MUMBAI/NEW DELHI: Home buyers have several reasons to cheer as the Real Estate Regulatory Bill approved by the Union Cabinet is expected to ease their concerns on delay in delivery and change in project layout among others. Developers are also expected to benefit as improved transparency and accountability will improve institutional funds flow into the sector.
The number of tussles between home buyers and realty developers due to delay in project completion is likely to come down as the bill is making it mandatory for the builder to maintain 50% of customer advances in an escrow account within 15 days of receiving the money from buyers.
While some experts are of view that the minimum balance to be maintained by the developer in an escrow account has been reduced to 50% from the earlier proposal of 70%, this is still sufficient to complete the project after factoring in the land cost. "The 50% mandate will still put enough restriction on developers to divert funds elsewhere and ensure better completion records," said Anuj Puri, chairman & country head, JLL India. However, funds diversion is not the only reason for delay in project completion and therefore the Bill needs to cover government bodies, including civic authorities too.
"The new amended Bill reads very positively for inducing transparency and better governance, but the continued non-inclusion of government agencies whose slow approval processes are major contributors to project delays, remains an issue that needs to be addressed," Puri added. However, consumers need to remember that the regulator will take around a year before it becomes a reality. After the Union Cabinet clearing the Bill on Wednesday, it will become an Act once tabled and approved in Parliament.
The states have to set up the regulatory bodies within a year of the Bill's enactment while also setting up a webbased online registration facility within a further period of one year from setting up the bodies.
Consumers are expected to be relieved, with the Bill asking a project developer to get consent of two-thirds of project customers for any changes to original plans or the structural design. Developers agree that the Bill will help in introducing transparency in the sector, but are also concerned about rise in corruption and other issues.
"While it will certainly bring in transparency, there are a few things which, if not addressed, will lead to more corruption," said Getamber Anand, the newly elected president of industry body Confederation of Real Estate Developers Association of India (CREDAI). "These could create unnecessary misuse of the Bill by those in power."
Anand points out that project registration has to be done online and will get deemed approval in 15 days. The regulator will then allot a login-ID for the project until which a builder cannot start selling. The regulator will subsequently scrutinise all documents pertaining to the project and can cancel the registration if he thinks they are not in order.
"This could open another window for delay and dilute the deemed concept," he said.
Better accountability and transparency will also help realty developers gain access to funding and also lower property prices to a certain extent because of that.
"It is likely to enhance the credibility of the sector as developers will be in a position to borrow funds at competitive rates. This will only help rationalise property prices in the months to come," said Shishir Baijal, CMD, Knight Frank India.
The penal provisions under the proposed law include a payment of 10% of project cost for non-registration and payment of additional 10% of project cost or three-year imprisonment or both if still not complied with.
For wrong disclosure of information or for not complying with the disclosures and requirements, payment of 5% of project cost will be imposed. The Bill provides regulatory authorities the power to cancel project registration in case of persistent violations and decide on further course of action regarding completion of such projects.