How new Maharashtra housing law will help realtors more than home buyers

If you want some more proof that politicians are in cahoots with realtors to protect their own interests rather than that of the consumer, it comes from Maharashtra’s newest law.

Apparently, the Maharashtra Housing (Regulation and Development) Bill passed by the state legislature, and which received presidential assent in February, dilutes a central bill proposed to protect home buyers, says Bibek Debroy in The Economic Times today (25 April).

Debroy lists three dilutions that are anti-consumer in the Maharashtra law, which replaced an earlier one dating back to 1963. The proposed central Bill, which went to the standing committee in parliament and will have to be taken up by the next government, wanted realty projects to be registered only after all clearances were obtained; the state Bill removed this clause.

The central bill had proposed that only 10 percent of project costs can be collected from buyers without written agreements. The Maharashtra Bill made it 20 percent - obviously because promoters are all launching 20:80 schemes where buyers pay 20 percent on booking and 80 percent on possession.

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Third, says Debroy, in case of defaults - either by the promoter or the buyer - the Maharashtra bill is more lenient towards realtors and harsher towards buyers - exactly the opposite of what a consumer protection bill should do.

How is this possible when the constitution says that where state and central laws are in conflict, the state law will have to give way to the central one?

Apparently, article 254 (1) and (2) contains contradictory provisions. While 254(1) says the central law will prevail, 254(2) says if a state amends a law of the centre and the same receives the assent of the president, the state law will prevail in the state. The centre can still over-rule the state with its own new amendments, but till that happens the state law will prevail (read the actual provisions of laws relating to the concurrent list here).

The Maharashtra government has obviously used the time-gap between the enactment of the new central law and its own law to protect realtors - now being squeezed by low demand and high financing costs.

In an earlier article, Firstbiz had shown how there is a close connect between real estate trends and election funding. As we noted, “in the high priced Mumbai and Delhi markets, property sales have fallen dramatically in the last few months as money has shifted from building activity to funding the election expenses (of unnamed politicians). Since the market is anyway weak, builders are struggling to complete existing projects. People who have already paid the money are waiting longer to receive their properties.”

The collusion between realtors and political funding is thus clearer from the way the Maharashtra Housing (Regulation and Development) Bill has received presidential assent even while a central law is pending legislation. One can surmise that this state law will finally be over-ridden by the central law, but in the meanwhile the state’s politicians have lent a helping hand to the builder lobby.