Real estate bill: Time to correct, revisit opportunities

Real estate bill: Time to correct, revisit opportunities

The Real Estate Regulation & Development Bill 2015 (RERD) has missed the bus of becoming an Act due to Parliament logjam. The Bill, with UPA’s flavour, NDA’s ingredients and with the recommendations of the select committee of the Rajya Sabha, had received the nod of the cabinet but failed to ensure its passage into an Act.

The intent of the Bill is to bring in transparency, efficiency and accountability in the Indian real estate sector which is engulfed by the unholy nexus between the builders and politicians. The sector is the epicentre of generation of black money. The construction industry is unregulated and disjointed with no effective laws to control their activities for orderly growth.

The Bill, when it becomes an Act, envisages setting up of Real Estate Regulatory Authorities (RERAs) in every state. Both commercial and residential projects which are above 500 sqmts/8 flats come under the purview of the regulator.

Such builders will have to compulsorily register their projects with RERA along with details of layout clearances, plan approvals, carpet area of the flats, marketing agents and TAT of completion of the project. All these details will be in public domain on the website of the RERA. This sounds great but is operationally challenging.

The Bill has also specified that the sale rate of the apartments will be on carpet area (usable area) and not on the super built-up which includes common areas like staircase, balconies, swimming pool, gymnasium in the project.

To prevent diversion of funds by the buil-ders into other projects, a common practice, 70 per cent of money received from the buyers should be deposited in a bank escrow account and should be utilised for the specific project. In the 70:30 escrow, 30 per cent is earmarked for land costs.

In the present format of the Bill, builders cannot deviate from approved plan and resort to major changes. Buyers’ consent is required for taking up modifications. Violations attract three years imprisonment for the builders, and one year for the agents and buyers if they fail to fulfil their contractual obligations.

The penalty clause which was favourably tilted towards the developer is now uniform at 10 per cent – both for builders and the purchasers. For ensuring transparency, financial statements of the project will have to be audited within six months of the financial year closure. The RERA envisages redressal of consumer disputes through any of the 600 plus district consumer courts with a time limit of 60 days for speedy adjudication. Civil courts are kept out of the jurisdiction.

The intent of the Bill is extremely good  and aims at plugging most of the loopholes and grey areas in the real estate sector which is notorious for its opacity.

Unfortunately, the Bill has many loose ends. The architects of the Bill seem to have a pre-conceived notion that all builders are unscrupulous, cause delays in completion of the projects, create hardships and losses to the gullible buyers.

Governmental authorities, corporations and the bureaucracy are the sanctioning authorities of land, title clearances, change of land use from agriculture to residential/ commercial and are the licensing authorities of building plans. It is the bureaucracy which is mostly creating hurdles and the industry is aware as to how the “speed money” works in quick clearances of approvals.

It is unfortunate that the Bill conveniently excludes this section of the perpetrators of delay and paints all the builders as bad, with the same  brush. The Bill is flawed by bringing projects under construction which are yet to receive the Occupation Certificate under the ambit of the new regulations. This “retro” effect with the draconian clause of prosecution of the builders will be a lethal combination for the industry to collapse.

Most of the builders are already neck deep in debts, high cost borrowings, incomplete projects, high inventory of unsold flats of more than Rs 8 lakh in the range of 2-4 years. It is practically impossible to now enforce escrow of 70 per cent for ongoing projects exceeding 500 sqmts/8 flats to come under the purview of the Bill. These impractical regulations will further suffocate the industry.

‘Single window’ approvals
It is still not too late. The lost opportunity in the monsoon session can now be effectively used to revisit the Bill. Critical challenges will be to withdraw the retrospective effect clause, reducing the escrow to 50 per cent since the land cost in most of the states is more than the construction cost and doing away with the imprisonment clause with steeper penalties.

Focus should be on the government to facilitate a congenial atmosphere with speedy clearances by introducing “single window” approvals thus preventing undue delay and harassment. Presently, around 20 approvals are required before commencement of a project which takes nearly two years.

A single RERA in a state with grievance redressal through consumer forum is not practical. The Bill has to provide for RERA outfits at the district level and fast-track  redressal courts – Real Estate Regulator Court (RERC) on the lines of debt recovery tribunals (DRT).

The Bill should evolve and formalise a model Builder-Buyer Agreement (BBA) across India which should clearly spell out the roles and responsibilities of all the stakeholders to bring in uniformity and enforceability. Otherwise, the shakeup will lead to more confusion, red tape and exiting of credible builders.

The “extra time” now available can be effectively used to make suitable changes in the Bill to make it more functional, government-accountable, facilitate builders to complete projects on time and buyers to realise their cherished desire of having a roof over their head. When the Bill becomes an Act, it will attract greater FDI to the funds-starved real estate sector and will act as a big push to the Prime Minister’s  mission of “housing for all” by 2022.

(The writer is a Bengaluru-based banker)