Now A Regulator For Realty

We finally have a Real Estate Regulatory Bill that is set to benefit consumers largely. While there still are some loopholes in the Bill, the positives weigh heavy and we certainly welcome this move.

"The biggest challenge that a developer faces is getting permissions, approvals and clearances. There are ambiguities in the rules that are already in place. There are multiple agencies that perform permissions-related work, but none act in tandem. A real reform will be seen only when these agencies are covered under one bill and a single window clearance is ensured. The Bill does not specify a time limit for clearing a proposal or grant permission, which is a greater reason for delays."

- By Naushad Panjwani, Senior Executive Director, Knight Frank India for DSIJ

It has been 25 years since the SEBI came into being and today we can boast of one of the most well-governed markets in the world. Scams and insider trading are a thing of the past now. Many sectors in the country have been covered by a specific regulator; be it banking, insurance, telecom or electricity. With such foresight and success, it is a wonder that the government took so long to cover the Real Estate industry.

Although belated, it is a welcome move. It may, however, take some time before the Bill becomes an Act. Also, housing is a state matter and hence the central government can only recommend. It is up to each state to make its own law regarding the regulation of their real estate market. Some will have to replace the existing toothless Acts like the Maharashtra Flat Ownership Act (MFOA) in Maharashtra.

Coming to the new Real Estate Regulatory Bill, many aspects of the Bill have brought cheer to the consumers. Some of the important ones that are likely to have a major impact on the industry are listed below:

• The availability of information as a right and without having to ask the developer for it. This combined with the RTI will be a very powerful tool for consumers to get vital information.
• The assurance that an authority has checked all the approvals which a developer is required to obtain before he advertises and starts collecting monies towards sales.
• A mandate that 70 per cent of the money collected by the developer is kept in a separate account to be used only for that specific project.
• The developer will be forced to register all the agreements wherein he collects more than 10 per cent of the sale proceeds.
• Consumers will get a flat of the size and specification that is promised to them.
• Warranties for quality of construction.
• Ambiguities regarding size of flats have been removed and developers will only sell on carpet area basis.
• Formation of societies, conveyance to societies and Occupation Certificate (OC), which are the deliverables of a developer, will now be ensured.
• In case of defaults or disputes, consumers will have recourse to a powerful regulator and will not have to depend on costly and time consuming litigation.
• The penalties and prosecution provisions are made stricter and will act as a deterrent to errant developers.

There are divergent views on what impact this Bill will have on the pricing of land and the end product. Whether cash flow constraints will drive land pricing down and superior qualities and cost of warranties push up the price of the end product is to be watched.

Though the trade bodies and progressive developers have welcomed this Bill, it is indeed a tad harsh on the developers. Even without this Bill, there are a few developers who sell on carpet area basis, give warranties, insist on good governance against misusing funds of one project for another, refrain from making misleading advertisements and follow ethical practices. But some of the provisions seem unfair to them too.

The Bill also does not cover some important stakeholders like the contractors, brokers, funding agencies and most importantly, the approving authorities. Delays in a project are not always on account of the developer. The biggest challenge that a developer faces is getting permissions, approvals and clearances. There are ambiguities in the rules that are already in place. There are multiple agencies that perform permissions-related work, but none act in tandem. A real reform will be seen only when these agencies are covered under one bill and a single window clearance is ensured. The Bill does not specify a time limit for clearing a proposal or grant permission, which is a greater reason for delays. Also, the Bill covers only residential projects over a certain size.

It is hoped that the government hastens the Land Titling Bill which is supposed to minimise title risk and reduce time and cost in title transfers. It will boost institutional investor confidence significantly.

Real estate markets world over are governed by some kind of a regulator. Many of the provisions of this new Bill are successfully tried and tested globally. Consumers have been benefitted and the markets are more evolved and mature. However, we have often seen the failure of many well-drafted laws due to poor execution.

However, this is the first positive step towards bringing order and professionalism in the Real Estate industry and we definitely welcome it.