Real estate firms are set to come under regulatory purview and their liberty to divert funds curtailed under the Real Estate Regulation Bill, which is ready for Cabinet approval. Housing and poverty alleviation minister Ajay Maken told FE that under the new law, builders will have to register their projects with the regulator before launching or advertising them. Those who repeatedly disobey could be imprisoned for up to three years. Builders must also follow specific rules while soliciting customers.
Many policymakers say the real estate sector’s opaque practices have made it a destination for unproductive and speculative investments meant to beat inflation. The sector is also blamed for widespread asset undervaluation for tax evasion.
“We have laid out in the Bill that projects can be launched only after all clearances are obtained. This will reduce project delays due to delays in obtaining environment and land clearances,” Maken told FE.
The Real Estate Regulation and Development Bill will mandate developers to keep around 70% of funds raised from buyers for a project in a separate account, to be utilised only for that particular project.
Maken told FE that the Bill might, however, have relaxations on the limit of 70% depending on the project location and the city. “There are places where land cost is very high and construction cost is low and vice versa. To address such issues, there might be location and land cost-based fund reservation limits,” Maken added.
FE had reported earlier that the housing ministry had pitched for making it mandatory for promoters to deposit at least 70% of funds received from buyers in a separate account, to be used only for the project concerned to ensure timely completion and prevent diversion.
Developers must also declare the latest date for project delivery and schedule to the authority. The Bill will define exact area, open space and carpet area, bringing down the curtains on terms like super area and super built-up area used by developers. The Bill proposes penalties on developers violating fair practices, Maken said.
Under the new law, agreements between buyers and developers must be vetted by the regulator. This will give certainty to consumers and make agreements clearer and less misleading.
“There are provisions to ensure timely completion of the project and prevent diversion of funds, which is a usual practice among developers,” Maken added.
The Bill will also bring in accountability and fast-track dispute resolution regarding real estate transactions. The Bill will be tabled in the ongoing Budget session of the Parliament. The ministry wants a regulator with enforcement powers, both curative and preventive, which are not provided in consumer laws.
“We want the regulator to have powers to give directions for specific performance, powers to impose penalty for non-registration of projects, including imprisonment of up to three years for repeated violations and also to impose penalty in case of other contraventions. This is the first time any such powers will be given in this sector,” Maken said.
The Bill will also propose that advertisements can be launched only after a project is registered. “There are clauses to make sure that houses delivered are the same as shown in the fancy pictures advertised to woo consumers,” Maken added.