In a bid to enhance transparency and fair play in real estate, the government approved proposed amendments to Real Estate (Regulation and Development) Bill 2013 on Tuesday and expanded its ambit to include commercial properties.
One of the key features of the bill is setting up Real Estate Regulatory Authority. Once it becomes a law, it will pave way for setting up one or more real estate regulatory authority in each state/union territory (UT), or one authority for two or more states/UT. The states have to also set up a web-based online registration facility within a further period of one year from setting up of the bodies.
The bill has also put in place mechanism to fast track disputes through adjudicating officer and added a provision for setting up a Real Estate Appellate Tribunal which will hear appeals from orders of the Authority and the adjudicating officer.
The bill has made registration mandatory for real estate projects and agents and has also made compulsory disclosure of project related information such as details of promoters, project, layout plan, plan of development works, land status, status of statutory approvals and disclosure of proforma agreements, names and addresses of real estate agents, contractors, architect, structural engineer etc.
In another key guideline, developers have to compulsorily keep 50 per cent (or such lesser per cent as notified by the government) of the money received from buyers in a separate escrow account within a period of fifteen days, which will be used for cost of construction. Earlier, the amount needed to be kept away was 70 per cent.
“This provision will effectively allow developers to continue their practice of diverting funds collected for a project towards land acquisition or other projects, and will work in their favour by also allowing them to grow their land and/or project portfolio. However, the 50 per cent mandate will still place enough restriction on developers to divert (from fully diverting) funds elsewhere and ensure better completion records,” said Anuj Puri, chairman and country head at realty consultancy firm Jones Lang LaSalle (JLL) India.
To ensure protection for investors in commercial properties, the bill has expanded its ambit to cover both residential and commercial real estate as against only residential real estate earlier.
Commercial properties have attracted lot of private equity capital in the recent past with several assets being bought by the PE funds. Residential projects, however, remains the mainstay of PE investment in the realty space.
The new guidelines prohibits developers from altering declared plans of projects, structural designs and specifications of the project without taking consent of two-third of the allottees. However, it makes exception for minor alterations due to architectural and structural reasons.
In case of non adherence to the guidelines, it proposes punitive actions including de-registration of the project and penalties. Failure to register a project will cause the developer to attract a penalty of 10 per cent of the overall project cost, and an additional penalty of 10 per cent and/or a three-year prison term in case of continued non-compliance.
Incorrect or incomplete disclosures will attract a penalty of 5 per cent of the project cost.
In case the developer falters, the allottees have the right to claim refund with interest and compensation for default.
“The Bill will provide a renewed boost to transparency levels in the Indian Real Estate sector. This will instil more confidence among global investors, thus providing better access to structured capital for this sector,” JLL India's Puri said.
On the flip side, he pointed out the government needs to also address some other endemic issues such as slow approval processes of its own agencies which leads to project delays.
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