REAL ESTATE REGULATORY BILL

Transcription

1 REAL ESTATE REGULATORY BILL A Bill to establish the Real Estate Regulatory Authority for regulation and promotion of the real estate sector and to ensure sale of plot, apartment or building, as the case may be, in an efficient and transparent manner and to protect the interest of consumers in the real estate sector and establish the Appellate Tribunal to hear appeals from the decisions, directions or orders of the Authority and for matters connected therewith or incidental thereto.

2 Aam Aadmi becomes powerful with the Real Estate Bill I have bought a flat {project s name} because I liked the spacious design and privacy of the flats. But after moving in, I realised that the quality of material is very poor and quality of finishing is substandard rues Sumitabh Ghosh, a resident of Bangalore at CommonFloor s Consumer Forum. Bharath, another resident of Bangalore spent his hard-earned money in a project that was sold to him at Rs 1,100 per sq.ft. as a pre-launch offer. Later, the promoters stated that the site is under litigation and does not have khata and tax paid details. The marketing manager who sold him the property is now absconding. Due to such clandestine practices resorted to by few developers, the buyer who puts his hard-earned money, have to bear the brunt. Among several others, hiding important details regarding the property tops the ladder. But not anymore! In a landmark move by the Union Cabinet, the long-pending dream of the sector has finally come true! Mandatory Public Disclosure of Project With the clause of mandatory public disclosure, a developer will now have to put all the important details pertaining to the project in the public domain. These include, land status, status of statutory approvals and disclosure of proforma agreements, layout plan and plan of development works. In addition, details such as names and addresses of real estate agents, contractors, architect, structural engineer will also be easily available. Thus, the chances of fraud are likely to reduce. Duties of Developers Further, the bill clearly states the duties of a developer. Thus, now a developer will have to adhere to the approved plans and project specifications. The duties also states certain obligations regarding honesty of the advertisement for sale or prospectus. In case there is a structural defect, developer should rectify it and lastly, should refund the money in case of default. Establishment of Real Estate Regulatory Authority in State Moreover, establishment of one or more Real Estate Regulatory Authority in each State/Union Territory (UT) would also ensure transparency. Also, in case of any fraud, this will be the go-to place. This, Vineet Relia, Managing Director SARE Homes thinks, will boost transparency and accountability in buying or investing transactions in housing projects and enhance the sector s credibility, in turn enabling the sector to access capital from the financial markets for its long-term growth. This will also resort the general public s confidence in the real estate sector. Further adding to this, Prashant Solomon, MD, Chintels India and Member, Governing Council, CREDAI NCR puts across a very interesting point. He says, while the establishment of a real estate regulator is a positive step in increasing transparency and credibility of builders while protecting the consumers, it will only be valuable if and only if government authorities are also legally bound to grant approvals within a specified time period. The Bill still has to take a fairly long journey to become an Act. All said and done, the Real Estate Bill, only if implemented strictly will pave the way for growth of the realty sector.

3 Real Estate Bill: What it means for Buyers? The Real Estate Regulatory Bill, which was first introduced by the UPA government in the Rajya Sabha in August 2013, was recently approved by the Union Cabinet. The Bill is expected to ensure greater accountability towards consumers, and to significantly reduce frauds and delays. The proposed legislation is expected to promote regulated and orderly growth of the real estate sector through efficiency, professionalism and standardization. The Bill provides for a uniform regulatory environment, to protect consumer interests, help speedy adjudication of disputes and ensure orderly growth of the real estate sector. It aims at restoring confidence of the general public in the real estate sector by instituting transparency and accountability in real estate and housing transactions. This in turn will enable the sector to access capital and financial markets essential for its long term growth. Key Measures of Real Estate Regulatory Bill: Where it stands today Applicability of the Bill The proposed initial Bill was applicable for residential real estate. It is now proposed to cover both residential and commercial real estate. Establishment of Real Estate Regulatory Authority The Bill provides for the establishment of one or more Real Estate Regulatory Authority in each State/Union Territory (UT) for oversight of real estate transactions. It also proposes to appoint one or more adjudicating officers to settle disputes and impose compensation and interest. Registration of Real Estate Projects and Registration of Real Estate Agents Developers have to mandatorily register the projects with the Real Estate Regulatory Authority. Real estate agents who intend to sell any plot, apartment or building also have to get themselves registered with the authority. Mandatory Public Disclosure of all project details The Bill proposes mandatory public disclosure norms for all registered projects such as details of promoters, project, layout plan, plan of development works, land status, status of statutory approvals and disclosure of proforma agreements, names and addresses of real estate agents, contractors, architect, structural engineer etc. Functions and Duties of Promoter The Bill spells out the duties of developers including disclosure of all relevant information of project, adherence to approved plans and project specifications, obligations regarding veracity of the advertisement for sale or prospectus, rectification of structural defects and refund of money in cases of default. Compulsory deposit of 70 per cent Builders will now have to deposit at least 70 per cent of the sale proceeds, including land cost, in a separate escrow account to meet construction cost. As per the earlier proposal, it was 50 per cent or

4 less of sale proceeds. This is aimed at preventing developers from diverting money raised from allottees. Adherence to declared plans Under the Bill, promoters are barred from altering plans, structural designs and specifications of the plot, apartment or building without the consent of two-third allottees after disclosure. However, minor additions or alterations are allowed due to architectural and structural reasons. Functions of Real Estate Agents The Bill makes it mandatory for real estate agents to sell properties registered with the Authority. They are also required to maintain books of accounts, records and documents and are barred from getting involved in any unfair trade practices. Rights and Duties of Allottees The Bill spells out the right of the allottee to obtain stage-wise time schedule of project and claim possession as per promoter declaration. He is also entitled to refund with interest and compensation for default by the promoter. On their part, allottees must make payments and fulfil responsibilities as per agreement. Functions of Real Estate Regulatory Authority According to the Bill, the Authority must act as the nodal agency to co-ordinate efforts regarding development of the real estate sector and render necessary advice to the appropriate Government to ensure the growth and promotion of a transparent, efficient and competitive real estate sector Fast Track Dispute Settlement Mechanism The Bill also establishes a fast-track dispute resolution mechanism through adjudication and establishment of a Real Estate Appellate Tribunal. Appellate tribunals will now have to adjudicate cases in 60 days as against 90 days proposed earlier and Regulatory Authorities to dispose off complaints in 60 days. Punitive Measures in Case of Non- compliance The penal provisions under the proposed law include a payment of 10 per cent of project cost for nonregistration and payment of additional 10 per cent of project cost or three-year imprisonment or both if still not complied with. For wrong disclosure of information or for not complying with the disclosures and requirements, payment of 5 per cent of project cost will be imposed. The Bill provides regulatory authorities the power to cancel project registration in case of persistent violations and decide on further course of action regarding completion of such projects. What are the recent changes in the Real Estate Bill? The Bill was originally envisaged for residential transactions. It is now proposed to cover both residential and commercial real estate. Builders will now have to deposit at least 70 per cent of the sale proceeds, including land cost, in a separate escrow account to meet construction cost. As per the earlier proposal, it was 50 per cent or less of sale proceeds. In the new Bill, ongoing projects that have not received completion certificates have also been brought under its purview and such projects will need to be registered with a proposed regulator within three months.

5 Another addition is the inclusion of brokers and agents under the proposed legislation s purview, effectively rendering them punishable in case of non-compliance with the rulings of the watchdog and the dispute settlement tribunal. The changes proposed also dilute the authority vested by the legislation in that the regulator and agencies to be set up under the proposed new legislation will not be the sole recourse to address the grievances of customers, and would allow petitions before consumer forums. The current bill makes provision for a model buyer-seller agreement and stipulates that the developer agreements will have to be in line with the model buyer-seller agreement set out by the regulator. Carpet area has now been clearly defined to include usable spaces like kitchen and toilets to make it clear. Garage is now to be kept out of the purview of definition of apartment and is separately defined. Major things expected that didn t shape up Despite continuous demands from industry stakeholders for single-window clearance, the Bill does absolutely nothing to streamline the 50-plus approvals required for a housing project. The proposed new legislation continues to exempt the government and its agencies that have slow clearing processes, contributing to overall delays. Developers feel that urban local bodies and development authorities should be brought under the ambit of regulators, since the process of issuance of certificates is under their control. Major Loopholes in the Real Estate Bill to watch out for Ongoing Projects included in ambit Certain provisions in the Real Estate Bill which need to be relooked at, like bringing ongoing projects under the ambit of the proposed law. Experts feel this will create a lot of confusion and will this mean that work will stop in such projects till registration of such ongoing projects is given. They believe that the Bill should be prospective not retrospective as it will stall ongoing projects and all including consumer will suffer. Inclusion of Commercial Real Estate The Bill now also covers commercial real estate, however the two asset classes of residential and commercial real estate need to be looked at differently. According to developers, a commercial asset is often leased and about 80 per cent of the business of commercial sector is of leasing, wherein cash flow for developers only begins after the building has been constructed and clients have moved in. In such a scenario provisions such as maintaining 50 per cent receivables may not be suitably applicable to commercial real estate. Promoters Deposit reduced from 70 to 50 per cent Promoters have to deposit 50 per cent instead of the earlier proposed 70 per cent of the amounts realised for the real estate project from the allottees in a separate account in a scheduled bank. Experts feel that a leeway of 20 per cent will effectively leave more in the hands of developers to continue their practice of diverting funds collected for a project towards other projects. Shortage of Housing Supply Feared Market analysts feel that once the Bill becomes a law, supply shortage is imminent in the residential sector as developers cannot market or launch a project before obtaining all necessary project-related permissions. This means they will have to arrange funds for obtaining approvals and registering projects, squeezing out cash from balance sheets.

6 Provisions may lead to Corruption The Bill offers deemed approval for projects after 15 days of submission of documents, after which regulator has the power to scrutinise the documents and cancel the approval. However experts feel that post review of documents after the specified 15 days time frame is not a good idea as this will open a huge window for corruption. This process should have been automatic. Apart from that, the definition of wilful defaulters is not quantified in the Bill, and the clause on revocation of registration could be dangerous for developers. Incentives Demanded by Developer The developers seem to be at the receiving end of the Bill and may have to bear the brunt of many provisions. To give them a fair deal, the government is working on a mechanism to grant sanctions in one month s time through an expert panel appointed by it. Currently, developers need to take at least 50 approvals before they can launch a project. If the government creates single-window clearance, the prices of houses could come down by per cent. Today when clearances are stretching beyond one year, approvals in even 100 days will be a big relief provided all approvals are done in a timebound manner. List of Penalties for Builders The Real Estate Regulatory Bill puts the onus on builders to provide all correct information and adhere to all rules strictly. In case of any non-compliance on the builder s part, he is liable to face the following punitive actions: Builders will now have to pay equal rate of interest in case of default or delays as home buyers. For structural defects, liability of builders has been increased to five years, which was earlier two years. A new provision has been created for imprisonment up to three years in case of promoters and up to one year in case of real estate agents and buyers for violation of orders of Appellate Tribunals or monetary penalties or both. For wrong disclosure of information or for not complying with the disclosures and requirements, payment of 5 per cent of project cost will be imposed on the builder. The Bill provides regulatory authorities the power to cancel project registration in case of persistent violations and decide on further course of action regarding completion of such projects. For all registered projects, the time frame for completion must be clearly mentioned and adhered to. The developer is expected to receive all approvals from local authorities before marketing the project. The buyer will also have the right to obtain stage-wise completion schedule. Flowery ads with misleading data on project location, appearance and amenities will be discouraged, thanks to strict guidelines on advertisement. Terms such as carpet area will be made uniform to ensure that there is no ambiguity in specifications. If there are quality issues after taking possession, the developer has the obligation to rectify them. Apart from developers, real estate agents will also be regulated. They have to be registered and should maintain books of accounts, records and documents. Promoters and agents can be punished for making misleading statements. For redressal of grievances, the bill allows aggrieved buyers to approach 644 consumer courts that are available at the district level instead of only the real estate regulatory authorities proposed to be set up under the bill, mostly in capital cities.

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