Here’s How to Exit a Real Estate Project in the RERA Era

Can I withdraw from a project after paying the advance amount? This is one of the most common questions that Ashutosh Kumar, Lead, Home Buying Advisory Services (HBA) often gets from homebuyers. We have been there and done that – decided to buy something only to change our mind later. But how do we do that in a field like real estate?

Ashutosh has a few answers for us.

“There were days when exiting a project used to be a big task. There was no exit clause in the builder-buyer agreement. Technically speaking, it was a one-way entry for the buyer. However, a builder was allowed to return the amount if he decides to discontinue the project. But with the Real Estate (Regulation and Development) Act 2016 in place, homebuyers are well-armed these days.”

The Act states that, “The allottee shall have the right to cancel/withdraw his allotment in the project as provided in the Act: Provided that where the allottee proposes to cancel/withdraw from the project without any fault of the promoter, the promoter herein is entitled to forfeit the booking amount paid for the allotment.”

Interestingly, a buyer can now cancel a booking even if there is no default from the developer’s side. As per the Act, within 45 days, a developer must return the amount collected from a buyer after deducting the registration amount. With stringent norms in place, the Indian real estate sector has clearly inched towards greater transparency and professionalism.

When can a buyer cancel the booking?

• No or low appreciation potential in the investment
• Family emergencies
• If the developer fails to hand possession of the units within the stipulated time, the homebuyer can terminate the agreement. He will still be entitled to get the refund along with interest within 45 days of terminating the contract.

Builder’s perspective

Real estate developers opine that this clause is harsh for them as they will incur a huge loss. There is also a concern about the amount that has to be returned within 45 days. While there are funds in the escrow account, there is no provision for the builders to withdraw the amount from the escrow account.

Homebuyer’s perspective

For registering the Sale Agreement, the Stamp Duty has to be paid by the buyer. For instance, Uttar Pradesh charges 2% Stamp Duty, which means if a person buys a flat for Rs 50 Lakh, he ends up paying Rs 1 Lakh as Stamp Duty (2%) at the time of the agreement.

So, if a buyer wants to exit a project, he will not only have to give up the booking amount paid to the developer but also the registration amount.

A word of caution

With stringent norms in place, the process of exiting a project has definitely become smoother. However, “A buyer will approximately lose about 10-12% of the property cost in exiting a project. Thus, do your due diligence before investing in a project,” cautions Ashutosh.

If you need any assistance in your home buying journey, feel free to reach out to our Home Buying Advisors here.