The real estate bill is pending in the parliament for nearly three years while the problems related to the sector continue to mount, says Binayak Datta*
A friend of mine – an executive in one of the Blue Chip MNCs had dreamt of a 3 bed roomed apartment at an upmarket locality in the millennium city of Gurgaon. He approached a big real estate company direct who had advertised for their huge upcoming project. He booked his dream apartment and paid 10 per cent down on booking. The rest was to be called up by instalments depending upon the progress of construction.
This project was to be completed and handed over in 24 months from the date of booking. My friend obtained a hefty housing loan from a bank and started paying the instalments to the builders and the EMI to the bank. The complications started when there arose some differences between this real estate company and the land owners. The matter went to the court who gave an injunction on further construction till the matter was settled. This started the misery of the apartment buyers and needless to say the case much like any other in this country went on and on, dates after date and meanwhile the apartment buyers went on waiting and on top of it went on paying interest to the bank on the disbursed loan. The whole thing lay sealed in a murky bundle.
The recourse which the buyers have vis-a-vis the promoter and the promoter with the land owner is more or less guided by the contracts laws or in certain states – by state laws which are generic to all contracts and therefore is easier to find out a thousand good reasons why each of these three parties are right in their own respective places and of course all three suffer.
With a view to provide a smooth canvass for facilitating this industry the government devised this bill called the Real Estate (Regulation and Development) Bill, 2013 (amended in April 2015) which will seek to remove some of the major irritants that are so commonly facing both the promoters and the consumers. The Bill is pending in the Rajya Sabha for nearly the years now.
The Reality Sector Scenario
Real estate is one of the largest attractors for FDIs in India. Total FDI in the construction development sector during April 2000–May 2015 stood at around US$ 24.07 billion.
This is the sector which caters not only to life styles but also to the basic needs of the common man. The government has come out with an ambitious plan – housing for all by 2020.
Last year the Union Government announced plans for 100 smart cities throughout the Country of which Panjim happens to be one. This is the first phase. Also 100% FDIs are now permitted in townships and settlement development projects and for projects within the Special Economic Zone (SEZ). In the last Budget the Union Government allocated US$ 3.72 bn for housing and urban development. And on the funding side guidelines for investments by real estate investment trusts (REITs) in non-residential segment have been made by SEBI. So the growth of this sector as foreseen in these key drive areas is quite encouraging.
Why New Regulations then?
In such a growth situation it is also a necessity for both promoters, property agents and the buyers to transact their business in a well managed, controlled and standardised ambience so that statutory protection against risks like frauds and delays are laid down clearly for each of these parties. As of now some States have their own laws for regulating Real Estate transactions. This Bill seeks to pin point greater accountabilities and protections as discussed.
The questions already
In certain quarters we already heard questions whether the Parliament is competent to make a law on “Real Estate” – Land being on the State List. My answer here is that – the Bill seeks to control and put in safe guards in the contracts – it does not regulate the Property per se neither on the Land as such but on the act of TRANSFER of the property and in my view this being then a concurrent subject – it would be well within the Parliaments’ rights to enact this Bill.
The Salient Features and the actions arising therefrom
All States would appoint State level regulatory authorities viz The Real Estate Regulatory Authority (RERAs). This Authority shall have powers of regulations and approvals under this law and will have its ‘teeth’ in doing so. The States will also appoint Real Estate Apellate Tribunals who shall hear grievances against the orders of the Real Estate Regulatory Authority.
You can not go to the High Courts any more on questions of law and facts. The idea is to fast track disputes so that the project does not get delayed as was the case with my friend I mentioned in my opening para.
The Amended Bill covers both Residential Properties as well as Commercial Properties
1) The Promoters or The Property Agent shall first register himself and his project with the RERA if his project is above 1000 sq meters in area or more than 12 dwelling units. (States can stipulate lower limits here).
2) After registration the Promoter or the Property agent (whoever is the seller) shall upload all details of the project on the website of the RERA – the number and types of the units, the lay outs plans and the schedule of payments. In case there are deviations going forward – the Promoter or the Agent is obliged to return the money to the Buyer.
3) 50% of the payments received by the Promoter shall be put in an escrow account in a scheduled bank to be used ONLY for the construction.
4) The Promoter will not be able to collect more than 10% as advance on booking from the Buyer.It shall be the Promoters’ responsibility to obtain the completion certificate from the Municipal Authority, to form an association of unit owners who shall take over the responsibilities of maintenance from the promoter and to provide essential services to the property till the takeover actually happens. If there is a breach in any of these – the Promoter is obliged to return all money collected from the buyer with interest and revoke the sale.
5) Similarly the buyer must pay up as per the agreed instalments and form the association. In breach thereof the Promoter is entitled to claim interest at the same rates.
6) In case the Promoter does not register he shall be fined at 10% of the Sale Value. If he does not register even after directed by the RERA – he is liable to be imprisoned for period’s upto 3 years and an additional fine of 10% of the Sale Value. For violation of any other provision mentioned he will be fined 5% of the Sale Value.
7) If the Estate agent makes a violation he will be fined Rs 10,000/- per day of violation.
8) There will be a Central Advisory Council consisting of representatives from Union Ministries, State Governments, the CREDAI, the Buyers and the employees. This council will be responsible for advising the Union Government on requirements of Policy changes and protections for consumers
Currently certain States like Haryana, Maharashtra and West Bengal have their own State Laws for Real Estates although not very comprehensive. These States can continue to follow their Laws unless there are conflicts with the Central law – and in case of such conflicts the Central Law shall prevail.
In other States there are laws which pertain more to the land rather than the contract between the Promoter and the buyer as say in Goa we have the Comunidade Code (The Codigo das Comunidades) or the Mundakar Code or the Comunhao Dos Bens. These do not regulate the transactions of building and sale of dwelling units.
Preparations by Promoters and Agents:
In all probabilities this Bill will be passed in the Budget session which starts in a month from today. The Promoters and the Agents have to be in a state of preparedness to receive this most important piece of legislation. The Projects which are on – yet not complete will also have to be covered and therefore it would be good to systematise all input data from now itself so that there are minimal disruptions when the registrations uploads start. Necessary IT infrastructure with internet has to be kept ready along with compatible human resources.
What is not in:
Some of the burning issues facing this Industry are not covered in this legislation. For example the issues of Project Clearance and Environment – lengthy and arduous process of project approvals – clear land titles, search mechanisms and the roles played by black money.
Without these important issues tackled – I think the law remains incomprehensive in a way – more needs to be there for the Promoters’ side as well. Going forward I think the Government would do well to bring in some of these thru amendments or advise States to address these issues thru State lists.
All said – the market is growing – there is tremendous requirement for providing basic housing to all there are the ambitious Government Schemes discussed none of which I think can be achieved with a Real Estate Sector struggling thru multifarious archaic divergent and conflicting laws – some legislated by the States and some by the Centre. It is of utmost importance therefore that this law is passed and implementation starts soonest with earnestness it deserves. In the words of Franklin D Roosevelt one of the most remarkable of the past US Presidents …”Real Estate cannot be lost or stolen – nor can it be carried away. Purchased in common sense, paid for in full, and managed with reasonable care it is about the safest investments in the World!”
*The author is a senior chartered accountant and a corporate consultant and a visiting professor in reputed institutes accross Goa.