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Developers would need to provide status of all approvals as well as sanctioned plans

A long awaited bill

 

KARAN KHETAN | Issue Dated: July 21, 2013, New Delhi
Tags : Real Estate (Regulation & Development) Bill | Realty sector |
 

The Union Cabinet approved the Real Estate (Regulation & Development) Bill on June 5, 2013. The aim of the bill is to create a Real Estate Regulatory Authority and an Appellate Tribunal that will act as a watchdog for the housing sector, primarily towards protecting consumer interests while creating an alternative redress mechanism for any disputes that may arise.

The bill demands greater disclosure from the developer community and a higher level of project accountability to remove information asymmetries from the housing market.

Like the US, where local city laws hold primacy over county and national laws in matters relating to real estate, land and urban planning, including housing, is a state subject in India. In a quasi-federal state like India, states act as independent, autonomous agents in respect of subjects that are under their purview. While the US does not have a single window regulator, this bill seeks to remove this obstacle by letting the states set up their respective regulatory authorities.

Another major positive step is the compulsory registration of real estate agents, which is likely to provide another level of protection to buyers while also preventing concerns regarding money laundering by the non-organised broker community. A major bill provision is the standardisation of area measurement, with carpet area to be the measure when this bill is enacted.

Effective legislation, judicial activism and regulatory mechanism together lead to a vibrant industry with greater emphasis on protecting consumer interests. With a literally exploding housing demand, there was a definite need to bring in greater disclosure norms. Developers would need to provide the status of all approvals as well as sanctioned plans to buyers and will not be able to sell their project without obtaining the required approvals.

The bill has also sought to ensure that the buyer’s payment is utilised for the development of the particular project by necessitating the creation of an escrow account where the customer advances paid will be used only for that project’s completion. This limit has been revised from 70 percent earlier to 70 percent or less as decided by the respective states. The bill also seeks to make the developer responsible for adhering to the timelines and specifications committed for project completion.

However, there is a need to analyse if certain inherent challenges facing the housing sector have been given a miss in this draft. At first glance, the government is yet to streamline the approval process, which significantly slows down the project launch date and adds to the cost burden of the developer. There is no clarity on which law will have precedence in the case of a dispute between the central government and state policies. The idea of fostering greater transparency may come at the cost of housing projects becoming more expensive if the approval process adds to the holding cost of the developer.

That the regulator will be effective and that this is a positive step is not debatable. However, the extent of effectiveness and the implementation at the state level are possible hindrances going forward. It is important to remember that developers had originally resisted the move to be brought into a regulatory framework, arguing that there were already too many municipal and planning regulations that were applicable to them.

Experts say the bill is essentially a consumer law. The main difference between the existing consumer laws and this one is that movable consumer items are invariably manufactured before the consumer pays for the item while that is not true for immovable goods like property and buildings.

Therefore, in the former case, a customer can see, touch and feel the product he buys; he has ISI and other standards to refer to for checking specifications and performance before he buys; and, what’s significant, he buys after the item has been produced.

Real estate, on the other hand, is immovable. So, the customer has been getting only promises when he booked his dream house. He would leave it to the developer to decide when he would get that much coveted house, specifications to be followed, facilities to be provided, how municipal and other laws were to be complied with, and when and how the infrastructure necessary to make the product live able would be provided. The Bill shall bring in the much needed transparency on products and projects for the consumer. Provisions in the bill regulate at what stage he can advertize his product, and therefore restrict collection of advances before the project has received all legal clearances.

Karan Khetan is a senior analyst with Jones LangLasalle, India

(Views expressed by the author are personal)

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Issue Dated: Feb 5, 2017