Real Estate Bill: How home buyers stand to gain & lose

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Last week, the Union Cabinet approved the draft Real Estate (Regulation and Development) Bill 2013 that allows for the creation of a regulator in the real estate sector. Once passed by Parliament and subsequently adopted by each state, it will allow for the creation of a real estate regulator in each state (realty being a state subject). While the Bill applies to residential properties, commercial real estate has been kept out of its purview. Let us examine the pros and cons of the draft Bill in its latest avatar.


HOW YOU STAND TO GAIN

Stress on timeliness and adherence to specifications: Once the Bill gets enacted, it will provide considerable relief to the buyer who faces innumerable difficulties and at times even gets duped by developers and brokers. Anuj Puri, chairman and country head, Jones Lang LaSalle India, points to two specific aspects of the Bill that will benefit buyers. "By imposing strict regulations on the promoter, the Bill looks to ensure that construction is completed on time, and on completion the buyer gets a property that matches the promised specifications," he says.

Mandatory disclosure of project details: The Bill will make it mandatory for developers to disclose details, including minor ones, about their projects on the company website. Says Niranjan Hiranandani, managing director of Hiranandani group of companies: "The details will include specifications, such as the layout plan, carpet area of each dwelling unit, number of units in the project, the amenities being provided, and the approvals received for the project from various authorities. Such disclosures will make it difficult for developers to make ad hoc changes to their project plans at a later stage of development."

Developers will also have to specify the carpet area of each apartment. Selling on the basis of the ambiguous super area will no longer be permitted. Periodic updates on the stage of development that the project has reached will also become mandatory.

Separate accounts for each project: The Bill also makes it mandatory for developers to maintain separate bank accounts with scheduled commercial banks for each of their projects. At least 70% of the corpus raised for the project from buyers (at intervals) will have to be deposited within 15 days of realisation in the account. Developers will have to channelise the money to meet the costs of that particular project. Diversion of funds from one project to another will not be permitted.

Misleading buyers will invite punishment: Developers will be prohibited from advertising or marketing their projects before getting all the necessary clearances and obtaining a certificate of registration from the authority. Says Ganesh Vasudevan, chief executive officer of Indiaproperty.com: "Developers will not be able to collect funds from buyers before they have obtained all the necessary approvals."

The Bill states that if any developer willfully fails to comply with or contravenes its provisions, he will be punished with imprisonment for up to three years, or a penalty that may extend to 10% of the estimated cost of the project, or both. Vasudevan informs that the developer will have to compensate the buyer who incurs a loss on account of advance payment based on false information contained in the developer's advertisement. "The regulatory authority will determine the compensation amount," he adds.

Canceling a sale becomes difficult: Developers will not be allowed to cancel an agreement for sale unless they have sufficient cause to do so. Says Vasudevan: "The developer will need to give due notice to the parties to the agreement. He will also have to refund the amount collected along with interest, as prescribed."

Moreover, in case there is a major structural defect or deficiency in the development or services offered and this is brought to the developer's notice within one year by the buyer, the developer will have to rectify those defects without levying further charges.

Licences compulsory for realty brokers: The Bill also makes it compulsory for real estate agents to register and get licences before they begin to conduct business. Yashwant Dalal, president of the Estate Agents Association of India, believes that this is a positive step by the government which will make real estate broking an organised profession.

In his view, the government should introduce more entry barriers so that only serious players get into the field. "There should be a licence fee or a registration fee before someone can conduct this business. This will encourage only genuine brokers to enter the profession. Such serious professionals will study a developer's project thoroughly before deciding to sell it to clients," he says.

According to Dalal, in developed countries the fee charged by estate agents is treated as a legitimate expense that is clubbed with the cost of the house. This doesn't happen in India. He adds that licensed brokers should be mandated to file income-tax returns. Currently most brokers in the country don't do so as they conduct most of their transactions in cash.

Adds Dalal: "The brokerage that brokers charge abroad ranges between 3-5% of the total value of the transaction. However, this amount is charged only from the party that hires the broker and not from both the parties. Introducing this practice here may reduce the buyer's cost."

THE SHORTCOMINGS

Applicable only to new projects: The Bill will be applicable only to new real estate projects. Those projects that have already been launched and sold will not come under its purview. Given the high number of new projects that have been launched in the past couple of years, most of which have yet to be completed and handed over to buyers, a significant number of buyers will fail to benefit from the Bill.

No deadline for project approvals: While the Bill aims to penalise developers for failing to deliver on time, there is no clarity on what happens if the delay is due to the failure of government agencies to give timely approvals. Says Hiranandani: "Approvals take anywhere between two to three years to come through. This delays projects and leads to cost escalation. The regulator should be in a position to grant approvals to developers in case the authorities fail to do so. The Bill doesn't provide for any relief to developers on this count."

Many builders have demanded that the authorities should also be made accountable for granting approvals within a certain time frame.

Registration of projects over 4,000 sq. metres only: Many developers have projects that are spread over less than 4,000 sq metres. Registration with the regulator won't be compulsory for them. So many smaller developers will escape the regulator's scrutiny. In cities like Mumbai, especially, project areas tend to be small since large pockets of land are rarely available.

New launches to be delayed: A developer will now launch a project only after he has received all the approvals, which is a timetaking process. "We anticipate a drop in new launches, at least in the short run. Furthermore, property prices will rise due to various factors like additional capital burden and paper work once the Bill comes in force," says Hiranandani.

Builders also claim that the provision asking them to deposit 70% of the amount realised from sale of their project in a separate bank account will affect their liquidity and may add to costs. "Retaining the amount realised from buyers and placing it in banks will affect the cash flows of projects. It will create difficulties, especially in metropolitan cities where land is a significant proportion of total project cost and is paid for by the promoter," says Firdose Vandrevala, chairman, CII National Committee on Real Estate & Housing. If at all such an account has to be maintained, the limit should be lower and it should include payment of interest and EMI pertaining to loans availed for project construction, he adds.

Implementation lies with state governments: While the Real Estate (Regulation and Development) Bill seeks to provide a uniform regulatory environment to the sector, real estate is a state subject. It will be up to state governments to put the relevant structures in place and implement the Bill's provisions. Some states like Maharashtra already have state laws that cover some aspects of the Bill. It remains to be seen if these provisions get incorporated into the Bill as well.

http://economictimes.indiatimes.com/mar ... ms?curpg=3

[jatinderkumar]

FRIENDS,this introduction of the bill actually may not be of any help to the buyers as there are numerous present laws that the builders are breaking and yet there has been no or delayed action just because the intent of prosecution is missing as the lawmakers in this country know that the enforcement is in there hand which is why they are never going to go against the builders as the nexsus between the builder, politicians and the enforcing authorities have selfish interests

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Most important factor for most of us...

Applicable only to new projects: The Bill will be applicable only to new real estate projects. Those projects that have already been launched and sold will not come under its purview. Given the high number of new projects that have been launched in the past couple of years, most of which have yet to be completed and handed over to buyers, a significant number of buyers will fail to benefit from the Bill.