Real Estate Bill – How will it impact you?
Home buyers and builders across India are waiting in anticipation for the passing of the Real Estate Bill. First announced in 2009, and later drafted in 2013, and due to be announced later this year, the bill aims to establish a regulatory authority which will monitor the activities of builders as well as protect the rights of the consumers. This bill is eagerly awaited as it will help move this sector towards accountable, transparent and fair deals and away from its reputation for delays, short-changing and overpricing.
Some of the key features of the bill are:
The bill seeks to regulate the development of commercial and residential real estate projects.
- The establishment of a regulatory authority to monitor real estate transactions.
- It requires mandatory registration of the builders with the same authority, thereby preventing any fly by night or unscrupulous vendors. This, thereby, ensures all details of projects to be registered including approvals, agreements, vendors, engineers and plans.
- The construction cost must be covered and deposited in a separate bank account to allow timely completion of the project.
- Establish fast track dispute resolution systems.
- No changes in plan and design are allowed until the buyers’ consent has been received.
Recently a Rajya Sabha committee passed 20 major amendments to the bill before it will finally be passed in the upper house of the parliament.
Some of the major amendments of the bill include:
- Any project over 5000 sq.ft or 8 flats will have to be registered with the proposed regulatory authority.
- 70% of sale proceeds will have to be deposited into an escrow account. This has now been brought down to 50%.
- Any default or delay on the builders part will lead to them to have to pay interest to the buyer at the same rate that is charged to them.
- The builder will be held accountable for any structural defects that manifest within the first 5 years.
- Carpet area will include kitchen area as well as toilet areas.
- A residents association must be formed within the first 3 months of allotment.
- Garage to be kept out of the purview of the definition of the apartment.
Most analysts believe that this bill will be beneficial to the now stagnantly languishing sector as this new found transparency will lead to an increase in consumer confidence. The increase in consumer confidence will, in turn, see a rise in demand and should pull the market out of its current slump. This is also expected to bring in an influx of FDI into the market.
Some of the grievances raised by the builders to the Real Estate Bill include:
- A worry that the proposed regulator will become nothing more than another approval authority (similar to the BDA/KPTCL) from which approvals will have to be received with no guarantee of convenience to their own time tables.
- Builders feel that to ensure seamless operations and to ensure timely completion of projects, the government sanctioning bodies must also be brought under the purview of the law.
- Builders also feel that under the new regulatory body which has the power to cancel registrations and the like, will find themselves targeted by competition and other individuals with false claims that would seriously hamper projects and cause delays.
- Builders also feel that 70% of sales proceeds including the cost of land to be kept in escrow seriously hampers the liquidity of the company which will increase borrowing from banks which will increase their interest costs which will then be transferred to the buyer.
- Also builders feel that imprisonment of up to 3 years in case of violations seem unfair as no other sector has similar punishments.
While buyers will surely be relieved to hear of the bills passing, the same cannot be said for the builders. Without bringing in civic bodies and sanctioning authorities this real estate bill will fail by bringing even more red tape and delays to this already beleaguered sector. Another important point for noting is that this bill has not considered any environmental issues that are brought about by the real estate sector or means by which these problems can be tackled. While this bill is a big step in the right direction it does require a little more thought from lawmakers before finally being set into motion.