Real estate bill is carefully drafted. But implementation will be challenging
The approval of the Real Estate (Regulation and Development) Bill,2013 (RERD) by the Union cabinet is a laudable initiative by the government in ensuring planned development in the real estate sector. The bill is expected to usher in transparency,efficiency,professionalisation and standardisation,with an aim to protect consumer interest and promote fair play.
Real estate,including housing and construction,with inter-linkages with nearly 300 industries is an important sector of any economy and accounts for nearly 10 per cent of the GDP in India. The development of the real estate sector can have a significant and direct impact on employment generation and growth in the economy. The sector is labour-intensive,employing around 33 million people,which is expected to rise to 83 million by 2022.
In India,the real estate and housing markets are in a nascent stage compared to countries like China,Malaysia,Spain,Thailand and the US. The government,RBI and National Housing Bank have been making efforts to develop the market,which recorded an outstanding housing loan portfolio of around Rs 6 lakh crore in March 2012. But with such confidence-enhancing steps,the housing and real estate sector could successfully tap domestic and international markets,to garner substantial resources for long-term growth.
The real estate sector is largely unregulated,opaque and marred by asymmetric information. The ad hoc pattern of real estate development,mushrooming of unregistered colonies and unplanned utilisation of scarce urban land have been some of the challenges of urbanisation. With the urban population expected to rise to 600 million by 2031,from 377 million in 2011,the provisions of RERD would be very useful in urban planning.
The role of government is correctly changing from that of a traditional provider to more of a market facilitator. The RERD aims to provide a healthy and uniform regulatory environment to ensure orderly growth of the sector. The regulatory authority proposed in the bill,to be appointed at the Centre and states,shall undertake all measures for the growth and promotion of a transparent,efficient and competitive real estate sector. It would also be responsible for a transparently disseminating database of all real estate projects and provide for dispute resolution mechanisms. The central advisory council mooted in the RERD,consisting of policymakers,practitioners and academics,would provide advice to government on all matters covered by the bill. The prescribed penalties would serve as a deterrent to erring promoters.
The annual report of the regulatory authority would be placed before Parliament,while the accounts would be certified by the CAG. The RERD,indeed,is a well-drafted bill for which consumers have been waiting all these years.
The proposed legislation would ensure greater accountability towards consumers and is expected to significantly reduce frauds and delays. According to the ministry of housing and urban poverty alleviation,the RERD would facilitate tracing the money trail and curb money laundering,as real estate agents would have to be registered and assigned clear responsibilities. This clause,incorporated at the behest of the finance ministry,is a rare candid acknowledgement that an unregulated real estate and housing sector was a breeding ground for unaccounted money flows a fact substantiated only by anecdotes so far.
The implementation of the bill,applicable to all states except Jammu and Kashmir,would be a challenge. There would be a need to have a synchronised approach across the country as different states would have to implement the same and also suitably adapt their existing laws. Illustratively,the Maharashtra government already has a similar bill,which would need to accommodate the provisions of the RERD.
The sector is dogged by many impediments and these would also need to be addressed. While the bill stipulates that the builder will be responsible for completion of the project within a stipulated time,no mention is made of the time taken in granting approvals for various amenities that would be required before occupancy,until a single-window provision is provided. In global comparison,India ranks 182 in construction permission processes according to the World Bank,as there are 34 procedures that take on an average about 196 days to attend to. Also,the provisions of the bill are applicable for property exceeding 4,000 square metres,which implies that builders working on smaller plots would not be part of the registration process under the RERD. It would also be difficult to monitor the 70 per cent of payment clause in a separate account,as money is fungible. In the construction sector,contract procedures are highly cumbersome,with no standardised procedures to ensure quality standards. Other issues that need to be addressed are the rapid rise in land prices,land ceiling regulation,high stamp duties,difficulties in land acquisition,existing lower floor area ratio in cities and affordable housing for weaker sections. Thus,there is probably an urgent need to take a holistic approach to the real estate sector for its effective development.
After the spectacular debacle in the housing sector in the US,the RERD was mooted in India in 2009. It has taken more than four years for the cabinets approval after extensive chiselling through deliberations with state governments,developers,consumers and different ministries of the Central government.
The writer teaches economics at IIM,Bangalore