Appropriate Government has the power to make rules and regulations for each of the concerned states. The Appropriate Government is defined under S-2(1)(g). As per the Section:

1. For all Union Territory without Legislature- Central Government will be the Appropriate government.

2. For the Union Territory of Pondicherry- Union Territory Government.

3. For the Union Territory of Delhi- Central ministry of Urban Development.

4. For the rest of the States- State Government.

The important responsibilities of the Appropriate Government are as follows: –

a) The Appropriate Government is required to notify the rules within 6 months from the commencement of this Act, for which the state is applicable. (S-84)

b) They are also required to establish a regulatory authority within 1 year from the commencement of this Act. (S-20)

c) They are required to establish appellate courts. (S-43)

d) They are also required to establish a real estate regulatory fund. (S-75)

The real estate agents are required to be registered as per S-9 of the Act. S-9 states that no real estate agents can sell or purchase any plot or apartment or any building which is being sold by a promoter unless he gets registered under the Act. They need to make an application to the authority of the concerned state in such a manner or form along with the fees prescribed. After the submission of the form along with the fees, the authority can either accept the registration of the agent for the concerned state or union territory or he may reject the application. The rejection has to be done in writing and proper opportunity of hearing has to be given to the agent before confirming such cancellation. If the authority does not communicate to the applicant about any kind of deficiencies, he shall be deemed to be registered. The time limit for which the registration is valid would be prescribed and the scheme of renewal along with the fees, would be specified. If the authority is of the opinion that the agent has obtained by fraud or any kind of misrepresentation, or the agent is guilty of not following any rules or regulations of the Act or those led down by the appropriate government, his registration would be revoked. But such revocation shall not be made by the authority unless opportunity of being heard is given to the agent.6

S-9(2) states the procedures for the registration of real estate agents. The document requirements for the registration of agents differ from state to state but the basic documents remain the same. The documents include-

  • Copy of Pan Card
  • Name, address, phone number and photo of the agent
  • Name of the enterprise and its registered enterprise.

S-10 of the Act states the function of the real estate agents. The functions are-

  • No agent is entitled to sell or purchase any plot or apartment which is sold by the promoter unless they are registered under the Act.
  • The agent is required to maintain such accounts as may be prescribed.
  • He shall furnish all sort of information which he possesses regarding a property to the allottee.
  • Subject to perform such other functions as may be prescribed.

As stated before, the registration is mandatory. If the agent is not complying with the above- mentioned provisions, he will be liable for the punishment as stated under the Act.

S-62 of the Act states penalty for not abiding by the provisions of S-9 & S-10. The agent who does not abide with the said sections would be liable for a penalty of Rs. 10000 every day till the continuation of the default and such penalty can extent to 5% of the total cost of the plot or the apartment, for which the purchase or the sale was initiated.7

The penalty against an agent is also stated in the act, where it has mentioned that, if he fails to comply with any of the orders or the directions of the Authority, he shall be liable to 5% of the estimated cost of the plot or the building or the apartment for which such sale or purchase was initiated.

It also provides where an agent fails to comply with the order or directions of an Appellate Tribunal, he would be liable for imprisonment which may extend to 1 year or a fine every day till the continuation of the default of 10% of the estimated cost of the plot or building or apartment for which such sale or purchase was initiated, or both.8

PROLIFERATION OF UNREGISTERED REAL ESTATE AGENTS IN THE REAL ESTATE MARKET

Basically, real estate agents are those who help in facilitating the selling and purchasing of a plot, building or apartment. They act as middlemen between the promoter and the prospective buyers. The concept of this agency was firstly introduced by the British Colonial Era. In the nineteenth century, Real Estate industries became an industry to produce great profit. More lands were developed which ultimately enlarged the market base. Due to this rising market base, there was an unrestricted increase in the number of unregistered real estate agencies during 1970’s – 1980’s. The government set out professional bodies to safeguard the interest of the people and make laws relating to real estate agents.

Current Scenario of real estate market in India

The disaggregated and disposed nature of the real estate sector in the national accounts statistics makes it difficult to estimate the exact contribution of the real estate sector to the gross domestic product (GDP). Under the category of real estate residential housing and real estate services are also covered. The gross value added in the ownership of dwelling is assumed to be equal to gross rental of residential dwellings less cost of repairs and maintenance. Therefore, gross rental is estimated as a product of average gross rental per dwelling and number of sentences including imputed rent of owner-occupied houses.9

The rents from industrial establishments are deductible expenses from the prophet’s business establishment but they appear as profit for the business or company renting out the premises.

The current population of India as of 24th September 2020 is 13831 22931. Shelter being one of the primary needs, the real estate sector is growing at a tremendous rate. Most of them are ready to buy a home of their own and this segment is highly dependent upon the economic condition of our nation. Several mid-income housing projects have been launched by many developers across cities to attract potential buyers. With this many end users who had put a stop to their purchasing plans due to fall in affordability levels and economic uncertainty is havestarted booking houses of their own. In India amongst various other sectors the real estate sector is growing in a marvelous manner aided by private banks. These banks provide house loans to Indians and NRI in order to fulfill their purpose. Most of the cities in India like Bangalore, New Delhi, Mumbai, etc., are the main centers for businesses and employment opportunities. Factors like increasing rate of life

The declining infant mortality and high birth rate in the country have created a major demand for housing and infrastructure for meeting the primary needs of humans. it is estimated that by 2030 India’s population would touch 150 crores. Since nowadays all families are becoming nuclear and independent because of their ability to meet their wants, the demand for separate housing facilities is also increasing.

India being a developing country and showing signs of substantial improvement the commercial real estate industry is also emerging from transitional phase to recovery stage. The amendment in real estate prices and realignment of business strategies according to the environmental changes there are some signs of revival in the Indian real estate sector in the past years.

Study of Nigerian market

The estate agents have to be a member of Nigerian Institute of estate surveyors and valuers. Though some of them are members in this institute, there has been an increase in unregistered real estate agencies due to lack of educational requisites. The real estate agent is not defined in any of the Nigerian laws. The Main cause of the increase in the unregistered agent in Nigeria is probably the agents themselves are the victims of their surroundings and they are forced to change their profession. They do not possess appropriate educational qualifications or expertise to become an agent but they use the lack in the legal system to become an agent.

As the estate market in Nigeria is reaching new heights and is growing fast, there are unqualified people entering into the profession of real estate agency as in the country there has always been a conflict between commercialization and professionalism. They just provide the prospective buyers with the agency services without even having professionalism. Thus, the Nigerian real estate market is not transparent and filled with agents who are eager to defraud the buyers. This is the main reason why the people are scared to invest in the real estate market even though the market in Nigeria is sky rocketing.

CONCLUSION

The real estate industry being one of the growing sectors needs to be regulated thoroughly. The emergence of RERA provision showed a satisfactory sign among the prospective buyers. The sector became more transparent and the buyers had no chance of being defrauded. The agents have become middlemen between the buyers and the promoters. The Agents need to be registered but due to lack of awareness about the provisions, many agents go unregistered, thus affecting the transparency. One of the main reasons for unregistered agents is that they do not want themselves to be registered. Many agents falsely represent themselves and fraud the buyers. This creates a sense of insecurity among the homebuyers. The provisions of the RERA Act should be implemented in a more precise manner and more awareness should be spread about the Act. The agents should be registered and the appropriate government of every state should ensure the registration of the agents. 

REFERENCES:

1 https://www.ibef.org/industry/real-estate-india.aspx

2 Real Estate (Regulation and Development) Act, 2016, S-62,65,66, No.16, Acts of Parliament,2016(India)

3 https://www.bankbazaar.com/home-loan/rera-act.html

4Rera Act, history, https://trendtalky.com/rera-act-2019/#:~:text=Real%20Estate%20Regulatory%20Authority%20(RERA)%20Bill%20was%20introduced%20by%20Dr,2013%20by%20UPA%202%20government

5. https://niti.gov.in/planningcommission.gov.in/docs/plans/planrel/fiveyr/10th/volume2/v2_ch7_6.pdf

6. Rishabh Saxena,  do real estate needs to register themselves, https://blog.ipleaders.in/property-brokers-india/

7.  Vinod Chourasia, ‘RERA: Punishment and Penalties for non-compliance by Promoters’ Tax guru https://taxguru.in/corporate-law/rera-penalties-punishments-for-non-compliance-by-promoters.html

8. Real Estate (Regulation and Development) Act, 2016, S-62, 65, 66, No.16, Acts of Parliament,2016(India)

9. Planning Commission of India, https://niti.gov.in/planningcommission.gov.in/docs/plans/planrel/fiveyr/10th/volume2/v2_ch7_6.pdf

10.  Enems  Project,  https://enemsproject.wordpress.com/2018/05/15/assessment-of-the-proliferation-of- unregistered-estate-agent-in-real-estate-market/,

 Authors:

NIRUPAM DAS | 4th  Year | Jogesh Chandra Chaudhuri Law College

KRITIKA MUNDRA | 5th year | Amity University

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Location: Kolkata, West Bengal, India
Member Since: 19 May 2022 | Total Posts: 1

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