The Real Estate Bill Irons out Many Glitches

Way back in July 2011, the Ministry of Law & Justice suggested a Central law for the regulation of the real estate sector. On March 10 this year, the Rajya Sabha made that happen by passing the Real Estate (Regulation and Development) Bill.

In the course of the intervening five years, the Bill went through several rounds of discussions, and numerous changes were made to its original text before it was finally passed. The passage of the Bill marks an important development for the real estate sector as it is hoped that it will bring much-needed relief to homebuyers who are generally a harassed lot. As the Minister of Housing and Urban Poverty Alleviation, M Venkaiah Naidu, put it, “The Bill will foster a happy alliance between consumers and developers.”

With important features such as compulsory registration of any project of the size of 500 sq mts, or involving eight apartments, an escrow account for collections, greater clarity in the definition of carpet area, stricter penalties for structural defects in construction, and a mandatory consent clause for changes in construction plans, among others, the Bill seeks to bring in transparency in the real estate sector and protect homebuyers in various ways.

A regulatory body, the Real Estate Regulatory Authority (RERA), will be set up to monitor the sector and demand accountability from builders and developers. Provisions such as mandatory disclosure of projects, including details of the promoter, land status, clearances, approvals, and so forth, will go a long way in protecting consumer rights.

Here are some of the key benefits that homebuyers can look forward to:

Transparency of procedures

The Real Estate Bill stipulates that each Indian state and Union Territory will create regulatory authorities and tribunals dedicated to resolving real estate disputes. Both residential and commercial projects above a certain size will now have to be registered with the corresponding state regulatory body. Even real estate brokers will have to get registered. This is expected to usher greater transparency in the sector and make it easier for homebuyers to seek legal redressal, if need be.

Incidentally, according to Propequity, a real estate data and analytics platform covering 40 cities in India, around 10 lakh apartments in New Delhi, Mumbai and Bangalore due to be completed between 2012 and 2015 remain unfinished. The Bill gives greater confidence to homebuyers to question such delays.

Protection of money

As per the Bill, real estate developers will need to deposit 70 per cent of the project cost in a separate escrow account to cover the construction expense. This will ensure that builders do not divert the funds for other purposes, and deliver the projects in a time-bound manner. Often, builders collect money from homebuyers long before the property is built, and then use the funds for purposes other than construction of buildings. For instance, they may use it to buy more land. The Bill, however, allows states to reduce the percentage of the mandatory escrow deposit below 70 per cent.

Timely delivery

As of now, if a project is delayed, builders pay a penalty of less than 10 per cent a year. Contrast this with the 18 per cent penalty that homebuyers pay if they are late in paying an installment to builders. The Real Estate Bill says that both real estate developers and homebuyers will have to pay the same rate of interest in case of any delay on each other’s part.

Clarity vis-à-vis super built-up area and carpet area

Builders in India generally require homebuyers to pay for a part of the construction of common areas, such as the lobby, stairs, other public places, and so forth. This is referred to as the super built-up area. Buyers do not have the option of not paying for it, so they end up paying for more space than they inhabit.

The new law requires that sales be made on carpet area, which is defined as the space in which the buyers will finally live. This means homebuyers will now be paying only for the carpet area and not the super built-up area.

Moreover, developers will now have to take the consent of 66 per cent of homebuyers in case they want to increase the number of floors, or change the building plan in any other way. This will protect buyers from any ad hoc changes on the part of builders.

Developers to have all clearances before project launch

Sometimes builders start construction projects even before they get all clearances and approvals. The Real Estate Bill seeks to protect interests of buyers by incorporating a clause that projects can be launched only after the developer secures all statutory clearances from relevant authorities.

In the end, the passage of the Real Estate Bill will infuse greater transparency into the real estate sector, which is fragmented and unorganized presently. According to the press communique of the Ministry of Housing and Urban Poverty Alleviation, a total of 76,044 companies are involved in the real estate sector. The sector itself accounts for about 9 per cent of the GDP. Clearly, the Bill was a long time in coming.

Suneeta Kaul is a journalist, a writer, and a blogger. She tracks the economy, the corporate sector and the stock markets, and is a keen follower of current events. Having started her career with The Economic Times, she has worked for publications such as The Asian Age, Business India, and Thomson-Reuters, among others.