The proposed Real Estate (Regulation & Development) Bill will make purchase and sale in real estate more transparent, experts say, but developers complain that the recommendations to keep bulk of customer collections in a bank escrow account and a three-year jail term for violating builders are hard

to digest.

Moreover, developers say the Bill is silent on delays on the part of authorities, which are beyond developers’ control. A bank escrow account means a third party will hold the money on behalf of the builder and purchaser. The ministry of housing and urban poverty alleviation?s proposed draft Bill, to be tabled in Parliament’s winter session, proposes that developers open an escrow account to deposit 70% of money collected from buyers and use it for the project it was collected.

Developers, however, argue that for big cities, such a large amount in an escrow account will leave little cash to meet land purchases. ?If the selling rate to a customer is R3 crore for a 1,000 sqft apartment, the construction cost will be R50 lakh only, which is less than even 10% of the cost of the apartment,” says Paras Gundecha, president, Maharashtra Chamber of Housing Industry (MCHI).

The remaining amount charged from the customer is towards land cost, he added. ?If the developers keep 70% of the amount in escrow, how will they service repayments for that land parcel?”

The Bill will only stifle fund flow to the sector, say developers. ?The Reserve Bank of India has set tough terms for banks to lend to real estate development,” says Niranjan Hiranandani, managing director, Hiranandani Group. “Sometimes, if there are surplus funds from one project, they are deployed in others. All this will be difficult with the ne w Bill.?

“Developers will face delays in their projects,” says Rohtas Goel, chairman and managing director of Omaxe, a Delhi-based real estate company. “The proposed Act in its present form will add costs and delays to the lifecycle of the project.”

?It is more of a deterrent in the minds of the developers,? says Rajiv Sahni, partner, real estate practice, consulting firm Ernst & Young. ?Already, some realty developers are maintaining financial discipline, especially where there is foreign direct investment involved.?

Developers are also demanding that the Bill be more vocal on the role of authorities in clearing a project. ?The Bill is silent on fixing responsibilities of authorities who give approvals,? says Gundecha. ?With close to 40 approvals required for a project and some taking as long as two years to clear, keeping up with delivery schedules becomes tough.?

Another concern that realtors have is penalities under the Bill. It says a builder can be punished with a three-year jail term or a fine upto 10% of the project cost, or both, if he fails to comply with the provisions like maintaining the escrow account and timely delivery of project, among others.

Real estate players say that often projects get delayed for reasons beyond their control, like alteration in floor space index or FSI, shortage of labour or building material. “In such circumstances, how is it justified to put builders behind bars?” asks Gundecha. “If such is the case, then we will be able to sell only after the entire project is ready, and maybe at a higher cost,” says Hiranandani.

However, the Bill informs customers on all aspects of a project, which is welcome, developers say. “Transparency is good and we welcome the government’s move on that.”

Experts tracking the sector say the real estate regulator proposed in the Bill will benefit developers as much as consumers. “It means that the real estate sector has reached a certain degree of scale which warrants a regulatory agency with transparent rules, regulations, safeguards and redressal systems,” says Anuj Puri, chairman & country head, Jones Lang LaSalle India.

Consultants say the Bill should be more balanced. “It has to be a balanced Act,” says Anshuman Magazine, CMD at realty consultant CB Richard Ellis South Asia. “Consumers need to be protected.”