Real Estate Regulation Bill
The newly passed Real Estate Regulation Bill may have been welcomed by all, but there are concerned voices raising anxiety over the inclusivity of all parties concerned. Developers and experts feel that though the bill may bring in the much valued transparency in the sector, it may breed corruption owing to some clauses in the regulation. The question then being asked is: who will regulate the regulators?
“A regulator is surely required, but we need a comprehensive one with transparent systems, says Lalit Kumar Jain, CMD, Kumar Urban Development Ltd. (KUL). “Though many issues have been pointed out since ages, the bill is a retrograde step and breeds ground for corruption,” he says.
According to him major concerns like; online registration processes without human interface to avoid corruption, all the stake holders to be governed by the regulator to avoid further delays in approvals and NOCs have been ignored by the government. “The government seems to have ignored the suggestions and instead come up with a ridiculous concept of revocation of registration, as it will do more harm, promote more corruption and developers will have to tackle such knee jerk situations,” Jain says.
The bill allows huge opportunity of exploitation as it has provided a15 day period for deemed approval, while regulators can scrutinize the proposal. “Instead an online automated process could be a better solution,” adds Jain.
Further, builders are required to deposit 50% of the amount realized towards bookings on a project in a commercial bank account within 15 days of receipt, and deploy the funds for construction of the project. Jain feels the escrow account between the buyer and developer should have been on a pro-rata basis, linked to the construction cost and not on fixed slabs of 50% or 70%.
“The government has obviously not factored the increase in cost of construction. The regulator will force developers to give full disclosures which will make fewer of them survive. This will mean that the supply will be hit in a market where the demand-supply mismatch is a perennial problem. In turn, this will push the cost of housing which many feel is already high even as of now, due to various factors like delays in clearances, high cost of inputs like land, finance, steel and cement,” he adds.
However, “one is happy to note that the RERA remains the lone authority to handle real estate related grievances. This will help avoid a plethora of court cases. Also the data on supply of housing will be available due to a regulator,” Jain says on a positive note.
According to Ganesh Vasudevan, CEO, IndiaProperty.com on the one hand the bill is a positive move for the buyers, on the other hand it has put builders in a fix as now they will require more funds for construction. “The bill gives more power to the sanctioning authorities as they are still not put under the scrutiny of a regulator. The ongoing projects have been brought under the purview of the Bill and might result in further project delays. Also as the cost for the builder will now increase, it is likely that the property rates will also increase,” he says.
Mohit Goel, CEO, Omaxe feels that certain provisions that the sector had asked for amendment remains unattended. “We would have preferred escrow limit to be fixed on city basis (metro/tier II) or project basis (luxury/affordable); instead of a blanket 50%. Also, bringing ongoing projects under its ambit at this moment would further delay delivery of a vast number of projects (at various stages of construction) in the country,' says Goel.
Goel believes that developers should be allowed to change design and structure post approval of 50% of consumers since a lot of difficulty arise when a developer begins construction. “Lastly, and most importantly, the bill doesn’t fix accountablity equally on all stakeholders. While builders face the brunt for project delays; accountability has not been fixed for delays due to regulatory approvals and customers default on payments etc,” he says.
The Real Estate Regulation Bill
The Bill in its current form applies to both residential and commercial real estate, and is far more comprehensive and holistic in approach, addressing both the regulatory and development oriented aspects of the industry. The following features are notable-
1. Creation of state wise regulatory authorities for the sector
2. Mandatory registration of real estate projects and agents
3. Mandatory public disclosure of all project details- will go a long way in ensuring easier scrutiny on compliance to approved plans, progress on statutory approvals etc.
4. Functions and duties of a promoter are clearly defined- will bring in greater accountability on the part of builders and give room for a clear locus standi for buyers to pursue legal proceedings if any against errant builders
5. Builders are required to deposit 50% of the amount realized towards bookings on a project in a commercial bank account within 15 days of receipt, and deploy the funds for construction of the project. This will ensure better adherence to delivery timelines and will also minimise cost overruns due to delays on account of inadequate capital.
6. Functioning of real estate agents will be better monitored as they are required to register themselves with the Regulator. However the Bill does not propose any mandatory training program or certification required to operate as an agent. Also agents are required to sell only registered projects. This will help control price rise to a great extent particularly in investor dominated markets.
7. Punitive measures outlined for transgressions by builders
8. Responsibilities of the allottees are also defined making the bill a lot more enabling and development oriented.