MUMBAI: The Union Cabinet recently approved the creation of a real estate regulator in India, which aims at increasing transparency within the real estate sector. The Real Estate Regulation and Development Bill 2013, once enacted, would provide for a real estate regulator in each state of the country. Experts are of the opinion that though the Bill has many benefits for the actual users, it also has its share of limitations.
The Bill would make it obligatory for the developer to disclose minute details related to the project on the company website. Details of the project like the layout, the number of plans the developer is planning to sell and even the amenities will have to be uploaded on the website. The Bill also seeks to prevent developers from making misleading claims that do not match the actual development on the construction site.
According to the Bill, developers will also have to maintain a separate bank account for a particular project in a scheduled bank. Seventy percent of the amounts realised for the project from the buyers have to be deposited within fifteen days of its realisation. This money will be utilised solely for meeting the costs of the particular projects.
Niranjan Hiranandani, managing director, Hiranandani Group of Companies, thinks that this move would suck up liquidity from the market. “Developers would have to look at other sources for funds, which could push the prices further up. The properties prices could hence, go up a bit due to these regulations,” he says.
Pratik Patel, director, Rajesh LifeSpaces, agrees. “The Bill will have a negative impact on the industry, especially the clause of keeping 70 per cent investment cost in the escrow account. As the money does not come cheap and permissions take one to two years to come, the growth in the industry will be affected. If I am building five projects per year, now I will be able to do just two to three at the most. The smaller builders will bear the brunt of this. The supply-demand gap will be adversely impacted,” he says.
Conversely, Nitesh Kumar, COO, TDI Infracorp Ltd, opines that “Regulation is a good idea as it will bring in transparency. However, the idea of 70 per cent of the collection to be kept in escrow account will push several developers into manipulating the cash flow to other projects as circulation of money is essential for large scale developers. In any case, there is an escalation of five to seven per cent every year. Increase in petrol and diesel adds further to the burden. All this leaves no option but to balance it out in overall price rise.”
The Bill also states that if any developer fully fails to comply with or breaches the provisions, he will be liable for punishment through imprisonment for a maximum period of three years, or a penalty of up to 10 per cent of the estimated cost of the real estate project, or both. Patel opines, “Compliance to every aspect will delay the project further. The interest on the funds will eventually be passed on to the endusers, thereby, taking the rates upward by 20-25 per cent. Plus, if we can’t presell our projects, the delay in projects will also aggravate supply-demand imbalance which already exists, pushing the prices further.”
All real estate brokers will also have to get a license to conduct their business. Yashwant Dalal, president, Estate Agents Association of India, explains that this is a positive move. “There could be some license fee or registration fee for conducting business. This will encourage only genuine brokers to be in the trade, who conduct a thorough study of the project they market,” he says.