While the bill tries to protect consumers, slow approvals are a major reason behind delays and increasing cost of property. The Bill does not address this
The Union Cabinet has finally cleared the Real Estate (Regulation and Development) Bill, which is being planned to be tabled in the winter session of the Parliament. In a note on the bill, Liases Foras Real Estate Rating & Research Pvt Ltd, said, "While the bill protects consumer interest, faster approvals are also crucial for developers to prevent delays. Against this backdrop, regulatory authorities aim to promote single window system of clearances for real estate projects, wherein the projects and promoters both can be graded along with digitisation of land records. However, the bill has a long way to go as far as faster sanctioning process is concerned. Thus, the problem is only half-solved." Also, after it becomes an Act, it’s the State’s responsibility to bring it to effect by appropriate measures, Liases Foras added.
According to Liases Foras, "...project delays are the Achilles’ heel of Indian real estate and one of the key reasons for sky high prices. As far as responsibility for delay is concerned, it lies with both the developer and the government authorities. Thus, if we look at the larger picture, the delays in execution also have a negative bearing on India’s gross domestic product (GDP)," Liases Foras says.
In June 2013, while speaking at a Moneylife Foundation event on the Bill, Parimal Shroff, with over 39 years’ experience in constitutional, corporate, civil and property law, had called the Central Act as “too ambitious”. He had said, "It (the Bill) proposes that all permissions, information, online declarations and registration are to be validated before the project starts. The penalties for failing to comply are too severe. Then, it requires that the plans and designs to be put up online—this gives rise to problems related to protection of intellectual property and security”.
The real estate sector in India faces some fundamental issues, which are not fully addressed in the new amended Bill. This includes, issues relating to land acquisition, registration, transfers, taxation and a plethora of permissions and clearances that would remain with state governments and municipal authorities. There is rampant corruption in each of these processes and Central legislation is unlikely to address many of these issues. But first the positives of the Bill.
The Bill is based on three major foundation stones, transparency, accountability and efficiency. Compulsory disclosures and registration ensures transparency, while taking responsibility in case of any unwarranted deviations in the process ensures accountability. Together, these elements generate efficiency by discarding any kind of deception in prices.
"Firstly, it may usher sales on carpet area, which is a practice followed in the developed countries including Singapore and UK. Secondly, the escrow account will help in curbing diversion and misuse of funds, ruling out speculative practices," Liases Foras said.
Another important aspect of the Bill is the redressal mechanism, addressed through adjudicating officers and Appellate Tribunal. Discontented buyers can now approach 644 consumer courts at the district level instead of only the Regulatory Authorities proposed to be established mostly in capital cities. This makes it convenient for buyers and reduces the costs of litigation. In addition, the Bill marks a provision for imprisonment of builders and real estate agents in case of violation of rules.
However, the Bill does little to address the major cause of high real estate prices: delays in obtaining approvals.
A study conducted by Associated Chambers of Commerce and Industry of India (Assocham) show that over 75% of the total 3,540 projects, worth Rs14 lakh crore, have remained non-starters. "On an average, real estate projects in India are facing a delay of 33 months in completion," DS Rawat, secretary general of Assocham, had said while releasing the study report.
According to the study, over 2,300 projects in the realty sector remained non-starter, while over 1,000 on-going projects have registered significant delays in completion.
In its analysis of total supply across 25 cities, Liases Foras found that there is a delay of more than 12 months for about 34% of the supply. This estimated delay of residential projects amounts to 1.32% of the estimated GDP (2014-15) at current prices, it said.
In addition, there is the issue of unsold stock. Liases Foras says, even in the current depressed state of market, primary supply worth about Rs18.47 lakh crore or over 99% would come under the purview of the Real Estate Regulatory Bill. "There also exists a secondary market, which we estimate is of an equal size. So, the quantum under the Bill’s ambit is huge. Also, the revised bill includes compulsory registration of projects of 500 sq. metres or 8 flats, against the previous norm of 1,000 sq. meters or 12 flats. With a vast universe under coverage, the bill is expected to have far-reaching positive effects on execution and accountability," it added.
Construction and sale of an apartment, which is the base of real estate sector, has the capacity to catapult the growth of an entire ecosystem on its own. Once the execution delays are reduced considerably, housing sales will receive a boost, the agency feels in three ways:
Increased sale of houses create ancillary demand. There will be automatic demand for furniture, consumer durables, fit-outs, automobiles, fibre optics and telecom companies.
This will spur job creation and expansion of industries giving a boost to commercial segment. Benefits of this will also trickle to retail realty as increased income implies enhanced purchasing power.
An upbeat economy with a functional regulatory mechanism will place India on a global footing and make it one of the most sought after destinations for international investors.