From On Paper to Reality: Why Cabinet Nod To Realty Bill Matters To Home Buyers, Developers
December 10, 2015 |
Shanu
The Union Cabinet on December 9 approved the Real Estate (Regulation and Development) Bill, 2015. The Bill is intended to make the sector transparent, fair and efficient. The government believes that this will raise domestic and foreign investment in Indian real estate and ensure that disputes between home buyers, developers and other players are settled quickly.
Let us take a closer look at how the Bill would help home buyers and developers:
The overriding motive guiding the Bill is instilling greater transparency in the sector. If this happens, foreign and domestic investments in real estate would also rise. For the cash-crunched sector, which has not seen much price appreciation in the recent past, this is much needed. When home buyers have greater confidence in the system and developers, they are more likely to buy homes or invest in real estate assets. When foreign investors have greater trust in the sector, investments are also likely to become more structured.Developers often fail to meet project deadlines because they do not receive the necessary approval from local authorities and various other government agencies in a limited time frame. This is why many believe that local authorities should have been under the ambit of the Bill. If these agencies are within the ambit of the law, developers have a legal recourse when things go wrong.According to the Bill, real estate projects and advisors should register with the regulatory authority. Developers are expected to mandatorily disclose details of their projects. This includes information on the land status, layout plans, approvals from various government agencies, transactions and agreements. Provisions of the Bill would apply to both commercial and residential segments. Promoters will also not be allowed to change project designs without the prior consent of buyers.Earlier, projects of a size greater than 1,000 square metre (sq mt) or 12 flats were under the ambit of the law. Now, projects of a size greater than 500 sq mt or eight flats are under the ambit of the law. Similarly, the interest rates paid by real estate developers would be the same of that of home buyers when they default on projects or delay the construction process. These measures may instill greater transparency in the sector. According to the Bill, home buyers will be able to approach consumer courts in case of any disputes. There will be 644 such district-level consumer courts across India. As litigation is expensive, such courts may lower the cost involved.One of the major amendments in the Bill is that developers should deposit 70 per cent of the money they receive from home buyers in an escrow account. This is intended to ensure that developers do not invest the money they received in other projects. While they commend the current Bill for its overall positive impact, many real estate developers like Niranjan Hirandandani feel that this clause might make raising funds difficult for a sector which is already cash-starved. The previous United Progress Alliance government's Bill had proposed developers depose 70 per cent of the funds in an escrow account but a Rajya Sabha committee, which examined the Bill, lowered it to 50 per cent.If the provisions of the Bill are violated by developers, they may be imprisoned up to three years. If home buyers or real estate advisors violate provisions of the law, they may be imprisoned for up to a year. Many real estate developers, however, find this disproportionate to the offence because many of these issues are civil and not criminal in nature.