The real estate sector in India
has been largely disorganised and for a long time a need has been felt
to regulate and organise the sector. The last few years have seen
tremendous growth in the sector and prices of properties have gone up
accordingly. There has been a spurt in foreign investment as well. To
address the emerging need, Government has been trying for several years
to introduce a Real Estate Bill. Hence, A Bill providing for setting up a
regulator for the real estate sector and having provisions like a jail
term of up to three years for developers who make offences like putting
up misleading advertisements about projects repeatedly was presented in
the Rajya Sabha in the current session of the Parliament.
The Real Estate (Regulation and
Development) Bill, approved by the cabinet, seeks to provide a uniform
regulatory environment to the sector. It also intends to make it
mandatory for developers to launch projects only after acquiring all
statutory clearances from relevant authorities.
The Bill makes it mandatory for
builders to clarify the carpet area of the flat. This would be made
uniform for the entire country. This rule would make the concept of
super area - which is often used to mislead owners - virtually
non-existent. The Bill has provisions under which all relevant
clearances for real estate projects would have to be submitted to the
regulator and also displayed on a website before starting the
construction, sources said. The proposed legislation has tough
provisions to deter builders from putting out misleading advertisements
related to the projects carrying photographs of the actual site. Failure
to do so for the first time would attract penalty which may be up to 10
per cent of the project cost and a repeat offence could land the
developer in jail.
The Ministry of Housing and Urban
Poverty Alleviation is working on bringing all projects under a
single-window clearance. While the Airports Authority of India and
municipal bodies have come on board, there are some objections from the
Environment Ministry which are being looked into.
As per government sources, nearly
22 states had given their approval to the Bill while five states wanted
certain amendments. These changes have been incorporated in the Bill
presented in the Rajya Sabha. Chhattisgarh is the sole state to still
oppose the Bill.
While the Regulator in the states
will be appointed by the state governments, in Delhi the Urban
Development Ministry will appoint the regulator. DDA is likely to be
made the regulator in Delhi, sources said. The Regulator will also be
the appellate authority in cases of dispute. This will save the owners
the hassle of running around to different authorities for redressal.
The latest draft of the Real
Estate (Regulation and Development) Bill, 2013 (the Bill) was approved
by the Union Cabinet on June 4, 2013. (Real Estate Bills have been
formulated by Maharashtra and Haryana State Governments. When enacted,
the Central Act would prevail over any State legislation and any
provisions repugnant to the Central Act would be void.) The Bill
proposes to establish a regulatory oversight mechanism to enforce
disclosure, fair practice and accountability norms in housing
transactions and to provide dedicated adjudication machinery for speedy
dispute resolution in the real estate housing sector.
Salient features of the Bill and the problems it seeks to resolve are as follows:
Residential projects – The Bill aims to promote transparency in the real estate sector and to establish mandatory governance standards
pertaining to all private residential projects of more than 4,000
square meters. There is no prescribed limit on the number of dwelling
units. The Bill only seeks to cover large residential projects;
commercial projects are not covered.
Regulators –
A two-tier dispute resolution mechanism is proposed comprising a Real
Estate Regulatory Authority (the Authority) and adjudicating officers at
state-level and a central Real Estate Appellate Tribunal to adjudicate
upon matters relating to residential projects covered under the Act.
Currently real estate transactions are largely governed by the
agreements between the parties, which are considered generic contracts
relating to immoveable properties with remedies including specific
relief (if applicable) and damages for breach available under civil and
criminal law. Pursuant to enactment of the proposed legislation, civil
courts shall not have jurisdiction in respect of any matter covered
under the Act.
Advisory council –
A Central Advisory Council is proposed to advise the Central Government
on implementation of the Act, with a mandate to make recommendations on
major questions of policy, to protect consumer interests and to foster
growth and development of the real estate sector. The proposed Council
will possibly take over the role of The National Real Estate Development
Council, which was set up in 1998 by the Housing Ministry as an
autonomous self-regulatory body to assure transparency and ethics in the
real estate business, and seeks to formulate real estate policies
through advisory and consultative processes with both Industry and
Government.
Mandatory registration –
The Bill proposes registration of developers, their projects and their
real estate agents with the Authority to accredit and monitor projects.
Project launch after approvals –
The Bill contemplates launch of new projects only after all approvals
are in place. Accordingly, development, conversion or commencement of
construction of immoveable property would be permissible only after
obtaining requisite approvals and registration with the Authority.
Mandatory disclosures –
Developers would be required to upload information and documents on the
Authority’s website relating to land title, encumbrances over land,
number and carpet area of units, layout plan, proposed facilities,
proposed completion date, etc. These provisions have been introduced to
ensure that customers are able to procure complete information and there
is no ambiguity with respect to the status of approvals and stage of
construction of the project. This will also substantially reduce
disputes between the parties that largely arise due to lack of
transparency. Presently consumers are unable to procure complete
information or hold developers to account in the absence of effective
regulation.
Agreements – Developers would also be required to provide to the Authority proposed advertisements relating to the project, formats
of the agreements to be executed with buyers and lists of bookings in
the project on the basis of the agreements with proposed buyers. This
will further protect the interest of the buyer and avoid hardship due to
one-sided agreements.
Carpet area –
The Bill provides for developers to clearly specify the carpet area for
each unit. As per current practices, developers usually mention “super
built-up area” of a unit, which can be very misleading, as the super
built-up area may be 25-40 per cent more than the carpet area.
No pre-launch bookings –
The practice adopted by developers to commence sale of units in
pre-launch booking before obtaining mandatory approvals for the project
and at times even before acquisition of the land is to be curbed.
Issuance of advertisements or booking of units in a project would be
permissible only pursuant to registration of the project.
Use of funds –
The Bill proposes acceptance of an advance/deposit for the proposed
sale of a unit in a project by developers only pursuant to execution of a
written agreement with the buyers. Further, 70 per cent or a lower
percentage (as prescribed by the Authority) of the funds received are to
be deposited in a separate bank account to be used only for the
relevant project. This provision was introduced to the Bill to ensure
that funds collected for a particular project are not diverted for other
purposes.
Adherence to approved plans –
Developers under the proposed Bill must adhere to approved plans and
project specifications and are liable to rectify, at their own cost, any
major structural defect or deficiency in the unit or services
incidental thereto for one year from the date of handing over
possession. If developers fail to rectify such defects within a
reasonable time, they shall be liable to pay appropriate damages or
compensation to the buyers as may be determined by the Authority.
Transparency –
Developers would be required to make available information and
documents to proposed buyers to ensure transparency in development of
the proposed project such as approvals, site plans, structural designs,
specifications, construction schedule, etc.
Delayed possession –
The Bill provides that if the developer is unable to complete
construction to give possession of the flat to the buyer, the developer
would be liable to refund the deposit received along with interest at
the rate prescribed by the Authority. Correspondingly, the buyer must
make payments in a timely manner and would be liable to pay prescribed
interest in case of delayed payment. These provisions in the Bill have
been introduced to ensure timely delivery of possession/completion of
the project. The Bill also strives to strike a balance by ensuring that
the buyer makes timely payment to the developer.
Revocation of registration –
In case of wilful default of the provisions of the proposed Act, or
unfair practice by a developer, including false representation of the
quality of services or status of approvals, the Authority may revoke
registration of the developer.
Punishment –
The provisions for punishment in case of contravention and/or
non-compliance with the provisions of the proposed Act currently include
imprisonment for a term of up to three years, or a penalty of up to 10
per cent of the estimated cost of the real estate project, or both.
Few practical problems in
implementation of the Bill include the setting up of regulatory
authorities at national and state levels, which is likely to be a
long-term process. Developers may structure their projects so that each
phase is less than 4,000 square metres to escape the reach of the
proposed Bill; as each phase developed separately would be considered as
a stand-alone project. Furthermore, the provision in the Bill for
opening a separate bank account for funds collected for a project may
not serve its purpose as State Governments may allow developers to
maintain even less than 70 per cent of the funds collected for the
project, thereby allowing for utilisation of funds for some other
purpose.
Even otherwise the Bill has only
been approved by the Union Cabinet, and has to be approved by the
Parliamentary Standing Committee, passed by both houses of the Indian
parliament, and then submitted for approval of the president pursuant to
which it can be enacted as legislation. There are likely to be many
more discussions and changes to the Bill following the recommendations
of the Standing Committee and debate in the parliament.
The impact of the proposed
regulatory Bill can be only assessed over time as to whether it is able
to effectively address the issues facing the housing sector including
standardization of sale agreements, efficacy in resolution of complaints
and encouragement of private equity through effective regulations. This
would also depend on the extent to which the major players are able to
find loopholes, the Government’s resolve to plug them and its commitment
to regulate growth of the real estate housing sector.
