Builders express concerns over realty Bill, after backing it

Developers agree the Real Estate Regulation Bill could lift investor confidence, but most have pointed to bottlenecks in the proposed legislation.

The Bill was cleared in the Rajya Sabha on Thursday. It will now be moved to the Lok Sabha.

Real estate companies have expressed concern over not including the government authorities that sanction projects under the purview of the Bill. The sector holds these authorities responsible for delays in projects in several cases. Though the sectoral people and experts have broadly welcomed the passage of the Bill, they are protesting against bringing ongoing projects under it. They are also upset that their demand for a single-window clearance has not been addressed.

NOT HAPPY

• Real estate firms express concern over not including the government authorities that sanction projects under the purview of the Bill. The sector holds these authorities responsible for delays in projects in several cases
   
• They are also protesting against bringing ongoing projects under it
   
• A consultancy firm says the rules on setting aside 70% of customer advances in an escrow account, compulsory approvals prior to project launches, and payment of similar interest rate to customers as charged from them for delays will impact launches and increase compliance costs

The Confederation of Real Estate Developers’ Associations of India (Credai) President Getamber Anand said bringing ongoing projects under the legislation would mean stopping the work and ensuring the compliance of these with the new legislation. “This will be time consuming and if a project has already been sold up to 50 per cent and construction is underway, it is practically impossible to make the rest of the project compliant with the Act. Also, making the project fully compliant would be absurdly inconvenient and expensive,” he said.

J C Sharma, vice-chairman and managing director (MD), Sobha Ltd, said: “The Bill made no mention of time-bound approvals by various central, state and local agencies. The inclusion of the existing projects under the ambit might 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.”

Rajeev Talwar, chief executive officer (CEO), DLF, called provisions such as imprisonment “harsh”. “Some clauses are heavily stacked against the builders. The Bill does not touch the issue of single-window clearance for approvals. It also needs to hold local bodies/authorities, banks, contractors, financial institutions accountable and we hope they will come under its ambit in future,” Talwar said.

However, states will decide their own framework of the Real Estate Regulatory Agency. Few executives from real estate companies said they had already approached some state governments who have agreed to not include ongoing projects under the regulation.

Pirojsha Godrej, MD and CEO, Godrej Properties, said: “The regulation will be in the interest of all concerned over the medium term but in the short term, it could create significant transition issues. The government should ensure this transition is handled well and that the regulator doesn’t become another layer of bureaucracy.”

Even consultancy firms have expressed concern on some provisions of the Bill.

Elara Capital in a report said there was limited clarity on how the Bill will be applicable to existing projects. “The rules on setting aside 70 per cent of customer advances in an escrow account, compulsory approvals prior to project launches, and payment of similar interest rate to customers as charged from them for delays will impact launches and increase compliance costs.”

National Capital Region and Mumbai Metropolitan Region markets that have an elongated approvals cycle and dependent on pre-launch sales will be affected more than the markets of Bengaluru and Chennai. “In our view, DLF will be the most affected while organised firms such as Oberoi Realty, Godrej Properties, and Bengaluru-based companies such as Prestige Estates Projects, Brigade Enterprises and Sobha will benefit.”

This might result in longer cash-flow cycles, as developers await approvals prior to launch and also lead to a consequent increase in property prices, the report said.