REAL ESTATE BILL - CAN YOU AFFORD YOUR DREAM HOME NOW? NAH!

By Ruma Dubey

The much awaited realty bill – not the Land Acquisition bill but Real Estate (Regulation and Development) Bill was given the cabinet approval yesterday.  Does it in any way mean that you will now be able to own your dream home? Or is there protection against indiscriminate price hikes by realtors?  Well, the answer to these very crucial questions is – NO.  But it is at least a beginning and the attempt is to bring about some transparency in this highly unregulated sector.

So then what does this Bill really do?  It brings some protection, has set up a new regulatory body for the sector and the builder is made more responsible. A quick look at some of the highlights of the Bill

• Pertains mainly to residential realty and not commercial.

• Setting up a regulator for the realty sector – to be set up in each state
• Mandatory for private developers to get all their projects registered with the regulator before sale and only after obtaining all necessary clearances. 
• To usher in transparency, it has been made mandatory for public disclosure of all project details like credentials of promoters, lay out plan, land status, carpet area and number of apartments booked and status of statutory approvals.
• Clear definition of carpet area and prohibits developers from selling houses or flats on the basis of ambiguous ‘super area’.
• Builders cannot publish misleading ads to pure buyers – actual project pictures and not what the builder imagines. Failure to do so for the first time would attract a penalty that may be up to 10% of the project cost and a repeat offence could land the developer in jail.
• To curb the ongoing ponzi schemes – developer has to deposit 70% of funds received for a particular project in a separate escrow bank account to cover the construction cost of the project. This means money collected for one particular project will have to be used for that only and not for the buying of land and launch of other new projects.
• An adjudicating officer not below joint secretary in the state will be appointed by the authority to fast track projects.

The intentions of the Bill are indeed very noble but one does not know if it will be as effective as it is made it out to be. When it comes to flouting norms, some of the best brains exist in the realty sector and these rules will be broken. Like one builder says, “these rules mean we will now have to grease more palms, over and above what we are already paying ‘unofficially”. It also means that if we needed around 28 approvals, running into indefinite time spans, will now need more approvals and that means more delays. And in this sector, any cost which the builder has to bear, be assured, it is passed on promptly to the customer.” One hopes that existing projects do not come under this purview or else, projects which have already been delayed for over 2-3 years, will now take a life time.

The attempt being made to curb misleading of public with ads is a good move. Making it mandatory for builders to use only pictures from the actual project site is a very good move. The move made to curb the ponzi schemes by bringing in the deposit of 70% in escrow account is good but adherence is questionable as each state will have its own realty prices, own construction costs. And yes, public disclosure of all project details is a very good move as it clears the ambiguity over land titles and makes the entire project transparent.

There are quite a few things lacking in the bill. Like why couldn’t it have made it mandatory for the developer to have first built a few floors of the project before getting approval to sell? We would also like to know if the upcoming Regulatory authority will provide a rating on the project – not just on the builder but also on the project; something akin to what CRISIL and the likes of CARE do. Bringing in more professional, external agencies will ensure full disclosures, even on litigations, liabilities and other incomplete projects.

Once again, Bills are always introduced with good intentions but all problems arise due to non adherence, poor implementation and lack of stringent punitive measures. Somehow, this too seems to be headed the same way… this is not a cynical view but a view based on past experiences.