For home buyers who find their investments stuck in delayed projects, the Real Estate Regulatory Bill is expected to be a game-changer, besides having far-reaching consequences for the real estate sector as a whole.
Once implemented, the Bill will bring transparency and accountability in the sector that is notorious for its opacity. More important, the proposal to set up a real estate regulatory body in every state will provide buyers a forum to register their grievances against erring developers. At present, buyers have little option but to resort to street protests to put pressure on developers who fail to meet deadlines.
The final draft of the Bill approved by the Cabinet in December has made it mandatory for developers to deposit at least 70 per cent of the proceeds from sales in an escrow account to meet the cost of construction. In the earlier draft, developers only needed to put 50 per cent of the sales amount in a separate account. Diversion of funds meant for one project to another has been the main cause for construction delays.
In addition, to protect the interest of consumers in very small projects, the Bill's ambit has been widened to include all constructions with 500 square metres or more, instead of the earlier requirement of 1,000 square metres.
Further, developers will also not be allowed to introduce structural changes without the consent of at least two-thirds of the buyers in any project. This has been done to prevent incidents like the ones involving DLF and Supertech where the companies were taken to the courts by buyers for changing the layout of the project without their permission.
Experts welcome the change. "Not only will it protect the consumer but also encourage the individual buyer, both domestic and international, to invest in the real estate market," says Anshuman Magazine, chairman & managing director, CBRE South Asia.
However, any respite for home buyers is unlikely anytime soon. The Bill, which was first introduced in Rajya Sabha on August 14, 2013, was referred to the Parliamentary Standing Committee on Urban Development for its recommendations. The final draft of the Bill was approved by the Cabinet in December, but it will still take a few years from the time the Bill is passed by Parliament before the Real Estate Regulatory Authority is in place.
The onus will be on the states to set up an authority and make rules within six months of the notification of the Act. It will also be up to the states to set up additional benches of appellate tribunals if required for speedy adjudication of grievances.
A new provision has been created for imprisonment of up to three years in case of promoters and up to one year in case of real estate agents and buyers or monetary penalties or both for violation of the appellate tribunal's order.
Abhishek Goenka, leader (real estate tax), PwC India, says: "Coming on the back of the major foreign investment policy changes, this Bill is another step forward towards attracting more investments and creating a transparent and well defined framework for the sector to operate in. However, increasing the limits for the amount to be held in an escrow to 70 per cent appears restrictive and some of the other changes such as the one to do with the minimum size of the project may negatively affect sentiment in the sector."
Builders also say the Bill should only cover new projects and not have a retrospective effect. Besides, they also want the Bill to address the issue of regulatory delays in getting approvals for projects.
The government should make it easier for developers to do business in the sector by bringing about a time-bound approval mechanism for projects from government bodies, says Magazine.
Others agree. The Bill would have been more effective had all the approving authorities been brought under its purview, says Sam Chopra, founder & chairman, RE/MAX India.