Strange though it may sound, but India's Rs 12 lakh crore real estate sector was a largely unregulated sector till date.
The much-awaited Real Estate (Regulation and Development) Bill was finally passed by the Rajya Sabha on Thursday. The Bill, which aims at protecting the interest of the buyers and bring in transparency to the system, has been waiting in the wings for the nearly 10 years.
Strange though it may sound, but India's Rs 12 lakh crore real estate sector was a largely unregulated sector till date and would only now get a get a regulator as a result of the Bill.
The Bill even though not full proof would guard the home buyers from any unscrupulous builder and would bring in the much-needed confidence and investment in the real estate in India.
Some of the key features and its impact:
The Bill makes it mandatory for all commercial and residential real estate projects where the land is over 500 sqmt or eight apartments to register with the Regulator prior launching a project. By making registration of the project compulsory with the regulatory authority, the bill aims to provide greater transparency in project marketing and execution. Failure to do so will attract a penalty which could be up to
10% of the project cost and a repeat offence could land the developer in jail.
An aggrieved buyer has to run from pillar to post (district courts, consumer courts, etc.) to enforce his rights against the developer, where the developer has defaulted in his commitments on the project. The Bill proposes to set up state-level authorities called Real Estate Regulatory Authority for promotion and regulation of real estate sector. Furthermore, to protect the interest of consumers, the Bill also proposes to establish an Appellate Tribunal to hear appeals from the decisions, directions or orders of the Authority.
One of the major pain points being faced by the consumers today is the delay in projects in spite of payment of all dues to the developer. This problem is usually faced when developers are lured by new or more profitable projects and thus, divert the funds raised from an old project to such new projects. In order to keep a check on such malpractice by the developer, the Bill proposes that the developer will put 70% of the money collected from the buyer in a separate account to meet the cost of the project for which the money was actually raised. The said practice would bring a major relief to customers as the developer would no longer be able to divert funds into other projects and would have to utilize the project specific funds in such projects only. The regulations ensure a speedy disposal of complaints received from the customers. This would ensure that consumers do not have to wait for a lifetime to get justice and enforce their rights against the regulator.
It has become mandatory for the developers to disclose all information like project layout, approval, land status, contractors, schedule of completion of construction and etc. This move should bring in the much-needed transparency to the sector.
Of late most builders advertise projects quoting the "built up" or the "super built up area". Rarely are projects priced on the basis of carpet area which is the actual living space a buyer gets on possession. This Bill stipulates that developers sell properties only on the basis of the 'carpet area" which is the net usable floor area of a residential unit. Unlike super built up area, carpet area does not take into account common areas such as walls, lift shaft, stairs or lobby. This clause will thus ensure that at the time of booking itself home buyers get clear picture of the actual livable area which will be allotted to them.
Passing of the Bill would be by far the most decisive step the sector has taken towards bringing transparency and accountability in the real estate sector and ensure timely execution of projects. The said move should be welcomed by consumers and developers alike. Given the same, the sector should now find it easier to claim 'infrastructure' status and reap benefits attached to it and pave way for more investments and provide a fillip to the ailing real estate sector.
The writer is national leader- real estate & infrastructure practice, EY
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