The much-awaited Real Estate (Regulation and Development) Bill, 2013, received Cabinet nod on Wednesday and now awaits Parliament’s approval. While the Bill looks to protect home buyers, regulate developers and brokers and puts in place penal clause for non-compliance, the real estate industry seems to be a little apprehensive about the Bill in its current form and is calling to fix accountability also for authorities providing approvals.
It also wants a relaxation of the clause which states that developers will have to compulsorily deposit 50 per cent of the money received from the allottees into an escrow account within 15 days, from where funds can only be utilised for construction activity pertaining to that specific project.
Not only the Bill brings relief to home buyers, who, in the absence of a real estate regulator have been knocking the doors of the consumer courts and the Competition Commission of India against unfavourable practices of the developers, it will also ensure that developers adhere to norms laid down by the regulator. Since investment in real estate is usually the biggest an individual makes in his/her lifetime, the consumer will derive confidence from the presence of a regulator to protect his/her interests.
Some feel that this may lift investor confidence in Indian real estate. “Over the last few years, the industry has been passing through a credibility crisis with fresh deals almost drying up. The Bill will only help drive in greater accountability, and bring back customers who have so far been sitting on the fence. The expected transparency is likely to enhance the credibility of the sector as developers will be in a position to borrow funds at competitive rates and this will only help rationalise property prices in the months to come,” said Shishir Baijal, CMD, Knight Frank India.
What is the industry worried about?
One of the biggest concerns of the industry is that while the Bill looks to put the accountability for delay of projects on the developers and has set penal provisions that will be applicable on them if they fail to comply, there is no accountability on authorities and various government bodies for any delay caused by them.
‘’Most of the complaints belong to delayed completion/delivery which are because of delay in getting clearances. There is no proposal in the Bill to address this situation,” said RK Arora, chairman, Supertech.
There are others who voice similar concern. “The Bill doesn’t fix accountability equally on all stakeholders. While builders face the brunt for project delay; accountability has not been fixed for delays due to regulatory approvals and customers default on payments etc,” said Mohit Goel, CEO, Omaxe Ltd. Not only the developers have raised these concerns, even the industry experts are raising similar points.
Abhinav Joshi, associate director, research at CB Richard Ellis pointed out that the government should look to incentivise developers by way of faster clearances if they comply with the mandatory provisions. He also called for easier land acquisition norms and faster environmental clearances.
“In the event of a delay in project clearances on part of the government authorities, the penalty implications on the part of the developers need clarification. The Bill should also provide for holding authorities accountable for delays in approval processes that impact project timelines. Other reforms such as digitisation of land records, easier land acquisition procedures and faster environmental clearances should also be looked into,” said Joshi.
Concerns have also been raised on the retrospective applicability of the Bill with respect to registration of all ongoing projects. While Joshi points that it is not likely to augur well with the developer community, developers are calling for prospective applicability of this requirement.
“The proposed legislation should not be enforced retrospectively as it is impossible to comply with various rules and regulations for the under construction projects. It should be applicable for new projects starting from the date the proposed legislation comes into effect,” said Arora.
Some say that bringing ongoing projects under its ambit would further delay delivery of a number of projects in the country.
Another major area of concern is the issue of keeping at least 50 per cent of the money received from the allottee into an escrow account for the purpose of construction activity pertaining to that specific project. While some find it unreasonable on account of land accounting for a majority of the project cost, there are others who are calling for a city wise cap.
“We would have preferred escrow limit to be fixed on city basis (metro/tier II) or project basis (luxury/affordable); instead of a blanket 50 per cent for all,” said Goyal.
But home buyers should be happy
Even with some issues that the developers desire to be addressed, the Bill comes as a welcome move for home buyers. It not just calls for timely execution of projects by developers but also looks to bar promoters from altering plans, structural designs etc without the consent of two-third allottee after disclosure and thereby looks to protect their rights.
Experts say that even the provision that calls developers to compulsorily deposit 50 per cent of the money received from the allottee into an escrow account will help reduce the practice of developers utilising the money meant for one project into buying land for another one and this will also bring down instances of delay in project delivery.
By regulating the agents, the home buyers will also get one more layer of protection and now only those who register with the regulator can act as an agent. They will also be required to maintain books of accounts, records and documents.
The Bill also provides certain rights to buyers. They can ask for stage-wise time schedule of project from developer and claim for possession as per the promoter’s declaration. They can also seek refund from developers along with interest in case there is a default from the promoter.