Revised Real Estate Bill: Developers Sceptical, Term It Partisan
The Union cabinet's recent approval of the Real Estate (Regulation and Development) Bill, 2015, with 20 major amendments has left developers a worried lot. With the revised changes to the bill, the government aims to bring more transparency, accountability, promote fair play in real estate transactions and ensure timely execution of projects.
While the developers fear that the modified bill, recommended by the Rajya Sabha select committee, will add to the red tape, the Confederation of Real Estate Developers' Association of India (CREDAI) has termed it a 'sword hanging on their heads'.
What Developers Want
According to The Indian Express report, Getamber Anand, CREDAI (Noida) president said, “A new sword by the name real estate regulatory Act is hanging over our heads. As an industry body, we welcome the presence of a regulator… But we are not happy with the contents of the Bill.” He was addressing the CREDAI Gujcon Convention and Building Material Expo 2015 in Ahmedabad recently.
Anand said the Bill should not be retrospective in nature and warned that the clause dealing with the cancellation of registration of the real estate projects might be misused against builders.Raheja Developers managing director Navin Raheja though backed the idea of including sanctioning authorities in the Bill.Reiterating Raheja's claim, Supertech Limited chairman R K Arora said: “The Bill should also engage approving authorities so that a real estate project does not get delayed on getting approvals and timely delivery can be given to customers.”
According to Credai National (Bengaluru) chairman Irfan Razack, the Bill in its present form will create a number of hurdles for small builders. “It will definitely slow down the overall process and will create one more step for the builders to follow,” he said. He added that on average developers spend 6 to 9 months in getting clearances for a single project.
What the new Bill says
The new law, which will cover both commercial and residential projects, aims to set up a real estate regulatory authority in states/UTs to regulate transactions. It will be compulsory for projects and realty agents to be registered with the body.
The bill makes it mandatory to disclose all registered projects, including details of the promoter, project, layout plan, land status, approvals, agreements along with details of real estate agents, contractors, architect and structural engineer, according to a PTI report.
Developers are required to deposit 70 per cent of the project cost into an escrow account. The bill also seeks to punish both builders and buyers for violations of the proposed law.
However, the bill does not bring under its ambit approving authorities who, in many cases, are the reason for delays in projects, and provisions for imprisonment.
Gaping Holes
For the developers, the main concern is strict penalty for them, if they fail to deliver, without making the relevant government agencies accountable.
"This will eventually curtail supply and could lead to a rise in the prices in the long term," Anshuman Magazine, managing director of property consultancy CBRE told The Economic Times.
Another concern is the large number of pending project approvals and if the on-going projects come under the purview of the real estate regulator, it will hold up many projects.
Developers believe along with the new law, there is a dire need to usher in administrative reforms which will lead to a quicker approval process.
According to a Firstpost report, JLL India COO (business & international director) Ramesh Nair after analysing the number of proposals received and clearances given by the Municipal Corporation of Greater Mumbai (MCGM) found that on average 1,500 projects entered the system for approval each year, while only 730 occupancy certificate and 118 building completion certificate were granted by the MCGM. The gap indicates a huge backlog, he points out.
The clause that 70 per cent of the sale proceeds to be kept in Escrow might be a problem. ASK Property Investment Advisors MD & CEO Amit Bhagat in his column in ETRealty.com writes that by retaining 70 per cent in the Escrow after the sale of the apartments, the Bill compels developers to lock their capital and are taking away flexibility of efficiency of capital from prudent players. This rigidity may prove to be a deterrent for attracting requisite domestic and offshore capital to the sector. The Indian developer is thinly capitalized and this may impact supply in future, he adds.