Six loopholes in Realty Bill

Jan 14 2012, 10:55 IST
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SummaryIn this backdrop, it would be instructive to take a look at the draft legislation once again.

On Wednesday, January 11, the Ministry of Housing and Urban Poverty Alleviation invited comments on the draft Real Estate Regulation Bill (RERB). In Maharashtra, the state government has released a draft version of its own real estate regulation Bill, the very first state government to take the step.

In this backdrop, it would be instructive to take a look at the draft legislation once again. There are some loopholes in the legislation that need to be examined

thoroughly so that the interest of the buyer is protected.

SIX AREAS OF CONCERN

A lot has been said and written about the provisions of the Bill and its benefits. Even as the intent of the Bill is laudable, there remain some concerns arising out of its provisions that need to be examined in detail.

Plot Size: The provision of minimum plot size could potentially create problems. The proposed minimum of 4,000 square metres to be covered under the legislation leaves out a substantial portion of the market unregulated. Let us look at three examples of how this can be circumvented:

Case 1: Developer “A” has, say 3,800 sq mt (40,888 sq ft) plot to develop. He can carry out everything as he likes as he is out of the purview of this regulation. Most standalone projects, and most of the redevelopment projects are under this segment and also the subsequent litigations. This could also lead to unauthorised development in tier-II and tier -III cities and towns where local forces may prevail more than laws.

Case 2: Developer “B” has plot larger than 4,000 sq mt, say, 7,500 sq mts. He may divide the plot into two and propose two separate projects say, 3,800 sq mt and 3,700 sq mt. As per the Bill, each project needs separate registration if the area crosses the threshold. But in this case he develops the land smaller than that size as one project, and is out of regulatory ambit. This can happen with still larger plots if division is allowed or managed as per local regulations.

Case 3: Developer “C” has the same size of land. This fly-by-night operator does not want to wait for two projects to be done one after the other or cannot afford the cost of waiting. He may be able to sell the part of it-on paper, of course. So, he creates another entity and then selsl/transfers/gifts the other half of the plot. Now both the

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