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Sector
 
REAL ESTATE: INDUSTRY REGULATION
Can the new Bill create a level-playing field in real estate?
The Draft Real Estate (Regulation and Development) Bill 2011, which is likely to be placed before this winter session of the Parliament, will hopefully live up to expectations in meeting the aspirations and the needs of the industry and its consumers.
Issue Date - 08/12/2011
 
The recent order of the Competition Commission of India imposing a Rs.6 billion fine against leading real estate player DLF grabbed media headlines and brought into focus the plight of the real estate consumers who have long been grappling with the twin-challenges of one-sided contracts loaded in favour of the developer/builder on the one hand and the endless delays in projects and cost overruns on the other. But help for beleaguered consumers is at last on hand with the central government now attempting to address these challenges by unveiling a draft of the Real Estate (Regulation and Development) Bill 2011. Recently, the Union Minister for Housing and Urban Poverty Alleviation Kumari Selja released the 29 page-long draft bill in this regard, which seeks to ensure self-disclosure, transparency, fair play and dispute resolution in the real estate sector. The bill, the government believes, will usher in regulation that will help protect homebuyers from fly-by-night operators and rapacious developers. The bill seeks primarily to provide for an adjudicator by creating a real estate regulating authority, which will have the power for prescribing punitive action to bring errant players to book. The draft bill is expected to be approved by the Union Cabinet shortly, and will most likely be placed before the ongoing winter session of the Parliament.

Several influential voices from the sector have welcomed the move to bring in a regulatory body for the real estate sector. None other than Deepak Parekh, Chairman of HDFC, India’s largest housing finance company, has spoken in favour of regulation for the sector, which he feels has been getting a bad rep in recent times due to the various malpractices and excrescences finding their way into the industry. Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India, has welcomed the Model Real Estate Regulation Act and says that it provides for a much need arbitration body to hear out and attend to grievances and redress. “This is a big step in the direction of recognising the Indian real estate industry, since it means that the real estate sector has attained a certain degree of scale and so now warrants a regulatory agency with transparent rules, regulations, safeguards and redress systems,” says Puri.

What is there in the Real Estate (Regulation and Development) Bill 2011 for the realtors? To begin with, the bill will make the real estate and housing sector, which till now has been loosely regulated, directly accountable to the regulator. According to the provisions of the bill, all such projects or plots, which are 4,000 sq. metres or more in size, will have to obtain certificates of registration from the regulatory body. Also, the bill seeks to establish a regulatory oversight mechanism to enforce disclosure, fair practice and accountability norms in the real estate sector, ending its current free run in a largely unregulated environment. Besides making it mandatory for builders/developers to register with the real estate regulatory authority before launching a project, the bill will also ensure that developers submit their project details such as land status, statutory approvals, cost and contractual obligations.

 
By making norms for compliance more stringent, the bill ensures that only after the mandatory disclosure – displayed on the regulator’s website – a developer would be allowed the registration certificate and permitted to advertise or launch a project. Further, the draft bill suggests that developers have to make a declaration that 70% of the money taken from customers for a particular project would be periodically deposited in a separate bank account and would be used only for construction. The developer will also be barred from issuing advertisement without getting a certificate from the regulatory authority and barred from taking any deposit or advance without entering into an agreement of sale. The regulator will have the power to scrutinise the builder’s application a month in advance before granting the registration to any project.

Predictably, the bill has got the goat of realtors who feel their free run in the industry is about to come to an end. Used to operating with impunity, many players are opposing the bill, whose provisions they claim goes against the interests of the real estate sector. The Confederation of Real Estate Developers’ Associations of India (CREDAI), an industry lobby group, has denounced several provisions of the bill and has even labelled it as being ‘anti-consumer’. “Due to the provisions made in this bill, prices of real estate projects will increase, as this will create another window of clearance. The provision of a jail term of three years is detrimental to the sector,” asserts Lalit Kumar Jain, National President, CREDAI. “Good business groups will refrain from coming into the sector and setting up businesses,” he warns. Reacting to the size of projects that need approval from the regulator, Geetambhar Anand, Managing Director of real estate firm ATS Group and Vice President, CREDAI, says: “The government has overlooked the small developers, who build small colonies in tier II and III cities.” Many consumer groups too feel that small developers also ought to be brought into the ambit of the proposed regulator. Nitin Sexana, President of Delhi-based All India Consumer Education Society says: “The draft bill only covers big builders and mega developers. What about the builders who will build and develop less than 4,000 sq. metres projects. The bill totally fails to bring a majority of builders and developers in small towns across the country.”

          

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