#RealEstateBill for you: What's included in carpet area? What if you find defects in construction? Answers here - Firstpost
Firstpost

#RealEstateBill for you: What's included in carpet area? What if you find defects in construction? Answers here

 

#NewsTracker   #RealEstateBill  


The Rajya Sabha passed a bill on Thursday to regulate the real estate sector, protect home buyers and ensure the timely execution of projects with an aim to boost investor confidence and stamp out illegal practices.

The new rules, applicable to residential and commercial developments, will make it mandatory for all projects and brokers to be registered with the real estate regulator who will oversee transactions and settle disputes.

The bill will apply to new and ongoing projects. The series of tweets here bring you the headlines.

Over the years the sector has acquired a degree of notoriety which needs to be addressed to enable enhanced flow of investments, Venkaiah Naidu, minister of housing and urban poverty alleviation said in parliament when tabling the bill.

During recent years sluggish economic growth and delays in getting approvals stalled several projects, leaving buyers waiting for their homes and developers holding high debts. It has also put a strain on investors such as banks, private equity firms and non-banking financial companies.

The bill, designed to bring transparency and accountability to the sector that contributes about 9 percent of India's gross domestic product, is expected to revive investor and buyer confidence.

"It will help distinguish good real estate companies that conduct business by the book from those who have not ... It will make buyers more confident and will perk up market sentiments as well," said J.C. Sharma, managing director of Bengaluru-based developer, Sobha Ltd (SOBH.NS).

The new law is expected to benefit developers such as DLF Ltd (DLF.NS), Oberoi Realty (OEBO.NS), Prestige Estates Projects Ltd (PREG.NS) and Godrej Properties (GODR.NS) among others.

It is also likely to help Prime Minister Narendra Modi achieve his election promise of providing homes for all Indian families by 2022.

"Effective regulatory mechanism will lead to orderly growth of the sector and give a strong impetus to our vision of 'Housing for All'," Modi tweeted after the bill was passed.

Provisions and penalties

Several projects in India have been delayed in recent years after developers diverted funds raised for one project to another, leaving them unable to complete construction and resulting in buyers still waiting for their homes.

The bill seeks to stop this practice and impose penalties in case of a breach.

In a key provision, the bill makes it mandatory for developers to put aside 70 percent of money collected from buyers during the pre-sale of homes and use that solely for funding the construction of the project.

The bill also proposes that consumers and developers pay the same interest rate for any delays on their part. It also allows for developers to be arrested and jailed for up to three years for any violations.

"Even though some clauses are heavily stacked against the builders, we believe that this bill has the potential to transform our industry," said Rajeev Talwar, group executive director at Delhi-based developer, DLF.

The Bill mandates that developers are bound to provide after sales service for properties found to have structural defects, at no extra cost to the consumer. As long as buyers ainform the developers of any deficiency within one year of purchase, they are good to go. Liability of developers for structural defects has been increased from 2 to 5 years and they can't change plans without the consent of two thirds of allottees.

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Developers will have to register projects with 500 sq mt area or 8 flats with a regulatory authority instead of 1,000 sq mt and 12 flats earlier. A minimum of 50% of sale proceeds will have to be kept in a separate bank account and used for construction of that project. Every project measuring more than 500 square metres or more than eight apartments will have to be registered with the real estate regulator.

The Real Estate Regulator (Regulation and Development) Bill, pending before parliament since 2013, proposes major reform of the country's largely unregulated realty sector. Once it becomes law, the consumer will have access to a Real Estate Regulatory Authority for redressal in case of a grievance.

For failure to register, it proposes a penalty of up to 10 percent of the project cost or three years' imprisonment.

By one of the amendments proposed, the project developer will have to put 70 percent of the money collected from a buyer in a separate account to meet the construction cost of the project.

A major benefit for consumers proposed is that builders will have to quote prices based on carpet area and not super built-up area, while carpet area has been clearly defined in the bill to include usable spaces like kitchen and toilets.

The bill has also introduced a new penal provision for allottees for failure to comply with orders of the regulator. Allottees would be penalised up to 5 percent of the apartment cost or a year in jail, or both, for defaulting on payment or any other violation. Click on the links below for a deep dive into the fine print.

Links:

The Indian Express on how home buyers will benefit

The Economic Times on 10 things you should know

The Hindustan Times on how carpet area is now defined

With REUTERS