The Real Estate Bill only adds to the confusion
It empowers the authorities further, gives developers more time to complete projects, but offers nothing to consumers
Jun 06, 2013
Source : Business Standard


MUMBAI: If anything, the Real Estate (Regulation and Development) Bill is only going to add to the confusion existing in the sector. In any real estate project, there are three principal stakeholders -– developer, consumer and the authorities. The bill has been designed to empower the authorities further. There is little in it for the consumer, as for the developer, his project completion time has just got longer.


From a consumer's point of view, his main interest from the government or a regulator is how an affordable house will be available to him. Transparency about whether or not the project has all the clearances, is taken care of by the banks who are lending. They ensure that the project is from a decent builder and has all the mandatory clearances. It is only the NBFC and the more aggressive banks that do not follow the rules.


Regarding the point in the bill which gives a clear definition of ‘carpet area’ and prohibits sale on the basis of ‘super area’, there is nothing to stop the developer from hiking the price to take care of his loss in ‘loading’. There is no price ceiling provision in the bill, and a builder can keep on increasing the price, which he will, if he has all the clearances.


The other point of ‘cash component’ in every house sale is not even discussed in the bill. From the consumer's point of view, this is the biggest issue as the ‘cash component’ portion is not financed by any bank and thus has to be pumped in along with the margin money in order to avail a bank loan.


From the developer's point of view, there are two main reasons to be unhappy about. First is that he will have to earmark 50 per cent of the money collected from the buyer to a separate bank account so that the project is completed. The spirit behind this provision is no doubt good and should ensure timely completion of the project. Incomplete and abandoned projects are one of the biggest reasons the sector is in a mess.


However, since financing options for land purchase and real estate projects these days are few, this move will only slow down development and play into the hands of bigger land sharks. 


The issue of penalties on advertisements is the least of the worries for the street smart developers.


The biggest drawback in the bill is that it brings in more government rather than governance in the sector. Setting up one more authority to oversee projects will not only add to the time but will also add to the cost, especially the ‘cash component’.


One of the biggest woes of the developer has been multiple layers of clearances from various authorities. This only added to the delay in the project and files had to ‘financed’ their way forward. Adding one more layer of government and making sure that all clearances are in place before a project is started will be a big deterrent, especially for the smaller developers. Registering agents that are monitoring them will only add to corruption.


Further, there is no way the bill can take into account existing projects. In other words the woes of the sectors will continue to exist; only new ones will now be added to it.


There was so much more that the government could have done with the bill, had it bought all the stakeholders together and arrived at a mechanism to monitor and ensure transparency. The bill leaves a lot to be desired both for the consumer and developer. Authorities naturally will be happy with the extra power that this bill gives them.


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