The Rajya Sabha has finally cleared the Real Estate (Regulation and Development) Bill, hanging fire since 2009, when it was first mooted. It is a strange irony that the creation of glitzy metropolitan suburbs over the last several years remained an unregulated activity, with virtually no entry barrier except seed money.
Without doubt, the construction boom that accompanied India’s sizzling growth years created huge employment opportunities with multiplier effects across secondary sectors such as steel and cement. The ugly flip side, however, was that it also created business opportunities for unscrupulous builders and developers. Many simply vanished after selling properties that never existed. The misery of short-changed customers only mounted with the EMI (equated monthly instalments) on loans for properties not yet owned, adding to the burden.
For the banking sector, too, lending to realty projects became an extremely risky proposition as builders, large and small, became notorious for diverting funds. It is also common knowledge that the realty sector has generated the maximum amount of black money in the Indian economy over the last 30 to 40 years.
Building trust has been one of the most difficult challenges for India’s real estate industry to surmount. Hiding in the haze of a massive construction boom are the grumbles of millions of consumers about opacity in transactions and incomplete project disclosures.
Developers often sell flats on the basis of super built-up area, which includes common passage area, stairs and other areas that is 20-30% more than the actual flat. It is only fair that the builders divulge the details of the plans about the design, structure, layout, time of completion and other project specifications well in advance.
Imperfect as it may be, the new Bill has been drafted to address these concerns. The Bill provides for punitive measures for misbehaviour (imprisonment of up to three years in the case of promoters and up to one year in case of real estate agents). It makes it mandatory for all commercial and residential real estate projects where the land is over 500 square metres or eight apartments to register with the proposed regulator before launching a scheme.
The real estate sector in India contributes about 11% of gross domestic product (GDP), but is believed to account for about a third of India’s black money deals. Regulation and transparency in realty is an idea whose time is long overdue.