The Real Estate (Regulation and Development) Bill, 2015 passed by Rajya Sabha is probably the most important pro-consumer legislation that the government has brought into Parliament, and seeks to protect thousands and millions of homeowner consumers in the real estate sector. It is a Bill that has been opposed tooth and nail by a number of builders and real estate companies. I congratulate the Urban Development Minister and the government for standing firm and solidly on this.
By creating a much needed regulator for the sector at the state and central levels, this government has initiated the crucial first step to protect consumers from the prevalent opaque and fraudulent practices that have so far characterized this sector in India.
This Bill formally enshrines consumer rights and builder obligations in law and also boosts the industry by creating a framework of competition, efficiency and investments for the sector.
Was a David vs Goliath fight
I was privileged to serve in the Select Committee that examined and worked on this Bill – through most of the summer vacation period last year – the consultations were extensive with several groups of stakeholders, including consumer organizations, real estate developers and banks amongst others, across several cities in the country, and it was clear from them, that real estate consumers of the country were getting a raw deal, and in a large number of cases, were helpless victims of builders.
Victims of delayed delivery, poor quality, illegal constructions, fraud etc. Consumers were having to organise themselves into societies and groups to get any kind of justice or response or go through expensive, time consuming litigation to get any relief at all – even there being outgunned by lawyers and tactics of big builders. It was a David vs Goliath story everywhere with Goliath winning every time.
This Bill will change the balance from Goliaths to a more even one – where the small Davids and small consumers have a better chance at holding builders accountable to their contractual commitments and promises. It creates rights for consumers, obligations for builders, Penalties for those who violate their obligations and creates a new independent, institutional framework of a Real Estate Regulatory Authority and an Appellate Tribunal that can fast track any dispute that arises between consumers and builders.
Investor friendly
The Bill is also good for investors because it brings order and rules to the chaotic real estate sector which has many fly-by-night operators. It also ensures that builders have to now focus on quality, customer loyalty as attributes around which their business is built, not just fixing local authorities and getting plan approvals by bribes. It also puts the onus on builders to only start marketing projects after all approvals are received, reducing the volatility and risk to consumers.
Pro-consumer provisions in the Bill include:
Timely completion and delivery of flats to the consumer: Currently, when a consumer buys a property that is under construction, he is promised the delivery of the flat within one to two years after registration. In practice, however, the delivery of the flat is almost never made within the agreed upon timeline. This Bill solves this problem – it ensures that strict regulations will be imposed on developers to ensure timely construction and delivery. It further provides that consumers are entitled to a full refund with interest, if there has been a long delay in the delivery of a flat.
Mechanism for accurate details and disclosures: Puts in place a robust mechanism for the publication of accurate project details and disclosures. No one can deny that in the past, there have been myriad instances in which developers have put out misleading promotional material with regard to amenities provided by projects at an under construction stage, for consumers to discover that none of these have been provided for in the final product. Chapter VIII of the Bill also imposes a 10% project cost penalty and upto 3 years in jail. These add a much needed degree of accountability and also protects consumers from this highly prevalent malpractice.
Mandatory information: Provides that developers must mandatorily mention the actual carpet area of projects to the consumers. Thus far, developers have typically sold properties by citing super built area. This includes common passage area, stairs and other areas which make up to 30% of the actual area of the property being sold. Consumers are not usually informed about the actual carpet area of the flat. By mandating that the carpet area be explicitly mentioned through section 4, this Bill is ensuring that even the most undiscerning consumers are thoroughly informed.
Clearances before the launch: Ensures all clearances are completed before the launch of a project. Sections of the Bill mandate that developers have to receive all clearances before issuing their properties for sale. Most builders offer flats at huge discounts at the pre-launch stage to attract buyers – but without informing consumers about the status of clearances and potential delays in delivery.
After sales service: Mandates that developers are bound to provide after sales service for properties found to have structural defects, at no extra cost to the consumer. Under the Bill, buyers are simply required to inform the developers of the deficiency within one year of purchase.
The Bill is a good beginning to reforms in the real estate sector and is a first step in what will be an evolving process where investors and consumers have to have balanced rights and obligations, an essential for cleaning up and sustainable growth for the sector.
Onus on states
The state governments must start reforming and making simpler and more transparent, the process of building planning approvals, land concession and that whole process that is currently so complex and corrupt. The Government must appoint good, clean regulators and puts the focus on building good effective institution and capacity building in this area. Let’s not legislate and forget, as is the case with most laws.
The author is a Member of Parliament and can be contacted at rajeev.c@nic.in. He served as a Member of the Parliamentary Select Committee on Real Estate (Regulation and Development) Bill and played a key role on drafting of this pro-consumer legislation.
(Views expressed here are personal)