The cabinet on Wednesday gave its nod to Real Estate (Regulation and Development) Bill, 2015 paving the way for its passage in the current winter session of the parliament.
The government has approved the bill following amendments suggested by a select committee appointed by the Rajya Sabha. It has accepted all the major recommendations of the committee and the bill is now slated to be tabled in the parliament.
Anuj Puri, chairman and country head, JLL India, said by accepting all the changes made by the committee, the government has not left any chance of the bill not being acceptable to the opposition and thus has cleared the decks for its passage.
“The bill shall create a much required consumer right protection umbrella for buyers of real estate thereby increasing consumer confidence and creating lasting developer brands who shall be known for quality and timely delivery of projects. The bill shall have far-reaching positive consequences for the sector in terms of its operating procedures while creating a comprehensive consumer redressal mechanism,” he said.
Among the key changes, the amended bill mandates all projects starting from 500 sq mtrs or 8 apartments to be registered with the regulator, against the earlier mandate of 1,000 sq mtr or 12 apartments. It will be applicable retrospectively across ongoing projects too across residential and commercial segments.
It also makes it mandatory for realtors to keep at least 70 per cent of customer advance, including land cost in a separate escrow account, to meet construction costs. This is up from the previous requirement of 50 per cent.
The government has also brought in parity on interest payment in case of default. Now, builders will have to pay same interest as home buyers in case of default or delays—earlier home buyers were accountable for this. It has also increased the liability of builders from two years to five years in case of structural defects.
The key purpose of the bill is to set up a real estate regulatory body. Home buyers have long suffered with builders changing project plans without the consent of buyers or diverting funds from one project to another. Several cases of fraud and cheating in real estate have surfaced over the years. Developers have also failed to deliver on time with a lot of projects delayed by years. In the wake of these developments, the bill aims to put a check on the malpractices prevalent in the space, bring transparency and speed up construction work.
“The bill aims at restoring confidence of consumers in the real estate sector by institutionalising transparency and accountability in the real estate and housing transactions which will further enable the sector to access capital and financial market,” the government said.
It added that the regulator will promote orderly growth through consequent efficient project execution, professionalism and standardisation.
The aggrieved buyers can now approach consumer courts at district level apart from the regulatory body to be set up under the bill. The bill also talks about provisions for arranging insurance of land title, a provision not available currently. This saves builders and buyers in case the land title turns out to be invalid.
The regulator body to be set up under the bill will promote single window clearance, a long pending demand of the industry. The regulator will digitise the much needed land records along with grading of promoters and projects. They will have to formulate regulations within six months of the formation of the body and states will have to make rules within six months of the notification of the act.
In case of violation of orders of the Appellate Tribunal, builders will be charged with three years of imprisonment while agents and buyers will have to face one year of imprisonment or monetary penalty or both.
In the last round of amendments, the bill had enlarged the purview of the body to include both residential and commercial projects. It had mandated all projects including ongoing projects to be registered and prohibited builders from making project plans without consent of two-thirds of customers.
Anshuman Magazine, chairman and managing director, CBRE South Asia, said, “This would be a game changer for the Indian real estate market. Not only will it protect the consumer but also encourage individual buyer besides financial institutions, both domestic and international, to invest in the real estate market.”
However, he echoes the sentiments of the industry on inclusion of government bodies in the regulator. Real estate industry bodies feel that the government agencies responsible for giving approval for projects also need to be included in the purview of the bill to work in a time-bound manner.
“This bill will bring in the much needed transparency and accountability in the real estate sector, though the strict punishment for developers without bringing the relevant government agencies and approval process under its ambit, looks a bit one-sided,” Puri said.