A sense of order

LEGISLATION

A sense of order

Legally Speaking : The Bill proposes to establish an Authority to regulate, control and promote planned and healthy development and construction. File photo

The Union Ministry of Housing & Urban Poverty Alleviation has drafted a Draft Model Real Estate (Regulation of Development) Act. Details of the Act can be accessed on the website of the Ministry (http://mhupa.gov.in) under the ‘What is new’ ticker.

The purpose of drafting the bill as stated in the website is “with a view to protecting, on the one hand public interest in relation to the conduct and integrity of promoters and other persons engaged in the development of such colonies and to facilitating on the other the smooth and speedy construction and maintenance of such colonies, residential buildings, apartments and properties and for matters connected therewith or incidental thereto.” Further it adds, “to facilitate orderly and speedy urban development”.

Development of towns is a state subject. The government can only formulate a model act and urge states to adopt it, modify it, but not dilute the intentions, enact an Act and create infrastructure. It can perhaps put some pressure by regulating monetary assistance. But it is for the states to act. 

Unorganised sector

The real estate sector has so far remained unorganised. It has been the refuge of every kind of entrepreneur India has. There are entrepreneurs who operate by and large in a transparent way, keep their promise, procure legal title to the land, state sale prices, areas of space offered, spell out specifications, take all money by cheque/s, deliver a good quality product in specified time, help buyers to form societies/associations and guide them in the initial years towards proper upkeep and accounting. At the other end of the spectrum, there are fly-by-night operators who come up with bogus and forged documents, make promises, collect advances and disappear.

Then, there are operators who delay work, inflate costs, cheat on infrastructure, produce substandard flats and plots. Right now, they can get away or pay a small penalty after protracted battles in consumer courts. Jones Lang Salle, a real estate consulting and research giant based in the US, with branches in many countries including India, conducts a survey of the industry players and comes up with ‘Transparency Index’ for each country annually.

Of the 82 countries it surveyed in 2008, India had the 50th position. Its transparency index was 3.34 which falls in the classification ‘semi-transparent’. Canada with the highest transparency has an index of 1.17. Russia has 2.63. The parameters of assessment are accessibility and authenticity of land records, adherence to building codes and transparency in transactions.

Deepak Parekh, who was till recently chief executive of Housing Development Finance Corporation said in an annual general body meeting of that company, “It would be a missed opportunity if the government were not able to lay out an institutional framework for a real estate regulator.”

According to Parekh, the role of regulators would be to monitor the affordable housing agenda, promote real estate reforms and ensure transparency especially by mandating that flats be sold only on carpet area and act as a platform to protect buyers from real estate fraud. There is also a growing consensus in business circles for a real estate regulator as evidenced in the latest E&Y-FICCI real estate report.

The necessity for enactment of rules has risen because the industry, especially financial institutions which are extending loans for housing, hope that more foreign funding will flow in if transparency increases. The housing situation in India is not satisfactory as we all know. The percentage of GDP (Gross Domestic Product) that gets taken up for mortgage is only 3.9 per cent in India. Even in a country like Malaysia, it is as high as 31 per cent. Housing loans as a percentage of GDP (gross domestic product) are only 3.9 per cent in India.

Highlights of the draft bill

The draft bill makes it obligatory for a promoter who is developing land more than 1000 sq. mts or more than four housing units to register with the state. It defines registration/cancellation procedures, responsibility of promoters and also responsibilities and liabilities of those who purchase the unit.

Further, it proposes to establish an Authority to regulate, control and promote planned and healthy development and construction, sale, transfer and management of colonies, residential buildings, apartments and other similar properties; an Appellate Tribunal to entertain and settle disputes. The Tribunal, like any other tribunal, viz., income tax, will have powers to award penalty for non compliance and its enforcement.

Once the tribunal is established, civil courts will not have any jurisdiction except in the case of other such tribunals. Before construction starts, all pre-construction approvals from local bodies/development authorities need to be obtained. The promoter is required to maintain a website showing all project details.

The bill provides for compulsory registration with the regulatory authority for development of land into plots or construction of a building or conversion of any existing building or part thereof into apartments, for the purpose of marketing all or some of the apartments before the project is advertised, prospectus brought out or construction starts.

The specific clause reads, “Every promoter shall make an application to the regulatory authority in such form, with such fee and such other information as may be prescribed. Every promoter shall furnish a bank guarantee equal to five per cent of the estimated cost of the development work to the competent authority.

He has to give an undertaking to complete the work in accordance with the conditions of the registration and payment of external development charges, if any. The promoter can accept advances or deposits only after he has received the registration.”

The promoter is responsible for:
* Entering all details on the website of the regulator.

* The veracity of the advertisement or prospectus.

* First entering into a sale agreement before taking a deposit from the prospective buyer and to account for the sums received including refunding any savings.

* Taking measures for protection and safety of property till such time as the property is handed over to the buyer and to common areas till they are handed over to the society/aassociation.

The regulatory authority has to process the application and grant or refuse registration in writing with reasons for refusal within 30 days and provide a password to the promoter for access to its website. Before issuing a refusal, it has to provide a reasonable opportunity to the promoter to be heard. The registration will be valid for a period of three years from the date of registration.

The promoter has to enter details of the project for which registration has been granted and it shall include the names and addresses of authorised agents/property dealers, brokers or middlemen in the advertisement and the regulatory authority would verify the accuracy of the information furnished. If there is an untrue statement the purchaser has the right to withdraw from the project and the promoter shall compensate him for any loss he might have sustained. 

Onus on the promoter

Also, the promoter shall not unilaterally cancel a contract of agreement to sell. It is the responsibility of the promoter to obtain completion certificate from the authorities.
The defect liability period has been set at a period of two years from the date of handing over the possession.

Any dispute in this regard will be decided by the regulating authority. It is the promoter’s responsibility to hand over the possession of common areas, appurtenants and also the original plans and documents to the association. The complete draft bill is available in the Ministry’ web site. While there have been a large number of comments from promoters and their associations, the response from state governments have been poor. In general the comments from promoters have been those of stalling the introduction of the Act.
There is talk of the regulatory authority becoming an obstacle, of delay and corruption. On the other hand, buyers have by and large welcomed the move.

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has suggested a review in the Bill in its current shape because “many of its provisions are harsher and disadvantageous to the industry and concerned stakeholders.

It is discriminatory in as much as it keeps the government agencies/ local authorities/statutory bodies engaged in the business of development of land or housing out of the ambit of the regulator. In addition the Bill is self contradictory as the regulator is being given the role of licensing authority as well which is against basic principles of liberalised economy.”

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