The Real Estate Regulation and Development (RERA) Act, 2016 is considered one of the landmark legislations passed by the Government of India. Its objective is to reform the real estate sector in India, encouraging greater transparency, citizen centricity, accountability and financial discipline. This is in line with the vast and growing economy of India as in the future many people will be investing in the real estate sector.
1. RERA Act 2016 has given much importance to practicing professionals of Engineers, Architects and Chartered Accountants, relying on their professional work, and accordingly, certificates are mandated under the Act. Those certificates are mandatorily obtained by the promoters of the real estate project on various occasions during the tenure of the development of the project.
2. In order to achieve the objectives of the RERA Act, this RERA Authority’s has issued various guidelines, notifications etc from time to time.
3. Many state RERA Authorities have mentioned to the CA members to take utmost care while issuing the certificates. As the Act has given much importance and relied on the independence and integrity of the CA members while discharging the professional work.
4. The RERA authorities have received communication from ICAI, New Delhi on the option of UDINo in the certificate formats accordingly most of the Authorities have made the UDINo mandatory on CA Certificates.
Recently Karnataka RERA has notified the new Chartered Accountant’s Certificate format. This CA certificate shall be obtained by the promoter of the real estate project and submit the same along with an application for grant of RERA Registration.
The content and information of the certificate are meaningful and the reader of the certificate gets a sense of knowledge of the financial aspects of the real estate project.
The contents of the CA certificate format notified by Karnataka RERA Authorities is discussed in subsequent paragraphs considering the various requirement and critical aspects of this information –
Such certificates are mandated under Sec 4(2)(L)(D) of the RERA Act
This certificate brings out the details of the owners of the project, for the authority analyze or assess.
4. List of Designated Partners in LLP
2. This information may be for the purpose of assessing the net worth of the promoter.
1. Name of the Account Holder:
2. Designated Account Number:
CA shall mention and certify 70 % of account details for the purpose of Sec 4(2)(L)(D) of the RERA Act
3. Development cost
4. Supporting documents like BOQs, Engineer estimates shall be collected
5. Offsite cost, borrowing cost, administrative costs etc shall be collected and included as part of this paragraph
i.e., CA shall verify and ensure that the promoter has not violated Sec 3(1) of the RERA Act.
Sec 3(1) prohibits the promoter advertise, marketing, selling, an invitation to sell etc unless RERA Registration is obtained.
1. The details of CA mentioned on the website shall be the same CA, who undertakes to issue this certificate
2. Promoter shall not appoint or engage a new CA without obtaining the No Objection Certificate from this CA for the purpose of withdrawal of funds from the project bank account in accordance with Sec 4(2)(L)(d) of the RERA Act
1. It is important to note that each Project shall have only one project-designated bank account. Section 4(2)(l)(D) of the Act mandates 70 % of the money realised from the allottees of the project shall be deposited irrespective of whether the sold unit belongs to the land owner or builder in case of joint development agreements etc. Hence it is important for the professionals to understand the requirements under the Act and advice the promoters (Landowners and Developers) accordingly.
2. The Chartered Accountant holding certificate of practice shall issue the certificate for withdrawal of funds in accordance with sec 4(2)(l)(D). Such certificates shall be issued only after obtaining the certificates of Engineer and Architect and assessing the content of those certificates and considering the information, correlating the same while issuing the certificate. Tamilnadu Real Estate (Regulation and Development) Rules 2017 mentioned-
1. the engineer shall certify that the items shown in the cost of construction are matching to the physical condition at the site of the real estate project;
2. the architect shall certify that the physical condition at the site is built as per the sanctioned plan, and the chartered accountant shall certify the cost incurred on construction cost and land cost;
3. the chartered accountant shall also certify the proportion of the cost incurred on construction and land cost to the total estimated cost of the project
1. Post RERA various banks have come out with banking products for RERA. This will have 3 different Accounts –
1. Master Collection Account – to deposit the 100 % Collections
2. RERA 70 % Account – banker transfers 70 % of the money deposited automatically from 100 % Account
3. 30 % Account – banker transfers 30 % of the money deposited automatically from 100 % Account
1. End of the day there will be a NIL balance in the 100 % collection account
2. The 30 % Account may be used as an operating account by the promoter to make any payments to vendors etc.,
3. RERA 70 % account generally will not have a Cheque facility. Based on % of completion the eligible amount will be transferred to either 30 % Account or any other operative account of the promoter
4. such borrowing happens out of 30 % account/amount.
The Estimated Cost of the Real Estate Project = Estimated Land Cost +Estimated Development Cost
1. Estimated Land Cost includes the cost of the land, rights acquired for additional construction by way of TDR / FSI etc, litigation or settlement amount, the amount remitted to clearance boards etc.,
2. Estimated development cost includes – Onsite Costs, Off-Site Costs, Taxes, Borrowing Cost and any other costs associated in the development of the Real Estate Project
3. Onsite Costs include all expenses related to the physical development of the project. Men, Materials, machinery, consultants fees etc
4. Offsite Costs would include administrative costs, management costs, which may be direct costs or on allocation or apportionment basis in case of promoter developing multiple projects / multiple businesses
5. Taxes/levies – any taxes or levies in relation to the development of the project. Eg., Labour Cess, ground rent, property taxes, any other taxes as may levy by the state government or statutory authorities, GST if it is considered as Cost etc
6. Income Tax is shall not be part of the Cost of the Project.
7. Marketing or sales cost are not part of the Estimated Cost – as it is not associated with the development of the project (it is associated with sales and marketing activities)
8. Borrowing / Interest cost – for the purpose of development of the project. Such borrowing cost shall have direct nexus to the project (many a time promoter does borrow based on the project, however, borrowed funds are deployed other than for the project. In those scenarios, such borrowing costs shall not be considered as part of the project cost)
9. Borrowing/interest cost on land also can be considered as part of land cost.
10. Various states have given guidance on the estimated cost of Real Estate projects.
Conclusion – CA’s or professionals while issuing CA Certificates shall take the support of experts or professionals in the respective field and arrive at the estimated cost of the real estate project scientifically. Not to be casual about it, we have seen over the last 5 years that many promoters have suffered penalties or are unable to withdraw the funds from the designated bank account etc for the erroneous value of the estimated cost of the real estate project.
Author, Vinay Thyagaraj is a founding Partner at M/s.Venu & Vinay, practicing Chartered Accountants, Bengaluru. One of the interesting fields of professional practice includes RERA . You can reach him for any clarification at [email protected]