Urban Development Minister Venkaiah Naidu has given an assurance that the real estate regulatory authorities will be set up in each state within the target period of one year. The Real Estate Bill, passed by Parliament, has laid down this commitment but it is for the Central and state governments to ensure that this target is actually met. According to Mr. Naidu, the process of formulating rules and guidelines under the new Act has already begun and these should be finalisedÂ within three months. After these are laid down, he is confident of achieving the target of setting up real estate regulators in each state even before the scheduled time frame of one year.
In an interaction with journalists in the Capital, he pointed out that this was a rare case of cooperation between the Opposition and the ruling party to ensure that this critical Bill was passed in both Houses of Parliament without any hurdles. It is expected to bring great relief to people who want a roof over their heads and are left to deal with rapacious real estate developers.
Consumers Face Hardships
Lakhs of buyers have been left in the lurch by companies that have stopped construction midway for some reason or the other. Many consumers have used their lifeâ€™s savings to pay for property but have to continue staying in rented accommodation as the project is delayed for years on end. Given this dismal backdrop, it is no wonder that even the Opposition relented to allow the passage of the Real Estate Regulator (Regulation and Development) Bill in the Rajya Sabha. With its passage in the Lok Sabha, it now has to be ratified by state governments. The new legislation is certainly not perfect. It actually has provisions for sending buyers to prison for non compliance with the regulatorâ€™s orders. This is a provision which needs to be reviewed as it is usually the developer who creates problems for the buyer rather than the reverse.
The new legislation comes to the rescue of home buyers for whom the only recourse till now has been to file a case in court which could take decades for a final decision. They can now go to the regulatory authorities to be set up under the new law which is meant to tackle the unscrupulous real estate developers and brokers who have been defrauding consumers. The buildersâ€™ lobby has naturally been opposing the legislation.Â It argues that it only penalises them for delays and not state agencies that delay approvals for projects. The fact is that prolonged delays of five to 12 years are rarely due to clearances by government agencies. Poor construction quality and delay in handing over possession are other major problems for home buyers.
Among the big reforms in the bill is the elimination of the concept of â€œsuper built up areaâ€ instead of â€œcarpet areaâ€ to compute the size of a property. In the past, the area of a property was always based on carpet area or the actual usable area of the Â apartment. Over the past decade, developers began using the term â€œsuper built upâ€ to quote prices which would include common areas like lobbies, staircases, lifts and shafts in an apartment complex. This is not a concept used globally and real estate experts and activists have clearly described this as an unethical practice.
Under the new law, builders will have to quote prices based on the carpet area, thus relieving buyers of this extra burden. According to one estimate, builderâ€™s profits rise by as much as 15 per cent by adopting the concept of super built up area. This does not mean that developers cannot charge for common areas in complexes. But such fees will have to be levied separately, making it a more transparent transaction for the buyer.
Probably, the most crucial element in the new law is the creation of a regulatory body for the real estate sector. In the absence of a regulator, it has been possible for builders to go ahead without any restraints in finalising contracts with buyers. The regulatory agencies are supposed to be set up by each state within the next one year as the bill has now been passed in Parliament. This is expected to act as a major deterrent for fly by night real estate operators who have caused tremendous harassment to genuine buyers.
The bill also addresses the issue of funds being diverted from one project to another. This had led to a situation in which buyers who had taken huge loans and given money upfront for flats were suddenly told there are no funds to complete the project.The new law stipulates that 70 per cent of the funds collected for a project will have to be kept in a separate account meant only for this purpose. All projects with homes of 500 square meters and above will also have to be registered with the regulator. The established real estate developers should not have any problem in meeting the requirements laid down by the regulators.
As for the time frames for construction, the bill only stipulates that developers must meet their own schedules. No fixed schedule has been laid down in the bill for completing construction. But if a builder makes a commitment to complete a project within three or five years, then the homes will have to be handed over by the target date. Otherwise the developer faces high penalties.
The expectation is that more buyers will come forward to buy property now that there is a surety that investments in this sector are safe and secure. Higher demand should in turn bring about greater investments in the housing industry and more availability of housing stock should bring about a reduction in prices. Even foreign direct investment in the construction sector is expected to rise as the new law will bring about greater transparency in an area of the economy that has been known to operate on black money and speculative transactions. With real estate accounting for as much as 9 per cent of GDP, this should also spur economic growth in a sector with high employment potential.”