Maharashtra has become the first state in the country to pass legislation to regulate and develop the housing sector. Given the haphazard development of the housing market in the state, especially in Mumbai, there is little doubt that regulated development is the need of the hour. But as it so often happens, there is a risk that such regulatory laws themselves degenerate into obstacles to development.
The Maharashtra legislation is unique in some ways. It ensures that all projects in 250 square metres or more of land and comprising five flats or more are registered with the Housing Regulatory Authority, with the details displayed on its website. To prod a developer to complete projects on time, it restrains him from selling 10 per cent of the total number of flats till he obtains the completion or occupation certificate. Further, if a developer fails to complete a project, the act allows flat purchasers to come together, form a legal entity, and take over the project. Developers have also been restrained from collecting more than 20 per cent of the sale price till they register agreements entered into with flat purchasers with the state government. The act, however, does not bind the promoter to utilise the money collected from flat buyers for a project towards that same project. In Mumbai, as also in the National Capital Region, promoters often divert funds raised for a project to buy plots elsewhere. This results in incomplete projects. This is partially taken care of in the Central government’s proposed legislation, introduced last year, but still to be cleared by Parliament. The Real Estate (Regulation and Development) Bill, 2013, requires 70 per cent of funds in separate accounts for each project.
While a law to protect the flat buyer is important, it is also critical to bring about policy reforms such as single-window clearance for real estate projects, bringing the industry under the ambit of the proposed Goods and Service Tax to reduce the cascading effect of taxation and promoter protection if projects are delayed due to rent-seeking and bureaucratic delays.