Building trust: the real estate bill
Does the recently introduced bill to regulate the real estate industry seek to provide more transparency to the consumer or does it add more complicated caveats? Here’s how the bill can help you become a smart home buyer. Gaurav Chaudhury reports.india Updated: Aug 28, 2013 02:44 IST
The government has recently introduced the Real Estate (Regulation and Development) Bill, 2013 in Parliament. Once voted into law, the Bill will set up a strong regulatory architecture for the residential real estate sector with strong provisions for consumer protection. HT takes you through the details:
Why is there a need for regulation in the real estate sector?
The real estate sector plays a catalytic role in fulfilling the need and demand for housing and infrastructure in the country. While this sector has grown significantly in recent years, it has been largely unregulated, with absence of standardisation, and lack of adequate consumer protection, which has constrained the healthy and orderly growth of the industry.
What are the most important provisions of the Bill?
The proposed Bill applies to residential real estate—housing and any other independent use ancillary to housing. However, it is important to know that the Bill only intends to regulate ‘transactions’, that is, buying and selling of residential real estate, and does not intend to regulate ‘construction’ which is the domain of states and urban local bodies. The Bill is aimed at infusing the much-lacked transparency in the sector and provides for mandatory public disclosure of all project details, with specified functions and duties of the promoter.
What about dispute settlement and grievance redressal?
The Bill provides for establishment of Real Estate Regulatory Authority and Appellate Tribunal for a speedier dispute redressal mechanism.
What does the Bill stipulate for regulation of intermediaries in the sector?
One of the provisions of the Bill is the mandatory registration of real estate agents, which so far have been unregulated, with clear responsibilities and functions. The Bill also contains strong penal measures including imprisonment of promoters to clamp down on non-compliance and flouting of norms and rules. The punitive provisions include de-registration of the project and penalties are provided in case of contravention of the provisions of the Bill or the orders of the Authority or the Tribunal.
Is it a populist move, with realtors’ body CREDAI saying the proposed law should govern all stakeholders of the industry and not only the developers?
There has been a need for a real estate regulator, on the lines of telecom or those related to the financial sector including capital markets and insurance. Lack of regulation, it is sometimes pointed out, has slowed down domestic and foreign investment into the sector, which could have contributed to enhanced activity, and increase in GDP growth. The Bill regulates ‘transactions’ in the sector, and thus all the stakeholders involved in the ‘transaction’ — the promoter/seller, the allotte/buyer and the real estate agent, all three are regulated under the proposed Bill, with specified functions and duties.
Why doesn’t the Bill seek to regulate construction?
The Bill does not regulate ‘construction,’ which is the domain of States and urban local bodies. The main concern of the developers is the need for a single window system for project approvals and clearances, for which the ministry of housing and urban poverty alleviationhas constituted an Expert Committee represented by industry bodies to recommend to the States on ways and means to set up a single window system. As far as the Real Estate Bill is concerned, its mandate is limited to transactions, and thus regulates all parties involved in it.
Why is there a concern that the Bill, once passed in Parliament, would result in about 30% rise in realty prices?
According to the government the Bill is aimed at consumer protection, by creating an online system for information-sharing so that there is mutual trust between the developers and the buyers, and to ensure projects implemented in time. The enactment of the Bill will lead to enhanced activity in the sector, leading to more housing units supplied to the market. In the government’s opinion, the Bill will bring in the much-needed confidence to infuse more investment and, in turn, stabilise house prices.
Commercial real estate property is not covered under this regulation. Why?
The proposed Bill only regulates the sale of residential real estate, and not its development. The promoter is free to carry on development, but what the Bill provides is that he can only sell after all approvals are in place and he has registered his project with the regulator.The registration requirements under the Bill are on a real-time basis, which does not lead to another layer of approvals. According to the government, limiting the application of the Bill to residential properties is to ensure the focus of the regulator on the retail consumer.
Registration will not be mandatory for projects below a certain threshold. Does it not mean that many small developers will escape from registration and the government regulator’s control?
The initial draft had provided for 4,000 square metres, which later has been reduced to 1,000 square metres or 12 apartments, whichever is applicable, after extensive consultations with the states and other stakeholders.
Developers are selling flats on the basis of super-built area, which includes common passage area, stairs and other areas resulting in 20-30% more than the actual flat area. How does the Bill address this aspect?
According to the Bill, disclosure of the number of apartments for sale by the promoter has to be based on a defined carpet area. The buyer should know what he is actually getting and paying for. The Bill intends to standardise the requirements to reduce the asymmetry prevailing in real estate transactions.
When will the Bill become law?
The Bill has been referred to the Parliamentary Standing Committee. The Bill will be taken back to Parliament after the committee submits its report.