How new Housing Bill can change real estate industry

The Maharashtra Housing (Regulation and Development) Bill could do more for the real estate industry than what SEBI did for the stock markets. In India, the housing sector is humungous and the market very imperfect. Second, with huge disparity in the muscle power and financial clout of the two main stake holders — the builder and the buyer — coupled with the slow process of legal recourse, this Bill is a much welcome legislature.

However, the proof of its effectiveness and impact is in its implementation. The apprehensions would be on account of: 1. The readiness or preparedness of the legislature to legislate and hence the aftermath of the teething troubles, 2. The exclusion of other stakeholders like brokers, contractors, approving authorities, financers, etc who contribute to delays. 3. This act applies only to private developers; other government developers like MHADA, CIDCO etc are exempt.

Some laudable provisions that were much needed have been incorporated but not highlighted are the stringent provisions that put onus on developers to comply on the OC and conveying responsibilities, which have been the bane of many a flat buyer.

The Bill says developers cannot make alterations or additions in plans without the buyer’s consent. What does this mean for the buyer? And what does this mean in terms of FSI rules? The new DCR pretty much plugs the play the developers had in the FSI norms and the new Bill does not seem to be addressing the flouting of the FSI norms. However, what it purports to do is to ensure that the developer promises only what he can deliver and deliver all that he has promised. Basic contractual obligations are fulfilled. Real estate being a product that is completely non-standard is not easy to gauge in terms of compliance with titles, quality, size and so many other parameters. This Bill attempts to regulate these deliverables and make developers accountable. Hitherto, many high-handed developers would make alterations in size, specs, layouts as per their convenience and expect the buyer to concur. The buyer is an individual who has forked out almost the entire price by the time of delivery, having in many cases invested his entire life’s savings. There is no fast tract recourse and he is in no position to sustain a long-drawn legal battle. The Bill addresses these aspects and is in line with the law in many countries. Many a time, the changes are not because of a devious intent. It is plainly because of a lack of planning and haste to go to market. This Bill will ensure that developers will get their act together in terms of permissions and planning before going to market.

Now that builders cannot pre-sell apartments without the regulatory approval of the regulator, will apartments stop being treated as tradable instruments? What does this mean for end-users, investors and speculation in realty? There are three types of buyers in a real estate project; end user, investor and speculator. This Bill will ensure that investors and end users don’t get conned into committing to a project that does not have proper titles, permissions and final plans. So in that sense they stand to benefit. The Bill seems to dissuade speculation. However, where there is a parallel economy thriving and transactions of speculation take place in the environment of trust and loyalty, developers and speculators will find ways to circumvent the provisions of the Bill.

The Bill also provides a defect liability period of five years, which is a huge relief to end-users. Barring a handful of developers, quality is not perceived to be of any importance by most developers. And once possession is taken, a buyer has really no recourse for poor quality. But now the entire value chain from developers to architects, contractors, and consultants will have to gear up.

Buyers also face hassles on various fronts: Developers themselves don’t posses sufficient titles to the land; plans evolve after sales and a buyer is expected to accept changes. These may not always be favorable or convenient; many projects have seen illegal floors and spaces being constructed and sold which a buyer comes to know only much later; OC is delayed and at times not obtained and without an OC residents cannot get municipal water and other services. The titles of the flat become deficient and the buyer may not be able to sell in the future; there were no stipulations against using the funds from one project in another. This causes stress on the cash flow of a project and was a cause of delays in numerous projects; in many instances the developer does not convey the land and building to the society. This is done to retain the future upside in FSI norms; sub-standard quality is a common complaint. The Bill sufficiently addresses these issues.                  

Thus, though the proposed Act appears to be a step in the right direction, the same could have been further strengthened by providing more stringent provisions to curb prevalent malpractices. Nevertheless, the proposed Act enhances the scope for transparent practices in the real estate market in Maharashtra. The proposed Act may pass the test of time if it is supplemented by effective judicial and administrative mechanism.

The writer is executive director, Knight Frank India