Subhashis Mittra
Regulation and transparency in realty sector is an idea whose time has finally come.
The Real Estate Bill is landmark legislation as it promises to secure the interests of homebuyers and developers in equal measure and remove corruption and inefficiency from the sector.
A total of 76,044 companies are involved in realty sector. Real estate is the second largest employer in the country, next only to agriculture and accounts for about 11 per cent of GDP. The construction sector supports 250 ancillary industries.
The Bill is, therefore, crucial to ensuring better regulatory oversight and orderly growth in the industry which is believed to account for about a third of India’s black money deals.
Building trust has been one of the most difficult challenges for India’s real estate industry to surmount. Hiding in the haze of a massive construction boom are the grumbles of millions of consumers about opacity in transactions and incomplete project disclosures.
Previously, in the absence of a regulatory authority, real estate deals were largely done on faith or based on the experience of friends and family.
The Bill, which was amended to reflect the “views and suggestions of various stakeholders and political parties,” according to Minister for Parliamentary Affairs and Urban Development Venkaiah Naidu, won approval from lawmakers across the political spectrum.
The Bill provides for punitive measures for misbehaviour. It makes it mandatory for all commercial and residential real estate projects where GOVERNMENTthe land is over 500 square metres or eight apartments to register with the proposed regulator before launching a scheme.
Prime Minister Narendra Modi said the Bill was “great news” for aspiring homebuyers. The PM said the Bill envisages effective regulatory mechanism that will lead to orderly growth of the sector and give a strong impetus to his government’s vision of ‘Housing for All’.
Over the last few years, several developers have gone back on their commitment of delivering projects on time because of various reasons ranging from economic slowdown to delay in project approvals. So far, homebuyers had no forum to approach except consumer courts as the sector was devoid of regulation.
According to Real Estate Regulator Bill, developers will now have to deposit 70 per cent of the sale proceeds including the land cost in a separate escrow account, which was earlier brought down to 50 per cent by the NDA government. They would also need consent of two-third buyers for changing project plans.
The Bill also provides for imprisonment of up to three years in case of promoters and up to one year in case of real estate agents and buyers for any violation of orders of Appellate Tribunals or monetary penalties or both. In case of structural defects, promoters could face imprisonment up to five years.
Also, an equal rate of interest has to be paid by promoters and buyers in case of default or delays.
This will clear the anomaly between the two parties and put them on a level-playing field. Developers have been framing biased buyer-seller agreements where they pay only 2-3 per cent interest in case of default while a buyer has to pay 16-18 per cent interest for a default.
“This Bill is need of the hour. It will prohibit unaccounted money from being pumped into the sector. It brings in only a regulation and not strangulation. This Bill is not against anyone… Real Estate Bill will renew investors’ confidence and ensure timely completion of projects and create more opportunities,” Naidu said.
Once the Bill becomes a law, a Real Estate Regulatory Authority will have to be set up in each state. Both commercial and residential segments will come under its purview.
About 10 lakh people buy houses every year with an investment of about Rs 3.5 lakh crore.
As per available information for 27 major cities including 15 state capitals, 2,349 to 4,488 new housing projects were launched every year between 2011 and 2015. In these 27 cities, during these last five years, a total of 17,526 projects were launched with a total investment value of Rs 13,69,820 crore, Naidu said in the Rajya Sabha.
“The Bill will place Indian real estate market, which currently is fragmented and unorganised, at par with that of other developed countries with clear accountability of developers through the establishment of the Real Estate Regulatory Authority (RERA). Additionally, buyers and developers will now finally be on a level-playing field with respect to penalties on delays,” said Sanjay Dutt, managing director, India, Cushman & Wakefield, a global commercial real estate services company.
Developers agree the measure could lift investor confidence, but most have pointed to bottlenecks in the proposed legislation.
Some real estate companies have expressed concern over not including the government authorities that sanction projects under the purview of the Bill. The sector holds these authorities responsible for delays in projects in several cases.
Though the sectoral people and experts have broadly welcomed the passage of the Bill, they are protesting against bringing ongoing projects under it. They are also upset that their demand for a single-window clearance has not been addressed.
The Confederation of Real Estate Developers’ Associations of India (Credai) President Getamber Anand said bringing ongoing projects under the legislation would mean stopping the work and ensuring the compliance of these with the new legislation.
“This will be time consuming and if a project has already been sold up to 50 per cent and construction is underway, it is practically impossible to make the rest of the project compliant with the Act. Also, making the project fully compliant would be absurdly inconvenient and expensive,” he said.
Even certain consultancy firms have expressed concern on some provisions of the Bill.
But, in the ultimate analysis, experts say the Bill will help change the overall negative image of the sector as it intends to protect the interest of the buyers, developers and investors. It is not just that the legislation seeks to make “the consumer the king”.
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