Will the New Real Estate Bill reshape Real Estate in India?

How new real estate bill could re-shape the realty ecosystem?

The new real estate regulation bill, approved by the cabinet last month, will make significant interventions in the builder-buyer relationship, tilting the balance of power in favour of the latter.


Project Registration

When the Real Estate (Regulation and Development) Bill 2013 comes into effect, all projects will have to be registered with a real estate regulatory authority.

Promoters will have to disclose details about the project (name, type, plans, partnership companies, names of persons involved with construction etc). Will have to specify what kind of area is for sale (based on standardised markers).

All brokers and agents will have to be registered with the regulator before they can practise. Builder will have to provide a list of agents who will represent each project.

Once the project is registered, all details will have to be put on the website and updated every quarter. This includes disclosing the extent of project completion.

Take informed decisions

A) Buyers can take informed decisions. Today, it's impossible to compare properties because square footage, amenities, floor-space index consumed and even delivery schedules are different for different builders.

B) Which standards to follow? "The Bureau of Indian Standards has laid down standards for the construction industry, and clearly defined things like carpet area, plinth area or how to calculate the difference between the balcony and room area,and  if the bill brings in a new set of definitions, it will create a conflict."

C) Having access to the relevant information will help de-risk lending. At the moment, buying a house is like groping in the dark, he adds. Even with the most trusted builder, you don't know what you will get. This kind of transparency will boost buyer confidence.

All-Round Clearances

Builders will not be able to sell — or advertise — a project till it receives the requisite approvals. These range from land titles and amenities, to provisions for water, electricity and sanitation. This means pre-launch sales are out.

Brokers will be barred from trying to sell an unregistered project, or one that has not received the necessary approvals.

The regulatory authority will get 15 days — after receiving an application for registration from a promoter — to either clear it, or reject it. Reasons for rejection will have to be put down in writing. If the regulator fails to do either of these, the project will be considered as registered.

Right now, the bill appears to only hold the developer responsible, Developers will be penalised for delays, but what about the delays created by government departments in providing clearance for projects? If there is a delay in giving approvals, the government official should also be made accountable for it.

Approvals in phases

Approvals come in phases, and never all at one go. If a developer has to wait to launch a project only after all the approvals are in, this would only mean further delays in handing over the house.

There should be an automated registration process so that there is no human interface, and therefore no chance of corruption.
Smaller builders will be hit harder. After putting down money for all the clearances at one shot, they may not have much left over to start construction right away - especially since pre-launch sales are discouraged. "This will only mean delays in launching projects and escalated costs.

Funds From Buyers

Builders have to open a separate bank account for every project and set aside 70 % (or less, as designated by the local authority) of buyers' money, to be channeled only into the construction of that property. While builders are okay with setting aside a certain amount in a separate account, they feel fixing a sum is unrealistic, since the land-to construction-cost ratios vary from place to place.

Completion Schedule

As per the proposed Regulatory Bill, Builders will now have to give homes on time. In case of delay, buyers are entitled to full refund of their investment, with interest at a pre-determined rate. Builders will face penalties and jail term for sale based on misrepresentation of facts, for failure to update details about project and so on.

The Bill has provision of Jail term for the builder, But in case of builders who have multiple projects going, this means an inordinate delay for all of them." Who is going to make sure the projects are completed while the builder is in jail? So why can’t there be financial penalty instead of Jail so that his other projects do not suffer. This kind of approach is already taken by SEBI and IT department.


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