In some good news for the real estate sector of India, the Union Cabinet approved the Real Estate (Regulation and Development) Bill late on Wednesday. This has set in motion a new wave of hope and positivity for the realty sector as this bill will provide protection to the home buyers along with making the entire sector more accountable and facilitating transparency and faster delivery of projects. Defaulting developers and builders will also fall within the ambit of the bill.
The updated version of the Real Estate Bill makes it mandatory for the builders to put away 70 per cent of the proceeds from buyers into an escrow account to finance the construction process without facing a financial crunch. This limit was earlier set at 50 per cent but was increased to 70 after insistence on the part of the Opposition. This clause will not only ensure proper utilisation of the buyer’s money but will facilitate faster completion of construction as well. Hence, the buyers will no longer have to face delays in possession.
This Bill also proposes size reduction in projects that need to be registered with the real estate regulatory authority. Earlier, projects which were 1,000 square metres in size were required to register. But after the Bill is passed, smaller sized projects measuring 500 square metres or having eight apartments will also have to be registered with the concerned authorities. This will obviously bring more number of projects under the scrutiny of the regulatory authorities.
The Real Estate Bill will also define conditions for holding a builder or developer liable and lay down the penalties in cases of default. If any structural defects are found in a project, the builders will face imprisonment for five years in contrast to the two years at present. Also, in case of violation of norms, the developers can be imprisoned for up to three years. Similarly, the buyers and brokers could face an imprisonment up to a year.
Real estate agents will also come under the scrutiny of the Real Estate Bill. While this is a positive move, what needs to be clearly defined are the conditions under which the real estate agents will be held guilty of default and the code of conduct which is expected out of them. The Bill will also deal with the disparity in the interest rate that the builders and buyers have to pay in the case of default. Currently, the penalty interest that the buyers pay is around 15-18 per cent while the builders only have to pay a mere 2-3 per cent! The Bill will cater to this imbalance which clearly seems to favour the builders at present.
While the Real Estate Bill has defined the carpet area more clearly, real estate experts feel that it needs to rely on global standards of measurement as the Indian real estate market and economy is increasingly witnessing investment from around the globe. So it only makes sense to use a global standard of measurement which is being used everywhere else. Moreover, the Real Estate Bill will also prevent developers from altering designs and plans without consumer consent, ensure fast track dispute resolution, establish appellate tribunals and involve consumer courts in sorting out matters pertaining to real estate.
After getting a nod from the Union Cabinet, the Bill is all set to become an Act. And once that happens, it is hoped to usher in greater transparency, faster project completion and delivery, boost the buyers’ confidence and enhance chances of foreign investments. But it is largely dependent on how the state governments implement it and how effectively it is monitored. If done correctly, this Bill will benefit the entire industry by restoring buyer confidence and safeguarding them. Hence, its implementation still remains a critical challenge for the realty sector.