While the Centre’s Real Estate (Regulation and Development) Act, 2016, contains a safeguard against delays in construction and handing over possession of flats to buyers, the Maharashtra government has virtually cleared the decks for property developers to work around the rule. The Act provides that developers must lock up to 70 per cent of the amount collected from home buyers in a separate escrow account that is to be utilised only for that particular project. The Maharashtra government has retained the rule, but with a dilution.
Apart from the actual cost of buying a piece of land or acquiring development rights for the land, the state government has included charges payable for securing various building permits, obtaining additional building rights, and all the premiums payable to the government and town planning agencies in the ‘land cost’ component. Even legal expenses and overhead costs incurred for these expenses are included in this.
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With the Act permitting developers to withdraw sums proportionate to the percentage of work completed, top sources conceded that the “all inclusive” definition of the land cost component will allow as much as 70 per cent of the sum in the escrow account to be withdrawn even before the project has broken ground. “The inclusions in the land cost component category account for almost 70 per cent of the total project cost. Most of these payments are made upfront,” said a senior official.
This basically means that up to 70 per cent of the locked up cash can be withdrawn at the initial stage itself. Also, while the rules are aimed at safeguarding interests of flat buyers, the government has also retained a provision that allows developers to cancel a sale agreement with a buyer if the latter is found to have dishonoured any terms and conditions under the agreement entered into between both sides. Meanwhile, the new Act will deal a blow to the practice of selling a flat to the customer without having put a building slab or obtained commencement certificate for housing projects.
“The Act disallows selling or advertising a flat sale before the commencement certificate is in place,” said an official. Such bookings, also known as pre-launch schemes, are a popular marketing tool employed by property developers, especially in the Mumbai Metropolitan Region. The government has recognised stoppage of construction work due to specific orders issued to the project by the court, a tribunal, a statutory authority, or any government-appointed high power committee as a force majeure condition, condoning the delays in work due to these. The proposed Housing Regulatory Authority has additionally been granted the powers for condoning delays in construction due to “any other mitigating circumstances”.