The Real Estate (Regulation and Development) Bill-2013- A Giant Step in Real Estate Sector

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.

By Anurag Tiwari, Advocate