The Real Estate Bill - The challenges ahead

Real Estate (Development and Regulation) Bill, 2016 (hereinafter called Real Estate Bill) provides exactly opposite to what currently real estate industry has not been providing to the consumers for last so many years. The advent of real estate business in its current form is the story of not more than past 15- 20 years where we have seen all this graphic boom of the industry at such a massive scale. The governments in the past should have thought about such a regulatory framework at least about 10 years ago, in the absence of which the confidence of the consumer has almost shattered. Real estate industry is considered as the most hated industry from the consumer point of view. This is an industry where every consumer has a dream to have a home of his own and he spends his life time savings to buy a home and a mere ill action on the part of   some of the deceitful developers gallops all their dream and money.

Mere passing of Real estate bill is only a half win.  The true value of any legislation lies in its implementation.  The Real challenge lies ahead where each state have to for Real Estate Regulatory Authority for effective implementation of real estate bill in their states. Apart from framing rules and regulations for implementation of the Act and setting up Regulatory Authorities, each state government has to frame a time for granting approvals for development of real estate project and single window clearance will be upward step towards effective implementation of the act. However there is no provision in the present law to direct competent authorities to clear the project within the prescribed time frame because most of the approvals are granted by different department/ ministries which in turn govern under different statutes. But we can hope that this is start of reform and once developers start to get punished due to delay in getting required approvals, which is not a escape route in the present bill, the pressure would definitely mount on the law making authorities to be optimal on their side by giving time frame approvals.

Salient feature of Act and challenges:

1.The Government has gone beyond the recommendation of the Select Committee and now requires developers to deposit 70% of the collections from buyers in a separate account towards the cost of construction including cost of  land as against a minimum of 50% suggested by the Select Committee:- “This force deposit of collection from buyer in escrow account will pave the way of timely completion of the project as most of the project delayed due to dry of funds of builders as there is tendency to divert the funds to other projects. There is one more aspect to this situation as what would happen when project is financed by the bank or financial institution and whether one will have to deposit aforesaid percentage in bank account in the light of provision of deposit of deposit of above percentage of funds in escrow account. Take a hypothetical situation where the builder has started the project and say 50% of the project is completed before start taking advance from the customers. Would that also required to keep 70% of amount collected in that account in light of circumstances, half the project cost is already met by the developer from its source? The case would be determining the cost of land when the land is purchased on historical cost. Each state has the power to frame the rule for the purpose of determining the cost of land.

2. Norms for registration of projects has been brought down to plot area of 500 sq.mts or 8 apartments as against 4,000 sq.mt proposed in the draft Bill in 2013 and 1,000 sq.mts or 12 apartments suggested by the Standing Committee: At one side the customers in small project shall be able to take the benefit of provision of real estate bill but on the other side, regulatory authorities will have to create infrastructure to handle the applications on mass scale for registration of projects, developers and brokers. The solution to this challenge lies in adopting online filing and registration of  all concerned.

3. Commercial real estate also brought under the ambit of the Bill and projects under construction are also required to be registered with the Regulatory Authority. About 17,000 projects are reported to be at various stages of development;

4. Carpet area has been clearly defined which forms the basis for purchase of houses, eliminating any scope for any malpractices in transactions:  The cost per sq.ft shall squarely increase as now onward sale price will be based on carpet area instead of present practice of super area. As per market practice, there is difference of 25%- 35% in the super area and carpet area.

5. Ending the earlier asymmetry which was in favour of developers, both consumers and developers will now have to pay same interest rate for any delays on their part; The rate of interest on delayed payment from the customer shall be fairly reasonable against the present practice of charging 18% -24% p.a. and that too on compounded basis because the developers know that they will have to pay the same amount of interest in case of delay in handing over the possession to the customers. The bill is silent as to what would be amount of compensation, when developer decides to not to charge any interest on delayed payment by the customer. In that scenario the customer shall also not be entitled to claim any compensation on delay in handing over the possession by the developer.

6. Liability of developers for structural defects have been increased from 2 to 5 years and they can’t change plans without the consent of two thirds of allottees; Structure engineers will be on demand and uniformity in quality of construction will be established in the all real estate projects of different builders.

7. The Bill provides for arranging Insurance of Land title, currently not available in the market which benefits both the consumers and developers if land titles are later found to be defective, insurance companies will insure land title only after proper verification of all the titles of project otherwise in case of any defect in the title documents, they will bear the cost of the same in the form of payment of claims from the consumers  on account of  defect in titles. The confidence of the customer is likely to increase in the project where title of land is insured. Unwanted litigation tends to be reduced.

8. Specific and reduced time frames have been prescribed for disposal of complaints by the Appellate Tribunals and Regulatory Authorities: This type of time frame has been provided in other statutes also and one need to see what steps and action is taken when aforesaid time frame is not adhered by the Appellate Tribunals and Regulatory Authorities.

9. A provision is now made for imprisonment of up to 3 years for developers and up to one year in case of real estate agents and consumers for any violation of Tribunals and Regulatory Authorities. This welcome step as without provision of coercive provisions, it is likely that the rule may not be followed.

Sushil Aggarwal

Advocate

Skaggarwal68@yahoo.com