DELHI: Last week, the Union Cabinet approved the draft Real Estate (Regulation and Development) Bill 2013 that allows for the creation of a regulator in the real estate sector. Once passed by Parliament and subsequently adopted by each state, it will allow for the creation of a real estate regulator in each state (realty being a state subject). While the Bill applies to residential properties, commercial real estate has been kept out of its purview. Let us examine the pros and cons of the draft Bill in its latest avatar.
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Stress on timeliness and adherence to specifications: Once the Bill gets enacted, it will provide considerable relief to the buyer who faces innumerable difficulties and at times even gets duped by developers and brokers. Anuj Puri, chairman and country head, Jones Lang LaSalle India, points to two specific aspects of the Bill that will benefit buyers. "By imposing strict regulations on the promoter, the Bill looks to ensure that construction is completed on time, and on completion the buyer gets a property that matches the promised specifications," he says.
Mandatory disclosure of project details: The Bill will make it mandatory for developers to disclose details, including minor ones, about their projects on the company website. Says Niranjan Hiranandani, managing director of Hiranandani group of companies: "The details will include specifications, such as the layout plan, carpet area of each dwelling unit, number of units in the project, the amenities being provided, and the approvals received for the project from various authorities. Such disclosures will make it difficult for developers to make ad hoc changes to their project plans at a later stage of development."
Developers will also have to specify the carpet area of each apartment. Selling on the basis of the ambiguous super area will no longer be permitted. Periodic updates on the stage of development that the project has reached will also become mandatory.
Separate accounts for each project: The Bill also makes it mandatory for developers to maintain separate bank accounts with scheduled commercial banks for each of their projects. At least 70% of the corpus raised for the project from buyers (at intervals) will have to be deposited within 15 days of realisation in the account. Developers will have to channelise the money to meet the costs of that particular project. Diversion of funds from one project to another will not be permitted.
Misleading buyers will invite punishment: Developers will be prohibited from advertising or marketing their projects before getting all the necessary clearances and obtaining a certificate of registration from the authority. Says Ganesh Vasudevan, chief executive officer of Indiaproperty.com: "Developers will not be able to collect funds from buyers before they have obtained all the necessary approvals."
The Bill states that if any developer willfully fails to comply with or contravenes its provisions, he will be punished with imprisonment for up to three years, or a penalty that may extend to 10% of the estimated cost of the project, or both. Vasudevan informs that the developer will have to compensate the buyer who incurs a loss on account of advance payment based on false information contained in the developer's advertisement. "The regulatory authority will determine the compensation amount," he adds.
Canceling a sale becomes difficult: Developers will not be allowed to cancel an agreement for sale unless they have sufficient cause to do so. Says Vasudevan: "The developer will need to give due notice to the parties to the agreement. He will also have to refund the amount collected along with interest, as prescribed."
Moreover, in case there is a major structural defect or deficiency in the development or services offered and this is brought to the developer's notice within one year by the buyer, the developer will have to rectify those defects without levying further charges.
Licences compulsory for realty brokers: The Bill also makes it compulsory for real estate agents to register and get licences before they begin to conduct business. Yashwant Dalal, president of the Estate Agents Association of India, believes that this is a positive step by the government which will make real estate broking an organised profession.