Cabinet approves Real Estate Bill: Here's how it will impact buyers and builders
he Bill will now be taken up for consideration and passing by Parliament
Union cabinet yesterday approved the Real Estate (Regulation and Development) Bill, 2015, as reported by the Select Committee of Rajya Sabha.
The NDA government had earlier watered down a few provisions in the bill, to which the Congress objected. The original bill was brought in by the UPA. With the NDA incorporating the committee's recommendations, there are chances that the Bill will now be taken up for consideration and passed by Parliament.
Here are the key facts you need to know about the bill:
According to the government press release, the Real Estate (Regulation and Development) Bill is a pioneering initiative to protect the interest of consumers, promote fair play in real estate transactions and to ensure timely execution of projects.
The key features of the bill are:
a) It regulates both commercial and residential real estate projects;
b) It seeks to set up Real Estate Regulatory Authority in states and union territories to oversee real estate transactions;
c) It makes registration of real estate projects and real estate agents with the authority mandatory;
d) It makes mandatory disclosure of details of all registered projects, including those about the promoter, project, layout plan, land status, approvals, agreements along with details of real estate agents, contractors, architect, structural engineer etc;
e) Developers have to deposit specified amount in a separate bank account to cover the construction cost of the project for timely completion of the project;
f) It seeks to establish fast track dispute resolution mechanisms for settlement of disputes through adjudicating officers and Appellate Tribunal;
g) The bill bars civil courts from taking up matters defined in it. However, consumer courts are allowed to hear real estate matters. There are 644 consumer courts in the country. The more avenues for grievance redressal would mean lower litigation costs for the buyers.
h) Promoters are barred from changing plans and design without consent of consumers.
Consumer protection seems to the cornerstone of the bill. According to a report in The Times of India, the government has brought about 20 changes in the bill, of which the key is inclusion of insurance for land, which will protect buyers and developers from frauds. In the latest version, builders are required to deposit 70% of the project cost into an escrow account. The NDA had brought this amount to 50 percent in favour of builders. The government has relented to the Opposition demands on this and gone back to the 70 percent provision. The bill also seeks to punish both builders and buyers for for violations of the proposed law, a PTI report said.
Builders are likely to be imprisoned for up to three years in case of violations and real estate agents and buyers up to one year in case, a senior official of the Urban Development Ministry has been quoted as saying in the PTI report.
The permission to approach consumer courts should come in as a major relief for the buyers. There are 644 consumer courts in the country. More avenues for grievance redressal would mean lower litigation costs for the buyers.
Another major change approved by the Cabinet is the proposal to charge equal rate of interest for promoters and buyers in case of default or delays. The provision was earlier tilted in favour of the builders.
What analysts are saying
Analysts are largely of the opinion that the bill will ring in much-needed transparency in the sector. This will help increase fund flow into the projects. It has to be remembered that the sector is struggling to get funds for projects as companies are straddled with huge debts. “This is a step in the right direction. It will go in favour of consumers as well as developers who do clean business. If you look at markets such as the UK and Australia, they attract huge FDI in housing as they are transparent,” Anuj Puri, chairman, Jones Lang LaSalle (JLL) India, has been quoted as saying in a report in the mint newspaper.
Are builders happy but?
The real estate industry has welcomed the approval of real estate regulatory bill by the Cabinet. However, the companies demanded that the government authorities sanctioning the projects should also be part of the proposed law.
"We are in favour of the regulator. We welcome the Cabinet approval. But some issues need to be sorted otherwise it will lead to more delays," said realtors apex body CREDAI President Getamber Anand in a PTI report.
To understand their concern, one has to look at the huge number of pending project approvals. Analysing the number of proposals received and clearances granted by the Municipal Corporation of Greater Mumbai (MCGM), Ramesh Nair, COO - business & international director, JLL India, found that there is a massive gap between new building proposals that have come to the MCGM for approval and the number of proposals that were issued for the final clearance. "An average 1,500 projects entered the system for approval each year, while only 730 OCs and 118 BCCs were granted by MCGM," he notes. OCs are occupancy certificates and BCCs are building completion certificates. The gap indicates a huge backlog, he points out.
Here's the approval cycle of a real estate project as explained by JLL: An approval cycle consists of key permits like intimation of disapproval (IOD), commencement certificate (CC), occupancy certificate (OC), building completion certificate (BCC), among others. About 40 IOD conditions are to be met by the builder to be eligible for applying for CC. The final authorisation to begin construction, which is issued upon submission of all required NOCs and compliance to IOD conditions, is the CC. It is given in two stages: CC up to plinth level, CC beyond plinth level.
Further, OC allows the builder to occupy the building but is not considered a final document because the building company still requires the certificate of completion. The company's architect must submit a formal letter stating that construction has been completed, according to the standards set forth in the IOD and CC. BCC is considered to be the ultimate document that the building company requires to fully occupy the building and connect it to utilities.
So, in short, along with the enactment of the law, the government also has to bring about administrative reforms to facilitate quicker approval process. That is the reason why the builders are worried.
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The controversial Real Estate Bill that seeks to regulate realty business, was on 5 May put off indefinitely after a united Opposition insisted on sending it to a Select Committee of Parliament in Rajya Sabha, where the ruling NDA is in a minority.
The government is keen to tap NRIs, OCIs and PIOs