The new real estate regulatory Bill is on the verge of becoming a reality. Once that happens, we will have a regimen in place for a fair and transparent real estate transaction with builders, which comes as a ray of hope for harried consumers
We are going to finally have a law and hopefully some order as well in the hitherto chaotic world of real estate in India. Soaking in precious life savings of millions of home seekers, this sector has been home to swindlers of all varieties and shades.
From the likes of Bhangoos and their ilk, who have been rank con artistes to the so-called respected names, who at least delivered a house but at ingeniously padded prices but below par quality, we can now hope for getting a product as you see it at upfront costs.
The advent of the real estate regulator is on the verge of becoming a reality, at least nearly so, as different States will have to enact appropriate legislation on the model of the national Act. And once that is done, we will have a regimen in place for a fair and transparent real estate transaction with the builders.
The most significant feature of this Bill is that it freezes the unit of real estate pricing in terms of carpet area. All prices will have to be denoted in carpet area terms. This means that the buyer pays for what he gets to be able to use.
Today, prices are quoted on a super built-up area basis with no fixed connotation of the usable area. The super built-up area is supposed to include lobbies, staircases, balconies etc. Exactly what proportion of this ubiquitous super area is usable was always uncertain. Very often, indeed always, at the time of handing possession of the flat to the buyer, the builder would place an additional demand on him on the pretext of the increase in super area and the hapless buyer would have no choice but to comply. There was a non-effective redressal system and the buyer would thank his good fortune for having got a roof over his head.
As per this legislation, which is set to become a law, all prices have to be advertised on a carpet area basis and all purchase agreements will have to be on these terms only.
The buyer has been give further protection in terms of being able to enforce remedial action if a defect is seen in the construction of the building. The defect can be brought up within a year of taking possession and the builder has to remedy the flaw. Previously, it was a sell and scoot policy of the builder, and there were plenty of the fly-by-night types. Now after the Act is promulgated, the promoter’s skin has to stay involved for at least a couple of years of completion of the project.
There are other provisions in this Bill that would enhance the comfort of the potential buyers. The law applies to any development in 500 square metres of area, whether it is a commercial or a residential project. The advertisements have to contain all details of the license and permissions and the representation in the brochure has to be the same as what will be delivered to the buyer. No more glossy and enticing graphics of a landscaped paradise. You have to deliver what you depict in the advertisements.
Until now, the sale agreements were heavily loaded in favour of the builder. All advantages to the builder and all penalties on the buyer was the guiding anthem of the real estate sharks.
Notwithstanding, the orders of the courts or the Competition Commission the agreements never got to represent fairness between the buyer and the seller. This law makes the transaction a lot more equitable.
In case of delays, the builder will have to bear the cost of the EMIs of the buyer till the time of the delivery. It is relief to some extent. Besides, the builder has to place 70 per cent of the money received from the sale of the project in an escrow account. This means that the money has to be used for construction of the project for which sales have been made.
Until now, the usual reason ascribed to delayed completion of the project was lack of funds due to their diversion by the builder to buy other land banks. There were notional penalties on the builder for the delays, so the obligation to complete the project had no adverse consequence.
Not so with the new Bill. A substantial portion of the money stays in the escrow account and can be spent on the project only. This should help cut down on delays.
For the first time in our history, a jail term has been prescribed for failure to comply with the orders of the appellate tribunal or as a penalty for violating the provisions of the real estate Bill. This can be imposed with or without a monetary fine and should have a salutary effect on ensuring the integrity of real estate transactions.
Indeed, to clean up the state of affairs in this sector, the Bill also covers the real estate agents who have ruled the roost pretty much with no accountability to the buyer or seller. There is no known remedy against them for taking the customer for a ride. This Bill regulates their conduct and brings them into the fold of a regulated profession with defined obligations.
At one level, the Centre has set the ball rolling for a significant reform. As per estimates of the Central Statistical Organisation, the share of GDP from the towns and cities was 52 per cent in 2004-05 and was projected to be 63 per cent as per the mid term appraisal of the 11th Plan in 2009-10. This will continue to rise exponentially.
This is a vital segment of the economy and the State Governments have to realise this. And this ball now rightfully is in the court of the State Governments. The sooner they ratify this law and enact the necessary legislations and notify the rules of procedure, the better it would be for the sector to recover its vibrancy.
Yes, there are many a slip between the cup and the lip to be taken care of. There could be vested interests putting pressure to delay this legislation. More importantly, it has been left to each State Government to prescribe the time period for disposal of complaints or handling the registrations of builders and minute details of procedure.
Very often, we enact near-perfect laws only to make the process of implementation a punishment. Justice can be easily defeated as we all know, but that would make this exemplary effort yet another wasted opportunity in our history to do the right thing.
The writer is former Director, India Habitat Centre, and a finance and law professional. Views are his own