Developers to design sale contracts with buyers under govt model

The Real Estate (Regulation and Development) Bill, cleared by the Union Cabinet yesterday, wants all developers to design their sale contracts with buyers, based on a model agreement to be prepared by the government.

"It will be a standardised agreement but a balanced one, and states will have an option to modify it," Minister for Housing and Poverty Alleviation Ajay Maken said today. The Bill, in the making for about five years, is expected to be tabled in Parliament in the monsoon session.

The real estate sector has remained unregulated so far. The Bill aims to safeguard buyers against unscrupulous builders and check the delays in realty projects, a common trend. Moreover, it would try to bring in a transparent environment.

The Bill, which has proposed setting up a regulator for the sector, will enable more funds to flow into realty as banks and financial institutions will not be wary of lending to developers now, Maken said.

As many as 22 states, including Madhya Pradesh, Gujarat, Andhra Pradesh and Rajasthan, have supported the Bill, the minister said. It provides for a clear definition of carpet area and would prohibit private developers from selling houses or flats on the basis of an ambiguous super area.

Real estate agents will have to register themselves or through developers, a move that will easily establish the money trail and help in curbing money laundering, Maken said. This clause was added on the recommendations of the Department of Revenue.

Projects with an area of at least 1,000 square metres or 12 dwelling units will have to be registered with the proposed regulator.

The Bill assumes importance in the wake of rising consumer complaints against developers for delays in projects . Currently, there is no mechanism to discourage builders from delaying projects and buyers have to pay high interests. Also, developers often escape through loopholes in the sale agreements.

The Bill also makes it mandatory for developers to launch projects only after acquiring all the statutory clearances from relevant authorities. Besides, it has provisions to deter builders from putting out misleading advertisements related to projects. A first time breach would attract a penalty, up to 10 per cent of the project cost and a repeat offence could land the developer in jail for a maximum of three years. It also aims to make it mandatory for a developer to set aside 70 per cent of the money collected from buyers to a separate bank account for every project, to ensure the money raised for a particular task is not diverted elsewhere.

It also seeks to establish an Appellate Tribunal to adjudicate disputes and hear appeals from the decisions or orders of the Authority.

The industry has been opposing the Bill and the draft has been revised several times since 2009, when it was first made.Within a year of the Act coming into place, Real Estate Regulatory Authorities will have to be constituted by the government of each state and union territory. More than one authority in a state is permissible. At the central level, a Real Estate Appellate Tribunal has been proposed.