The Bill will be a boon for homebuyers
This Bill aims at establishing a regulatory authority for enforcing fair practice and accountability norms and fast track dispute resolution mechanism, in realty transactions
Jun 19, 2013
Source : The Times of India


MUMBAI: The Real Estate Regulator Bill which was recently approved by the union cabinet, has been several years in the making now and hasn’t had smooth sailing from the start. Apart from inordinate delays, it faced much resistance from the real estate fraternity at initially who were afraid that this Bill would prove to be yet another regulatory bottleneck, rather than a regulation that would empower the industry and its homebuyers.

At one point, the realty fraternity was divided on the Bill, with several builders insisting on ‘self-regulation’. This Bill aims at establishing a regulatory authority for enforcing fair practice and accountability norms and fast track dispute resolution mechanism, in realty transactions.

The general consensus seems to be that while this Bill is a step in the right direction, it is more customer-centric. Ganesh Vasudevan, CEO, explains, “Though the need of a regulatory body and transparency in the real estate sector are undeniable, the Bill being buyer-centric won’t be accepted in totality by the real estate developers.” However, even he agrees that ‘with a regulatory authority in place and establishment of fast-track dispute resolution mechanisms, developers and agents will also be cautious before taking buyers for a ride.’

Two of the biggest demands – a single window clearance system and the demand for industry status find no mention in this bill currently. There doesn’t seem to be much of a direct impetus on catalysing domestic and foreign investment into the sector either. Vimal Shah, president, MCHI-CREDAI, had strong words. “In its zeal to curb a small section of erring developers, the government is punishing the whole industry. The regulator can be effective only if it is in position to regulate all constituents of the real estate industry i.e. the developer, landowner, approving authorities and customers. The Bill provides for regulating only one of these,” opines Shah.

There is also concern about the implementation of the same. Pankaj Bansal, director, M3M India shares that “In principle, this is a welcome and progressive development initiated by the government of India. However, to ensure an equitable implementation of the proposed policy, the government, on its part, must also streamline processes to ensure better coordination amongst the numerous agencies involved in the approval process at the local, state and central levels; strict accountability for timely clearances by government functionaries; measures to curb corruption and consistency in laid down policy to ensure speedy approvals.”

One proposal that hasn’t been received well by the developers’ community is the mandatory deposit of 70 per cent of the construction cost in an escrow account. CREDAI chairman Lalit Kumar Jain calls this impractical. “The construction cost of the project varies in different markets. For instance, in micro-markets as in prime areas, the cost of construction may be around 30 per cent whereas in suburban areas, it could be high, at 80 per cent of the entire cost elements.

The provision should be based on the ratio of the extent of the construction cost so as to ensure timely completion of projects and prevent fund diversion. Otherwise, the growth in the sector will get arrested as the reality of the day is that funding for land purchase, is just not available from banks, thanks to the negative weightage given by the RBI for real estate finance,” he points out.

While the compulsory registration of all projects over 4000 sq mts in size does increase its scope of coverage, it also raises the question: Who is this Bill trying to regulate. Lakhs of homebuyers all over the country continue to be duped by fly-by-night operators. Most of these developers have single building or small sized projects. In many of the metros where land is a problem, even projects by leading developers will be smaller than these specifications. Industry insiders also opine that if a developer wishes to avoid the regulator’s scrutiny, he can simply divide his project into smaller ticket sizes instead of launching one big project.

Anuj Puri, chairman and country head, Jones Lang LaSalle India, while adding that the Bill, by providing penalties for both, the promoters and the allottees, seeks to ensure that noncompliance is minimal, does concede that “It has been a constant complaint by developers in India that they experience long and inordinate delays besides the difficulty in obtaining approvals for construction from the multi-headed government agencies. They have stressed on the need for a single-window clearance to cut through the red tape.

This issue does not find any mention in the Bill. Also, though the list of disclosures to be furnished by the promoter is fairly exhaustive, it could still be bench marked against the best practices of the developed markets, so as to bring the real estate markets in India in more conformity with such markets where regulations have been existing for some time with relevant lessons to be learnt from their experiences.”

Harvesp Mehta, director real estate – Motilal Oswal Pvt Equity Advisors Ltd, highlights another possible area of concern. “In the near-term, the Bill, once enacted, could lead to some delay in new launches, as it proposes several stringent norms against developers in case of non-compliance and the existing approval process is already lengthy and complicated” he points out.

At this juncture, one has to wonder that for a Bill whose main objective is to bring about a uniform regulatory environment for the real estate sector nationally; will it overlap or ‘clash’ with state objectives, especially since real estate in India primarily remains a state subject. Devang Varma – director, Omkar Realtors and Developers Ltd, seems to think so. “There is a need to avoid duplication or overlapping of existing legislation. Existing laws in states like Maharashtra can be strengthened in order to expedite the dispute resolution mechanism, which is also cost-effective. Besides, states like Maharashtra have robust laws inter alia Maharashtra Ownership of Flats Act (MOFA), governing rights and obligations between the promoter/developer on the one hand and ‘purchasers of premises’ on the other hand. The government should consider that the proposed Bill’s objective should be regulating the industry, planning, infrastructure and management thereof and not ‘beneficial legislation’ to protect only the interest of consumers in real estate,” he says.

The Bill has received cabinet approval and could either be brought in by passing an ordinance, while the parliament and other parties could insist on a discussion in the legislature and then put the Bill to vote. It then requires the signature of the president. The road to the Bill becoming an Act is still being paved. Twenty two states have approved of the Bill in its current form, while five states have requested certain amendments. These changes have been incorporated in the draft Bill cleared by the cabinet.

Governing bodies under proposed regulation:

Proposed structure of regulatory authority

Government by notification in Gazette, will establish authority called Real Estate Regulatory Authority. It proposes setting up of a Real Estate Regulatory Authority in every state. The authority will comprise (a) one chairperson (recommended by the selection committee), and (b) not less than two government appointed whole time members. All of them will hold term for maximum three years.

Capacity of Regulatory Authority

The Authority shall take all possible measures for promotion of a transparent, efficient and competitive real estate sector. Powers to set up a dispute resolution mechanism for an amicable settlement of disputes between the developers and buyers. The regulator will act only if there is a complaint of any deviation from the project details disclosed by a developer on the regulator’s website.

Additional Appellate Tribunal to settle dispute

Central government shall establish an Appellate Tribunal to be known as the Real Estate Appellate Tribunal to adjudicate (by notification in the Official Gazette). This will settle any dispute (a) between a developer and buyers; (b) between a developer and Authority, and (c) between government and the Authority.

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