The Real Estate Bill passed by the Modi cabinet, would bring some accountability among realty players. However, government agencies whose slow approval processes delay projects, would remain as unaccountable as before
The union cabinet, chaired by Prime Minister Narendra Modi, on Tuesday gave its approval to amendments to the Real Estate (Regulation and Development) Bill, 2013 pending in the Rajya Sabha. The Bill will help reduce numbers of one-time builders and developers as well bring in transparency and accountability in realty segment deals. However, at the same time, it fails to include or hold accountable, government agencies whose slow approval processes contribute to project delays.
Two of the major changes in the Bill are reduction in the amount deposited by developer and bringing in commercial properties into its ambit. The minimum balance to be maintained in the escrow account of a project has been reduced to 50% from 70%. This amount from the monies collected from the buyers must be placed in an escrow account within 15 days.
However, this will allow developers to continue the practice of diverting funds collected for a project towards land acquisition or other projects, and will work in their favour by also allowing them to grow their land or project portfolio. The result will be buyers will be more worried due to the fund diversion.
Other revisions include bringing in commercial projects under the purview of the bill, which will provide protection to investors of commercial assets. In addition, brokers and agents have been now been included under the purview as well, and are effectively rendered punishable in case of non-compliance with the Authority's and Tribunal ruling.
All under-construction projects have to be compulsorily registered within three months of setting up of the Regulator, and developer cannot make changes to original plans or the structural design unless he gets the consent of two-thirds of the customers.
If the developer fails to register the project within the prescribed time, he will have to pay a penalty of 10% of the overall project cost and an additional penalty of 10% penalty and/or a three-year prison term in case of continued non-compliance. Incorrect or incomplete disclosures will attract a penalty of 5% of the project cost. Continued non-compliance can lead to project cancellation as well.
Consumers can approach other forums for justice
In the previous Bill, the consumers had no other forums to go for justice except the Real Estate Regulatory Authority’ (RERA) and Real Estate Appellate Tribunal (REAT). Such a stance may have lead to pressure on this regulatory body in terms of an increased log of cases, though it would certainly reduce instances of multiplicity of suits.
This clause has been done away with in the version that the Modi cabinet has cleared. This means customers can now seek recourse with consumer courts and forums as well. All projects which have not received their completion certificates will also be now covered under the bill, so it now allows bigger umbrella coverage for buyers and investors.
Key pointers about the Bill
1.Applicability - Applicable to new residential and commercial projects having developable area of 1,000 metres or more
2.Detailed Information sharing - Detailed Information to be shared by the builders about the project, land and bank details prior to launch of any new project
3.Escrow Account - Minimum 50% of the receipts to be kept in escrow account for construction expense.
4.Higher Transparency and credibility for the sector
a.Project to start only once all applicable approvals are in place
b.Builder can’t change the building plan and structural designs without consent of 2/3rd of the buyers.
c.Not more than 10% of the cost to be taken as advance till formal agreement is signed
d.Structural defect found within two years of possession to be corrected by the builder at no extra cost
e.Grievance redressal mechanism to be in place in each state for quick resolution of related issues and better after sales service by builders
5.Land being a state subject, States are required to make rules in this regard within one year. The act provides that two or more states may choose to appoint single regulator
In June 2013, while speaking at the Moneylife Foundation seminar, Parimal Shroff, the top real estate lawyer in Mumbai, pointed out that the Central Act is “too ambitious”. He said, the functions of RERA includes administrative, advisory, executive, judicial and regulatory and it needs to be rationalised as it can be overburden by solving smallest to largest issues across the country.
In addition, the state governments are expected to establish REAT to hear appeals from the orders or decisions or directions of the authority and the adjudicating officer. The REAT should be headed by a sitting or retired Judge of the high court with one judicial and one administrative or technical member. This is also not practical, especially looking at the dearth of high court judges today.
One of the issues that could put brakes on setting up RERA and the REAT is the cost factor. As per the Bill, the state government should set up RERA and tribunals. However, the states would be too reluctant to bear the financial burden on setting up these huge authorities, unless the Centre provides sufficient funding.
The Bill also fails to mention wilful defaults and is silent on unaccounted money. While speaking at a Moneylife Foundation seminar, Pranay Vakil, a respected name in the real estate industry and former chairman of Knight Frank India had said, there is no regulation in place to deal with the menace of unaccounted money.
There are some short term and some long-term effects of the Bill on real estate. For the short term, the additional requirement of registration with Regulator may delay new launches. Similarly, the requirement of launching the project only after receiving all approvals may lead to delayed sales and hence delay in cash flow in the short term for the developer.
It remains to be seen as to how soon the regulator comes up, what kind of costs it imposes on the system, and how extensive is its coverage and how it handles grievances. Following the approval from the Cabinet, the Real Estate Regulatory Bill will be tabled in the Parliament for making it an Act.
Comments
Vishal Modi
1 decade ago
Isn't unaccounted money a concern of the tax authorities? Don't our tax authorities maintain that as long as tax is paid on such money, they don't care about the colour of money.
In that case, why should the entire real estate industry get a "bad" name and suffer for weak governance? Sadly, it seems to be enemy no 1 for most people, including some respected professionals.
In most cases the public are also at fault. They look for properties with loopholes to benefit them self that result in huge corruption. We have seen this in a building under construction in Chennai and more than 60 persons losing their life.
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In that case, why should the entire real estate industry get a "bad" name and suffer for weak governance? Sadly, it seems to be enemy no 1 for most people, including some respected professionals.