States need to do much more to help cut realty prices
The Rajya Sabha may have cleared the Real Estate (Regulation and Development) Bill, but land is a state subject, so the legislation will need to be worked on by states who may want to alter the norms. That could delay the implementation by anywhere between 12 and 24 months. Maharashtra already has a Bill in place, cleared in 2015, but other states such as Karnataka, Tamil Nadu and West Bengal—where there is a fair bit of construction taking place—may take time ushering it in.
Nevertheless, the stringent norms will chasten developers across the spectrum since smaller projects and commercial ones too now fall within the ambit of the law. Since consumers and developers will now be paying the same penal interest rates, developers will hopefully complete projects on time. They will need to be far more disciplined while allocating funds and cannot divert money since 70% of the collections for a project must be kept aside by the developer in an escrow account, and used only for the cost of land and construction of that property. While builders had been lobbying to bring down this amount to 50%, the government, to its credit, did not yield. Given that the norms have been tightened, developers will be more circumspect now, ensuring they are protected against unforeseen events. For example, environmental bans—such as the one near the Okhla bird sanctuary in Noida—have taken a toll on projects, and builders will not leave themselves vulnerable to such rulings.
While the law appears to benefit the buyer since the price will be determined according to the carpet area rather than what is known as the ‘super built up’ area—which includes the walls and common areas—it would be naive to believe that builders will not extract the profits they want. As such, unless supply overtakes demand, it’s hard to see home buyers not being exploited. In cities such as Mumbai, the FSI should be increased but this should be accompanied by appropriate infrastructure provided by the state government and the builder. The new law rightly requires promoters to register themselves with the Real Estate Regulatory Authority that needs to be set up within a year in every state—before he books, sells or offers for sale any project. Section 11(3)(a) of the Bill mandates that developers share the final project plans as part of their disclosure terms, with no room for changes. The penalties, for violating the rules, are high and could amount to 10% of the project cost and up to 3 years in jail. However, in all fairness, the authorities that give the necessary clearances also need to be made accountable for delays; a single-window would be helpful. The regulator must monitor the government agencies as much as it does the developers. The real estate sector has been a law unto itself allegedly because of its nexus with politicians and a symbiotic relationship of this nature doesn’t break up easily. Nevertheless, the new law is a good attempt at cleaning up the space.