By Vanita Akhaury
The Real Estate Regulatory Bill opens the sector to fair play, something which the segment is badly in need of. This is a very encouraging move that will reform the sector in a revolutionary way through measures that only the Bill has the power to enforce.
Listening to the oft repeated cry of everyone in real estate sector, how a Real Estate Regulatory Bill can be the saviour, government has finally passed the Bill in Rajya Sabha, destined now to be a law, much to the delight of the buyers whose lifetime savings were at stake.
For all those who indulged in real estate transactions and faced difficulties, including the buyers, developers and stakeholders in real estate, if this was the magic wand that was needed to remove impediments from the sector, the government has granted their wish.
“Real Estate Regulatory Bill, its enactment as a law will almost single-handedly revamp the way this sector works across the board, from developers to end-users and investors, to lending institutions and government agencies involved in the buying and selling of property,” says Anuj Puri, Chairman & Country Head, JLL India.
With the Real Estate Bill becoming a law, a new era of real estate will commence through fair play and efficient mechanisms that will benefit everyone. The real estate will mature in the hands of deep committed developers who have been executing through transparent ways and keeping their customers on priority.
Beware all those builders and agents who through their notorious ways had maligned the name of the sector. Uncle regulator will not spare anyone. In the recent past, we already witnessed eye-opening cases and startling arrests of big shots in real estate. For those who like to go by the rules of the book, real estate will become a more transformed arena and for customers too, the project delivery business will revolve around protecting customer interests fully.
The Bill will revolutionise the Indian realty market. Urban Development Minister M Venkaiah Naidu said during the passage of the bill that the bill can see further changes in the coming times.
What everyone wants is for the sector to be more transparent and organised one and the bill guarantees that. In other industry sectors like telecom, financial and insurance, regulators have enforced transparency and efficiency. So this is a very important step and which is welcomed by all.
Already, positive notes have been written on how the bill marks the beginning of systematic reforms that will lead to more transparency and liquidation of assets, the unavailability of it had been affecting the developers.
It is by far the most decisive step the sector has taken towards transparency and reaching towards the kind of standardised processes, procedures and accountability guidelines that the industry requires to progress, says Puri.
The new rules are applicable to residential and commercial developments. What the developers will now have to do is park 70 per cent of the amount collected from buyers for a given project, in a separate bank account. The government is ensuring that they do not fall short of funds and therefore, can timely deliver projects to customers.
The amendments are fair which will now pave way for a better demand and supply in the sector, said Deepak Kapoor, President CREDAI-Western U.P. & Director, GulshanHomz.
It will empower consumers by giving them confidence while making their real estate investments, stated Arvind Jain, Managing Director - Pride Group.
The real estate needed the Real Estate Regulatory bill more than any other single piece of legislation, voices Kishor Pate, CMD-Amit Enterprises Housing Ltd. Although GST, the Land Acquisition & Rehabilitation Bill, single window clearance and industry status are bills of their own importance.
The industry has been in express need of an apex body via which all concerns of consumers can be addressed transparently and efficiently, he says. We will now see a radical transformation of the entire residential sector.
“The Indian real estate sector has historically been unregulated and very disorganised. Unfortunately, the unorganised segment has so far represented the largest share of the market, and it is in this segment that consumers have in innumerable cases, been held hostage to by unscrupulous practices of ruthless developers,” avers Anil Pharande, Chairman - Pharande Spaces.
Each state will get a real estate regulator who will help in settlement and imposition of compensation. All residential and commercial projects will have to compulsorily be registered with the regulator so that buyers can have access to valid projects.
With additional avenues for grievances and penalties being charged for non-registration of the project or violation of any provision of the act, we see realty coming back on track, adds Sam Chopra, Founder & Chairman, RE/MAX India.
“The only worry is about the inclusion of under construction projects as it will mean a lot of difficulty for the developers. Therefore, only new projects should come in the ambit of this bill,” points out Rajesh Prajapati, Managing Director- Prajapati Constructions. Also, a definite time frame for approval of projects needs to be built in, maybe at a later stage, if not now, he says.
From investors’ point of view, “In its content and intent, the new Act could bring in a change in the landscape of real estate in the country, attracting new investors and customers, which the industry has been missing so long,” states Shishir Baijal- Chairman & Managing Director, Knight Frank India.
No doubt, the act will have a profoundly positive effect on how both domestic and global investors view Indian real estate. Explaining further, he said, this Act will give long pending protection to the interests of the end-consumers and give a substantial fillip to the confidence of various stakeholders including fund providers like banks and other financial institutions, PE funds and the like. Greater institutional participation can be expected going forward.
While the Bill safeguards the rights and interests of the buyers and investors, does it put developers in a tight spot?
The bill enforces strict regulations on how developers go about conducting their business, as project delays and poor quality construction had eroded the goodwill in the sector.
Strictures for developers
- Developers prohibited from advertising or launching projects without a prior registration with the real estate authority.
- RERA brings under its ambit even ongoing projects that have not received the completion certificate.
- Developers can only sell property on the basis of carpet area and not super area thus justifying the amount which the buyers pay for a property.
- For showing transparency about projects, developers will need to divulge layout plans, submit clearances and name the associates, architect, contractor and others in the project with the regulator.
- Developers will have to deliver projects on the date promised. In case of failure to do so, the buyers can claim refund with interest and compensation.
- To ensure timely project completion, developers will have to deposit 70 per cent of the amounts realised from the buyers in a separate bank account within 15 days, for construction purposes.
- Consent of two-third buyers will be mandatory to alter plans, structural designs and specifications of the building. In this case, each buyer, no matter how many properties they hold in one project, will be counted as one vote only. Developers will be responsible to rectify structural defects and refund money in cases of default.
- In cases of violation of rules by the developers, projects will be de-registered and attract heavy penalties. Non-compliance will invite fine up to 10 per cent of project cost and misinformation will cause a fine of 5 per cent of project cost. Meanwhile, the fine for the agents is Rs 10,000 for each day during the tenure of violation of provisions.
- The loss in taxable income caused by builders asking the buyers to pay certain amount in cash will now be restrained, thus removing corruption.
Major drawback - Lack of clarity in the mechanisms proposed in the Bill
“Though the objectives are noble and correct in the long term, we believe lack of clarity on the various mechanisms proposed will only add to costs through delay, making projects not only more expensive, but ensuring that affordability continues to be a distant dream,” commented Neha Hiranandani, Director, House of Hiranandani, on the clearance of Real Estate Regulatory Bill.
Moreover, the bill has failed to bring the government authorities into the ambit who are responsible for the continuous changes in regulations, lack of transparency and predictability in functioning. The bill is therefore incomplete in its approach, and the outcome of this is going to be more expensive products for consumers. Placing 70% of receivables in an escrow account in an economy with such high interest rates is going to lead to a complete shift in the business model of many companies, says the gutsy Hiranandani.
However, all the positive developments intended in the Real Estate Regulatory Bill are really a plus point for the sector. The clauses of the bill give clarity and strong assurance to real estate buyers. As an enforced law, it has the power to change the rules of the real estate game for the better.