What is the objective of the bill? The real-estate industry has needed a regulator for long. What passes for regulation is a forest of laws pertaining to construction,but there is nothing that guides the relationship between the buyer and a real-estate company or its agents. There are building codes,bylaws,restrictions on height and floor space index,and aviation clearances for buildings that lie on a flight path,but not a word on what happens when a person promised a flat is delivered a dud or if the developer flees. The bill seeks to address this. Why is it necessary to regulate the buyer-seller relationship? India has a housing shortage of 24 million as per NSSO data; in the urban sector the shortage is 18.78 million as per the National Housing Bank. This demand pressure creates a market where developers hold all the aces. Housing Minister Ajay Maken has said that currently the real estate and housing sector is largely unregulated and opaque,with consumers often unable to procure complete information,or enforce accountability against builders and developers in the absence of effective regulation. What have developers been getting away with? There is no standard to decide,for instance,if a flat is smaller or larger than another. Any builder can present his own standards covered area,carpet area,built-up area,super area and even super built-up area and confuse buyers. The bill will standardise definitions such as apartment,common areas and carpet area,besides advertisement,real-estate project,prospectus,etc. It seeks to introduce the concept of using only carpet area for sale,ending the asymmetry of information between buyer and builder. Again,buyers are rarely informed if the developer has procured all mandatory approvals. In Mumbai,there have been cases where conveyance deeds were not handed over to apartment holders. Last year,the Competition Commission of India rapped the countrys largest real-estate company,DLF,for abusing its dominant position after buyers of flats in one of its projects,Belaire,complained of delays in execution. But while the bigger players have a reputation risk,the bulk of the violations takes place among the unlisted,smaller developers. What are the bills key features? Once it is cleared by Parliament,the Centre can set up a Real Estate Regulatory Authority and so can the states. These regulators will implement a set of standards,to be recommended by a central advisory council and in line with international best practices,for areas such as property measurement,builder-buyer agreements and brokerage standards. DETAIL. All developers would need to register projects with the regulator and show proof that all approvals are in place before selling any flat. Promoters would need to place with the regulator details such as company profile,project,layout plan,land status,carpet area,number of apartments and proposed facilities,as well as the status of statutory approvals and names of agents,contractors,architects and structural engineers. Once the regulator verifies all the documents,the developer would be issued a certificate of registration and only then can advertisements be placed for marketing the project. DOCUMENTATION. The bill makes it mandatory for real-estate agents who intend to sell any immovable property to register with the regulator. They would be under obligation to keep,maintain and preserve books of accounts,records and documents,and facilitate the possession of documents to allottees. DEPOSIT. The bill mandates that the builder deposits up to 70 per cent of buyers payments into an escrow account,and that the money be used only for the project. A weakness in the bill is that states have the power to reduce the proportion that must be deposited,so there remains the danger of cash-stressed developers siphoning money out of payments. DISCLOSURE. To set the buyer-developer relationship on a sound legal footing,the bill says the developer would need to disclose publicly all relevant information and adherence to approved plans and project specifications,with an obligation that whatever is declared in the advertisement or prospectus is correct. The developer would be responsibile for rectifying structural defects,and have to refund payment if he defaults. DEED. Once a project is complete and the occupation certificate obtained,the developer will have to execute a conveyance deed in favour of the buyer and hand over title documents to the society formed by the buyers. Currently,some developers delay the formation of the housing society and transfer of title in order to extract transfer charges from buyers who wish to sell to a third party. This is illegal on the part of the developer,a fact upheld by courts. What if the developer still violates the law? The bill provides for stiff penalties. For contravention of any of the provisions related to registration,the developer can be fined up to 10 per cent of the estimated cost of the project,jailed up to three years,or both. Contravention of other provisions can cost the developer up to 5 per cent of the estimated cost of the project. Not complying with the regulators orders can cost the builder Rs 1 lakh per day,till the time the default continues,extending to 5 per cent of the project cost. The bill seeks to establish a two-tier dispute resolution mechanism. The first tier would be a fast-track mechanism through adjudicating officers to be appointed by the regulator. At the second tier,an appellate tribunal would be set up to hear appeals arising out of orders of the authority and the adjudicating officer. How has the real-estate industry reacted? It has panned the bill. The Confederation of Indian Industry,while welcoming greater transparency,has said that the regulator should be equally responsible for ensuring that the competent authorities give approvals in time. It has also called for the regulatory framework to ensure an even distribution of obligations among all stakeholders: developer,buyer and authorities. How is all this supposed to work? The bill has been drafted in pursuance of the powers under entries 6,7 and 46 of the concurrent list of the Constitution,which deals with transfer of property,registration of deeds and documents,and contracts. It has been prepared after deliberations with state governments and incorporating their suggestions. States now would have to enact their real estate regulatory acts. Currently,Maharashtra has initiated the process for such a legislation.
