The president has given his assent to the Real Estate (Regulation and Development) Act, 2016. The Act seeks to introduce measures to safeguard the interest of consumers in commercial as well as residential real estate markets in India, by imposing certain obligations on real estate developers and agents.
The ministry of housing and urban poverty alleviation had—in its notification dated April 26—fixed May 1, 2016, as the date on which certain provisions of the Act would be come into force. Some of the key provisions within the ambit of the enforcement notification include the establishment of the real estate regulatory authority, central advisory committee and the real estate appellate tribunal. The Act’s other provisions, such as those concerning registration of projects, registration of promoters and agents and parking of a specified amount of project receivables, will be enforced at a subsequent date.
With the notification, the government has cleared the decks for setting up of the real estate regulatory authority, in each state or jointly by two or more states or Union territories or the central government, for their respective jurisdictions.
The Act tasks the real estate authority with regulatory as well as adjudicatory functions, very similar to what Sebi, Irda and other regulators have in relation to their respective sectors. While the idea behind an independent sectoral regulator for real estate has been floating for many years, the present move by the government is clearly aimed to be breathe of fresh air for the real estate sector that is seen as a key driver for India’s economic growth in the next decade. It is predicted that almost half of India’s population will be residing in and around urban areas, and within the next 10-15 years, there will be a huge demand of housing; therefore, a holistic process of regulating future real estate development becomes central. The Act seeks to impart wide-ranging powers to the real estate authority which includes registration of real estate projects, promoters and agents, single-window clearance and time-bound approval for projects, investigation into complaints, levy of penalties, etc. Further, the notification also deals with setting up of the real estate appellate tribunal, tasked with dealing with appeals against the orders of the real estate authority as may be preferred by any promoter, agent or any consumer, and further stipulates for a time-bound disposal of such appeals.
The key take away from the enforcement notification is that the government intends to first put in place all capabilities and mechanisms with the sectoral bodies, so that they are equipped to deal with their duties and obligations as and when the other provisions such as that of project registrations, monitoring of project developments, etc, are enforced. What is also encouraging is that the new law prescribes a fixed timeline, of one year, within which the appropriate governments will have to establish the real estate authority and the real estate appellate tribunal.
With clear deadlines in place, the ball is now in the court of the concerned governments to establish the real estate authorities in their respective jurisdictions. The enforcement of the provisions also marks an interesting phase for the real estate developers. Projects that are ongoing at the date of commencement of the Act will have to get themselves registered with the real estate authority. Since the provisions relating to registration of projects are yet to be enforced, real estate developers will look for speedy completion of ongoing projects to avoid having to register their respective project(s) with the real estate authority, as and when the corresponding provisions get enforced. This will trigger completion of a plethora of projects whose construction has been lagging the timelines that the developers were required to adhere to.
Upon enforcement of the other provisions, the real estate developers will be required to deposit 70% of the amounts realised from the allottees in a separate bank account to cover construction cost of the project. This will impact the developers as the utilisation of funds collected by them from allottees will now be regulated.
With the step-by-step liberalisation of FDI norms in construction and development over the past two years, and with the advent of the new law, robust growth of India’s real estate sector seems very likely.
One may say that the NDA government has not been able to do the big stuff—GST, consolidation and recapitalisation of PSBs and many other big reforms are still far from getting implemented. But, quietly, this government is making small moves to get some of the other important legislations going.
(With contribution from CV Srikant, associate, J Sagar Associates)
The author is a partner with J Sagar Associates
Views are personal