Real Estate Bill - Proposed Draft

The much awaited Draft Real Estate Bill has been anticipated by the industry and consumers since long time as it would be the first step towards bringing some regulatory checks and consumer empowerment. Considering little recourse available to buyers when it comes to property or any transparency in pricing and nomenclature, the bill has a very strong role to play when it comes into effect. However, as has been the case with several other important legislations that have serious repercussions towards consumer benefit are in cold storage due to parliamentary inaction.

In its current form the bill has a long way to go, yet there are few indications that will make the prospects of buying result a nice experience in future. The following are highlights of some aspects of the guideline in its current form that consumers need to be aware of.

Ø  Regulatory Authority :  The bill proposes establishing a real estate authority that will regulate the sector and enforce the provisions of this law. It also allows for the establishment of an appellate tribunal before whom appeals against the authority’s rulings can be made. This is the same structure as SEBI and the securities appellate tribunal. This move will bring in the much needed regulatory mechanism into a highly unregulated multi-layered industry that is notorious for dealings that have left many consumers high and dry.

Ø  Registration and Disclosure : The bill proposes that each new project be registered and approved by the real estate regulatory authority. This mandatory clause will be similar to the way insurers and fund houses file  for every product before selling it. The information on a registered project will be available at the regulator’s website and no project will be allowed advertisement before this process. This will bring in transparency; reveal details on promoters, developers and other stakeholders in the project. The biggest advantage of such detailing will mean; developers cannot change the course of a project after commencement.

Ø  Standardizing Terminology: The confusion and doubts over carpet area, floor area and super area can flummox the best of the linguists. The guideline suggests standardizing real estate terminology to make it more understandable to the consumer. The exact definition of such terms besides sales and purchase documents in a language that is clear and understandable will come into effect. The role of real estate agent and developer will become clear and so will be pricing.

Ø  Deadlines and Schedules :The biggest worry among buyers is with absconding developers,  delays in construction and development. According to the guidelines; all projects will be registered for three years and registrations extended by two years. The projects registration will be cancelled if it is not implemented in the period and there are provisions to complete failed projects. The guidelines empower the regulator to take necessary action to ensure projects can be completed, including handover to buyers. The inference from this provision is that once an allotted buyer has paid up, he has right to the projects and if a developer fails to develop the project he can be removed.

Ø  No Power of Attorney : when a POA is used for a property transactions, the property is not registered in the name of the new owner, thereby leaving a gaping hole for possibilities of fraud. Usually, such transactions also involve unaccounted money since legally the property has not been sold or bought. The Supreme Court put an end to this in October by making the registered sale deed the only valid document for property transactions, which already gives teeth to the new guidelines on ownership.

Ø  Fund Diversion: Like all good, there are also areas that do not offer sweet deals to buyers. For instance in comparison to the draft bill of 2009, the current proposed guideline has weakened the anti-fund-diversion provisions of the bill. This will allow developers to use only 70% of the funds collected from buyers towards their project and divert the rest, which will make it easy for developers to divert funds into other activities and also cause delays in completion of the projects for which the money is collected. This weak link in the bill will encourage builder to build land banks and delay existing project schedules and increase speculation raising real estate prices.

Ø  Small Size Concession: The guideline is lenient with small developer and projects that are on less than 4000 square meter area and waives of the necessary registration for such projects.

Ø  Defect Rectification: According to the draft bill if an allottee brings up a major structural defect or deficiency to the promoter’s notice within one year of allotment, such a defect will be repaired by the developer free of cost within a reasonable time frame. By leaving the definition of reasonable time open, the regulation leaves the owner short-changed. A better way to address such a scenario would have been to enforce guarantee on quality and warranty on fixtures that are charged for by the developers. Protecting the consumer post sale does not seem to feature in the guideline, especially when consumer good come with guarantee and extended warranty that are far less valuable than a house which for many is still their biggest asset in life.

Finally, the guideline has no provision for older projects with delays or developers with dubious pasts into the picture. With several incomplete projects abound, this guideline should have had some provision to check on erring developers by bringing in provisions of not allowing fresh registrations unless solutions to past issues are resolved and rested. Given the mixed proposals and the fact that the government has sought feedback on the proposals, the light of day for this bill is still a long way to go. At best, in its current form it gives scope for stake holders, especially consumers to figure the loopholes and push for its fixing with the government.  An effective real estate regulatory mechanism will not only benefit consumers, it will also make real estate a reputable business which is clean and not associated with deceit.