Restoring the 70% norm is a good idea.
Given how lakhs of buyers across the country have been duped by unscrupulous builders over the years, the Real Estate Bill—in the works since 2009!—was always something buyers looked forward to. Instead of going to civil courts to settle disputes, the Bill envisaged setting up regulators at both the central and state levels who would lay down guidelines that builders are to follow and appellate tribunals to take care of disputes—builders and agents will have to register with the tribunals and all details will have to be transparently displayed on the regulators’ websites. Certainly, aggrieved parties can still go to high courts and the Supreme Court, but the regulatory/appellate tribunals make the process quicker and bring in a lot of discipline in a sector which has traditionally been a bit like the American Wild West. Since builders have been known to divert funds received from home-buyers, one of the proposals of the UPA’s Bill was to insist builders deposit at least 70% of the funds they received from bookings into an escrow account linked to each project. In other words, builders would not be able to divert funds to other projects—apart from protecting the interests of those who have booked flats, it would also ensure flats got built in time. The Bill also prevents builders from altering building plans in any meaningful manner without explicit permission from at least two-thirds of buyers.
Given the idea of the Bill is to protect home buyers, it is not clear why the government decided to water down this 70% figure to a 50% one, but presumably it was due to representations from builders who argued they needed more flexibility in order to run their business. Congress vice-president Rahul Gandhi, who has opposed this watering down, is on a strong wicket since it is difficult to buy the argument being made by the builders. Builders have to be allowed to make their fair share of profits, and they have to be able to use the profits from one building to buy land for another building. But this cannot be at the cost of hapless investors. If 50% of the amount booked is enough to complete a building—that is the only reason for why the 70% number should be brought down to 50%—this needs a broader discussion, if need be at the standing committee. One positive is that the scope of the Bill has been expanded to include commercial real estate, another area where buyers are in constant dispute with builders.