The Real Estate (Development and Regulation) Bill, which was cleared by Parliament on Tuesday, will go as tough on defaulting homebuyers as it does on unscrupulous developers.
Under the new law, homebuyers who fail to “comply with” or “contravene” any of the orders of the real estate appellate tribunal will not only invite a penalty of up to 10% of the apartment cost but also get a jail term of one year.
Giving in to the builders’ lobby, which has been protesting that the odds are stacked against them, the bill has introduced stringent penal provisions for allottees too.
The law, which will come into force after getting the President’s assent, proposes the setting up of a real estate regulatory authority in every state. All builders developing a project where the land exceeds 500 square metres will have to register themselves with the regulator before launching or even advertising it. Developers will also have to submit project details – including an approved layout plan, carpet area, timeline and sale agreement – signed by the prospective buyer to the proposed regulator. Failure to do so will invite a penalty of up to 10% of the project cost. Subsequent violations will fetch the developers a jail term of three years.
“The bill will not only make the consumer king but also bring in much-needed regulation and transparency for people involved in the sector. It seeks to create a set of rights and obligations for consumers as well as developers,” housing minister M Venkaiah Naidu had said in the Lok Sabha on Tuesday, while moving the bill for passage.
The original version of the bill – introduced in Parliament by the then UPA government in 2013 – did not prescribe imprisonment for buyers who fail to comply with the appellate tribunal’s order. Under the 2013 bill, such buyers were “liable to a penalty for the period during which such default continues, which may cumulatively extend up to 10% of the plot, apartment or building cost, as the case may be, as determined by the Appellate Tribunal”.
The imprisonment clause has raised the hackles of homebuyers, who are calling the provision “unnecessarily harsh”.
“The jail provision for allottees could have been avoided. You cannot equate a buyer with a promoter. A buyer won’t dupe a promoter. At the most, he may default on the payment, for which you can penalise him or seize the property. Initiating criminal proceedings by sending them to jail for default could have been avoided. But since it’s a landmark bill meant to check rampant malpractice in the sector, we have accepted it. It will act as a deterrent for anybody who indulges in malpractice,” said Abhay Upadhyay, who heads a coalition of 39 NGOs and resident welfare associations of upcoming housing projects in the country.
However, realtors say that the provision for imprisonment “balances out” the bill. They cite another provision in the bill, according to which the rate of interest payable by the promoter or the allottee – in case of default and delays – will be the same. “The idea is to make the law fair to both the parties – the buyer as well as the seller,” said Sanjay Dutt, executive managing director (South Asia) of real estate brokerage firm Cushman and Wakefield.
When the bill was referred to the parliamentary select committee last year, some of its members had recommended that the provision of the jail term – for both builders and homebuyers – be removed, and the penalty reduced. The suggestion, however, was rejected.