Cabinet gives nod to Real Estate Bill
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Cabinet gives nod to Real Estate Bill

From jail terms for defaulting developers, to ring-fenced accounts for projects, the bill has it all, but will it finally put an end to fraudulent practices and unfulfilled promises?

realestate Updated: Jun 21, 2013 17:40 IST

Life, thought Supriya Sinha, would be wonderful after he gave up his rented apartment and bought a 1200-sq-ft home for his family in Delhi NCR three years ago. He was wrong — one shock followed another. Sinha received the builder-buyer agreement four months after booking the apartment and possession was delayed by a year. When finally delivered, its carpet area was just about 900 sq ft. The final straw was the developer’s announcement that four extra floors would be added to the building because extra FAR (floor area ratio) had been purchased from the authority over and above the sanctioned 18 storeys.

Today, a hapless Sinha cannot do much to solve the problem, but he will be empowered to take the developer head-on should the Real Estate (Regulation and Development) Bill (cleared recently by the Union cabinet) become an act.

The bill that the cabinet cleared recently seeks to set up real estate regulators in every state to protect the interests of homebuyers, ensure accountability and fast-track resolution of disputes.

Builders developing a projects using land in excess of 1000 square metres will have to register with the regulatory authority before launching or even advertising their project. They will, according to the bill, declare building plans, area of the flat, timelines, etc before launching the project. Developers will also have to declare this information in advertisements of their project. Any misleading advertisement by a developer, with representative pictures and not actual ones, will be a punishable offence.

The bill seeks to impose strict regulations on the promoter and ensure that construction is completed on time. Its purpose is also to make sure that the buyer gets the property as per the specifications that he had been promised. In some ways, the bill should be known as the ‘housing regulation bill’ instead of the ‘real estate regulation bill,’ because it is meant for the primary residential market, leaving out the secondary market and the commercial property market, says Sachin Sandhir, MD, RICS, South Asia. The bill also has safeguards for developers. Buyers who default on payment would have to cough up fines.

Project launches only after clearances are in place

The bill makes it mandatory for developers to launch or advertise projects only after acquiring all statutory clearances from relevant authorities. It has provisions under which all relevant clearances for real estate projects would have to be submitted to the regulator and also displayed on its website before starting the construction. Builders and developers will be required to get all clearances before construction begins.

FAR will also have to be specified clearly by the builder. The bill also seeks to prevent developers from putting out misleading advertisements which make promises that are not backed by real development on ground. They also need to clearly mention the sanctions and approvals they have obtained and cannot market the project unless the necessary approvals are in place. By making registration of the project compulsory with the Regulatory Authority, the Bill aims to provide greater transparency in project marketing and execution.

Failure to do so for the first time would attract penalty which may be up to 10% of the project cost and a repeat offence could land the developer in jail.

An escrow account for every project

The bill mandates a compulsory deposit by the developer of 70% of the project cost in a designated separate bank account. This is to make sure that the money raised for one project is not diverted. This amount will also include the money collected from the allottees and utilised only towards the particular project. There's also a provision for return of money to the customer with interest in case of delay.

Jail term of up to three years

The bill also seeks to impose monetary penalties on the promoter with repeat offences attracting a jail term. A jail term of up to three years has been recommended for developers who commit offences by repeatedly publishing misleading advertisements about projects. Punitive provisions can range from a penalty that may be up to 10% of the project cost, de-registration of the project and imprisonment.

Defines carpet area

It’s mandatory now for developers to sell an apartment on the basis of the carpet area and not the super area. The bill also seeks a definition of the carpet area and standardise it across the country. Super area - which is often used to mislead owners - will be made virtually non-existent. The term ‘apartment’ has been specified in the bill and will include the space provided for a garage.

Inclusion of government agencies as promoters

A ‘promoter’ has been defined in the bill to include not only private players but also government agencies which build houses such as the Delhi Development Authority, National Building Construction Company and Housing and Urban Development Corporation.

Both private developers and government agencies will have to get the project registered with the regulator. “And they will have to abide by the agreement that they entered into with the buyer. Any deviation from the agreement, layout plan or whatever facilities were promised would tantamount to violation and invite penal punishment,” Ajay Maken, housing and urban poverty alleviation minister has been quoted as saying.

Creation of a dispute resolution mechanism

By seeking to establish the Regulatory Authority and the Appellate Tribunal, the bill aims to create a dispute resolution mechanism and provide a specialised forum for hearing disputes related to property matters. This is also a move to address the grievances of the consumer who otherwise has had to endure either a prolonged litigation process in a court of law or consumer courts. The bill proposes to set a real estate appellate tribunal, headed by a sitting or a retired judge, for adjudicating disputes.

Realty experts, however, point out that the complaint handling mechanism outlined in the bill is not as robust as it ought to be considering it does not clarify how the processes will work and what would happen at the state and the city level. Therefore, these details need to be worked out, where the regulator could look at identifying an ombudsman who would be responsible for adjudicating all dispute cases, much on the lines of the SEBI ombudsman regulations and banking ombudsman scheme set up under the aegis of RBI.

A model agreement to sell

The bill also seeks to provide a model agreement to sell which makes the promoter liable to furnish the necessary project details to the allottee while also being held responsible for providing project level details as demanded by the buyer.

Checks black money

Real estate agents are required to be registered with the proposed authority, as it will help detect money trails and curb money laundering.

First Published: Jun 06, 2013 18:23 IST