by
Ajay Sharma
In an important development towards the regulation of realty
sector within the country, the Real Estate (Regulation & Development) Bill,
drafted by the UPA government, which is awaiting the new government’s approval
has undergone a few changes and is expected to be soon taken up by the Cabinet
for approval.
The Bill provides for a uniform regulatory environment, to
protect consumer interests, help speedy adjudication of disputes and ensure
orderly growth of the real estate sector. The Bill contains provisions of
registration of real estate projects and registration of real estate agents
with the Real Estate Regulatory Authority; functions and duties of promoters
and allottees; establishment of Real Estate Regulatory Authority; establishment
of fast track dispute resolution mechanism through adjudication; establishment
of a Real Estate Appellate Tribunal; offences and penalties etc.
The two important
changes proposed by the ministry of housing are — bringing down the percentage
of receivables from home buyers that has to be kept in the escrow account for
the purpose of construction, from 70 per cent earlier to 50 per cent now.
The other is to bring the commercial segment of the real
estate sector within the ambit of the Bill, which earlier was limited to regulating
only the residential segment.
While the changes have been largely welcomed by industry
players, the expectation of it becoming a law soon comes as a relief to the
home buyers who have been suffering from delays in delivery of projects by
developers and inconsistency in fulfilment of promises made to them at the time
of booking.
Experts say that the development is positive and takes a
step closer towards setting up of a real estate regulator in the country. “If
the Real Estate Regulatory Bill comes in 2015, it will be the biggest thing for
the sector as it will provide protection to home buyers and it will also result
into some non-credible players exiting the sector because of the checks and
balances that will come in place,” said real estate expert ajay sharma.
Changes
Industry insiders close to the development confirmed that
the government has proposed to reduce the component of receivables from home
buyers to be kept in escrow account for the purpose of construction from 70 per
cent to 50 per cent. What it means is that developers will now have access to
50 per cent of the receivables from allottees for purposes other than
construction.
Experts RAM BRESH YADAV says that since the construction
cost as a percentage of total development is getting smaller with rising land
cost, it made sense to reduce the same. “In cities like Mumbai, the
construction cost comes to only around 20-30 per cent of the project cost and
the land cost goes up to 60-70 per cent. So if the 70 per cent of receivable
from the home buyer is kept in the escrow account for construction, then it
amounts to blockage of funds, which is undesirable,”
He pointed that it is
not appropriate to have a uniform percentage for all cities across the country.
“While it could have been lower for Tier-I cities, the government could have
kept it higher for Tier-II and Tier-III cities as the land cost is lower there
and the percentage of construction is higher,”
There are others who point that the regulation to keep a
part of money in the escrow account is very important and the percentage can be
tweaked later too. yadav said that it is very important to first get a
regulator and to have such safeguards in place as there have been instances
where developers take money from buyers but rather than using it for
development of that project, deploy it for purchase of land for some other
project, which leads to delay in the project delivery.
The regulation to keep 50 per cent of the buyers money in
escrow account will bring in controls in the use of money, adding that the
money is sought from the buyer when the floor slab is laid even though the most
of the work relating to the house is yet to be done.
While the government has also proposed to bring in the
commercial segment within the ambit of the Bill, there are some, who are
enthused, but others seem to have been taken by surprise.
Broker Sandeep khanna
said that bringing the commercial realty
within the regulatory ambit is important because a lot of retail investors are
investing into commercial real estate and so it is important to have
safeguards. It will also give some comfort to the institutional investors in
commercial projects as they will know that there is a regulator who will ensure
that best practices are followed by developers.
Accountability of
authorities
Though the Bill seeks to address some concerns of the
industry and provide protection to investors in the commercial segment, there
are some issues that still need to be addressed. Modi pointed out that the
authorities play an important role in providing approvals that are critical to
carry out the project and hence their accountability also needs to come in
picture.
“If the development authority is not answerable then an
important component is being left out. While the developer has to be penalised
for issues relating to him, the authority’s role must also be looked as in many
cases they do not fulfil their obligation relating to trunk infrastructure even
after the completion of the project,” said PM Narendra Modi.
The salient features of the Bill
(1). Applicability of
the Bill
The proposed initial Bill was applicable for residential
real estate. It is now proposed to cover both residential and commercial real
estate
(2). Establishment of
Real Estate Regulatory Authority
· Establishment of one or more ‘Real Estate Regulatory
Authority’ in each State/ Union Territory (UT), or one Authority for two or
more States/UT, by the Appropriate Government for oversight of real estate
transactions.
· To appoint one or more adjudicating officers to settle
disputes and impose compensation and interest;
(3) Registration of
Real Estate Projects and Registration of Real Estate Agents
Mandatory registration of real estate projects and real
estate agents who intend to sell any plot, apartment or building, with the Real
Estate Regulatory Authority.
(4). Mandatory Public
Disclosure of all project details
Mandatory public disclosure norms for all registered
projects such as details of promoters, project, layout plan, plan of
development works, land status, status of statutory approvals and disclosure of
proforma agreements, names and addresses of real estate agents, contractors,
architect, structural engineer etc.
(5). Functions and
Duties of Promoter
· Disclosure of all relevant information of project
· Adherence to approved plans and project specifications
· Obligations regarding veracity of the advertisement for
sale or prospectus
· Rectify structural defects.
· Refund money in cases of default.
(6). Compulsory
deposit of 50 percent
To compulsorily deposit 50 percent (or such lesser percent
as notified by the Appropriate Government) of the amounts realized for the real
estate project from the allottees in a separate account in a scheduled bank
within a period of fifteen days to cover the cost of construction to be used
for that purpose;
(7). Adherence to
declared plans
· To bar the promoter from altering plans, structural
designs and specifications of the plot, apartment or building without the
consent of two-third allottees after disclosure
· However, minor additions or alterations permissible due to
architectural and structural reasons
(8). Functions of
Real Estate Agents
· Real estate agents to sell properties registered with the
Authority
· Maintain books of accounts, records and documents
· Not to involve in any unfair trade practices
(9). Rights and
Duties of Allottees
· Right to obtain stage-wise time schedule of project
· Claim possession as per promoter declaration
· Refund with interest and compensation for default by the
promoter
· Allottees to make payments and fulfill responsibilities as
per agreement
(10). Functions of
Real Estate Regulatory Authority
The Authority to act as the nodal agency to co-ordinate
efforts regarding development of the real estate sector and render necessary
advice to the appropriate Government to ensure the growth and promotion of a
transparent, efficient and competitive real estate sector
(11). Fast Track
Dispute Settlement Mechanism
· Fast track dispute resolution through adjudicating
officers (District Judge)
· Appellate Tribunal to hear appeals
(12). Establishment
of Central Advisory Council
To advise the Central Government on implementation of the
Act, recommend policy, protection of consumer interest and to foster growth and
development of the real estate sector
(13). Establishment
of Real Estate Appellate Tribunal
Real Estate Appellate Tribunal to hear appeals from orders
of the Authority and the adjudicating officer. The Appellate Tribunal is to be
headed by a sitting or retired Judge of the High Court, with one judicial and
one administrative/technical member
(14). Punitive
Provisions
Punitive provisions including de-registration of the project
and penalties in case of contravention of provisions of the Bill or the orders
of the Authority or Tribunal
(15). Bar of
Jurisdiction Courts
Provision for barring jurisdiction of court and any authority
from entertaining complaints in respect of matters covered under the Bill
(16). Power to make
Rules and Regulations
· Appropriate Government to have powers to make rules over
subjects specified in the Bill,
· Regulatory Authority to have powers to make regulations,
These measures are expected to boost domestic and foreign
investment in the sector and help achieve the objective of the Government of
India to provide ‘Housing for All by 2022’, through enhanced private
participation.
So you can understand that The Real Estate (Regulation and
Development) Bill is a pioneering initiative to protect the interest of
consumers, to promote fair play in real estate transactions and to ensure
timely execution of projects.
The Bill ensures mandatory disclosure by promoters to
customers through registration of real estate projects as well as real estate
agents with the Real Estate Regulatory Authority. The Bill aims at restoring
confidence of the general public in the real estate sector; by instituting
transparency and accountability in real estate and housing transactions. This
in turn will enable the sector to access capital and financial markets
essential for its long term growth. The Bill will promote orderly growth
through consequent efficient project execution, professionalism and
standardization.
The Bill is expected to ensure greater accountability
towards consumers, and to significantly reduce frauds and delays. The Bill is
also expected to promote regulated and orderly growth through efficiency,
professionalism and standardization. It seeks to ensure consumer protection,
without adding another stage in the procedure for sanctions.
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