Real estate Bill gets a thumbs-up from industry

All the struggles by home buyers with respect to inordinate project delays, poor construction quality and others whims of builders are set to be a thing of the past. The Real Estate (Regulation and Development) Bill 2015 introduced by the government on Thursday was passed in the Rajya Sabha, thus paving the way for bringing in the much-needed transparency and accountability in the opaque realty sector.

In fact, the passing of the long-pending Real Estate Regulatory Bill is being looked at as a step in the right direction besides being a need of the hour.

Calling it the most decisive step by far, Anuj Puri, chairman and country head, JLL India, said, "Its enactment as a law will almost single-handedly revamp the way this sector works across the board, from developers to end-users and investors, to lending institutions and government agencies involved in the buying and selling of property."

The industry is unanimous on the fact that the real estate sector was in dire need of a regulatory bill more than any other single piece of legislation. In fact, it becoming a reality has made initiatives like the goods and services tax (GST), the Land Acquisition & Rehabilitation Bill, single window clearance and industry status of less importance. And given the mandatory detailed disclosure requirements, stringent penalty provisions, restrictions on deployment of funds and change in plans by promoters, this Act is sure to set the house in order and ensure developers can't take the buyers for a ride. In fact, its systematic implementation will revolutionise the Indian realty market going forward.

Kishor Pate, chairman and managing director, Amit Enterprises Housing Ltd, said, "We will now see a radical transformation of the entire residential sector. Strict enforcement of project delivery time-lines, verifiable construction quality and assurance of legal clearances will finally become a reality, and the consumer confidence which had all but evaporated will return."

Not just the home buyers, but the developer community is also set to benefit in a big way as the Real Estate Bill will place the Indian realty market, which currently is fragmented and unorganised, at par with that of other developed countries with clear accountability of developers through the establishment of the Real Estate Regulatory Authority (RERA). In fact, developers are of the view that RERA will make realty sector more institutionalised and significantly benefit the organised players.

Another significant ruling, according to Sanjay Dutt, managing director - India, Cushman & Wakefield, is in the form of definition of 'carpet area'. "Buyers will now be paying only for the carpet area and not the super built-up area which was fraught with confusion earlier. Also, the developers will now have to take consent of 66% of the home buyers in case they have to increase the number of floors or change the building plans. This will protect the buyers from any ad-hoc changes that are a norm presently," he said.

While the buyer-seller agreements were earlier heavily tilted towards the developers who used to pay very little penalty in case of delay in giving possession, it will not be the case any more as both parties will now be on a level playing field with respect to penalties on delays.

As for curbing the possibilities of project delays, developers will now be required to deposit 70% of the project cost in a separate bank account to cover the construction cost of the project for its timely completion. This would go a long way in ensuring timely construction of projects and act as a safeguard in the event of any inordinate delays of the project as it would limit diversion of developers' funds for other projects.

"Scenarios where buyers who are saddled with the burden of paying rent and also paying the equated monthly instalment (EMI) of a home loan, which is delayed because of the builders, should be a thing of the past. While this stipulation of having 70% of the funds in an escrow account will be a welcome relief for home buyers, it is likely to result in the builders losing fungibility of money, thereby, resulting in a hike in prices," said Dutt.

However, not everything appears good as there are certain concerns the developer community feels should have been addressed as well. "While enactment of the law is the first step," said Kamal Khetan, CMD, Sunteck realty Ltd, "we hope that government also brings in reforms in the administrative process."

J C Sharma, VC & MD, Sobha Ltd, feels the Bill made no mention of time-bound approvals by various central, state and local agencies, which is critical to the growth of the sector.

"We believe that the decision to have up to 70% of the funds collected from consumers into an escrow account may not be the best way to make use of the collected funds, especially at a time when liquidity in the sector is not too good and the poor availability of bank finance impacts the consumer as well. Additionally, the inclusion of the existing projects in the ambit of this Act may cause lots of confusion as developers might already have taken advances from the customers and might have sold it on the super built up area basis," he said.

Navin M Raheja, CMD, Raheja Developers Ltd, wished for the sanctioning authorities to be also included in the bill. "Most importantly single window online clearance mechanism for time bound clearance of projects should have been implemented as well," he said.

Given the challenges faced by the developer community, a single-window clearance is much needed now, feel experts. "The time taken to get many environmental, state-level and municipal-level clearances have afflicted developers for long. Without ensuring that the approval process is not delayed by civic agencies' inaction or setting up a single-window system, the regulator may inadvertently add another layer to the longer processes already delaying projects," said Puri.