Finally,buyers may get their due

The one feature of the country’s real estate market is the asymmetric nature of the relationship between the builder and the buyer. This issue has been discussed extensively in these pages.

Assuming that the Bill in its present form is enacted,to what extent will its provisions seek to achieve the goals stated in its preamble? Let us first study the provisions.

Registration

The Bill categorically states that,“No promoter shall develop any immovable property or make any construction … without registering the real estate project and obtaining a certificate of registration from the Real Estate Regulatory Authority.”

The Bill,thereby,mandates that every project has to be registered with the regulator and the builder can proceed with construction only after receiving the certificate of registration. If a project is being built in phases,fresh registrations have to be obtained for each phase. It however exempts registration for developments on an area below 4,000 square metres.

Further,the Bill also mandates every builder to register with the regulator and obtain a certificate of registration. This provision will ensure that only genuine players who are engaged in the business of real estate can get a registration and will effectively shut out fly-by-night operators who cheat buyers by forming a firm for a project and then dissolve it once the units are sold,in order to avoid responsibilities.

An important feature of the Bill is that the builder will have to provide detailed information on the number and size of the plots,layout plan,proposed project and the proposed facilities to be provided. In addition,all sanctions and approvals from the competent authorities will have to be submitted to the regulator. Further,the builder will have to submit a declaration stating that legal title is held to the land and that it is free from all encumbrances. It does not end there. The Bill mandates the builder to state the time-frame within which the project would be completed.

By mandating registration,the pernicious practice of “pre-launch” sales resorted to by most builders has been effectively done away with. Pre-launch is a practice where the builder accepts bookings for the project when the necessary approvals are not in place,and in some cases even before the process of acquiring land was complete. This is an illegal practice,where the units that are “sold” are in fact,non-existent.

Even after most state laws mandating it,most builders are reluctant to let the buyer take a copy of the approvals and vet them. The Bill effectively makes this process easy for the buyer as it will grant registration to the project only when all approvals are in place and that the land has a clear title and is free from encumbrances. The average buyer will have to seek the services of an advocate to determine all of this. This Bill shortens the process as the regulator will have the necessary expertise to vet such documents. The buyer,at the time of purchase has all the information about the legalities of the project and this provision is an important step towards ensuring transparency.

Most important,the Bill also mandates the builder to deposit 70 per cent of the money realised from the buyer from time to time,into an escrow account and that the money deposited would only be used for the project in question.

The Bill also states that registration granted for a project would be valid only for the duration by which the project would be completed,according to the declaration of the builder. Once the registration lapses,it can be renewed for a period of one year,but cannot exceed two years.

Although,the matters listed above form only two sections of the Bill,it is a watershed when it comes to protecting the consumer interest.

Obligations

The Bill has a set of clear obligations for both the builder and the buyer.

No builder can advertise or publish a prospectus for a project with the intent of inviting buyers without first obtaining the registration from the regulator. In addition,no builder can issue an advertisement or prospectus without filing a copy with the regulator.

In addition,if a buyer makes a deposit or advance payment on the basis of information contained in the advertisement,which is later found to be incorrect,the builder will have to compensate the buyer as per the order of the regulator. Further,if a buyer decides to withdraw from the project on these grounds,the builder is bound to refund the entire investment with interest.

The builder cannot accept payment from a buyer without first entering into a written agreement for sale. This agreement should specify all the particulars and specifications,both internal and external.

Even with the existence of laws,most builders do not enter into an agreement before accepting payment from a buyer. This breach of law gives the builder an opportunity to exploit the buyer and skews the builder-buyer relationship. The Bill,by stating this condition explicitly seeks to correct this anomaly.

Once the project is complete and occupation certificate obtained,the builder will have to submit it to the regulator and execute a conveyance deed in favour of the buyer and hand over title documents to the society formed by the buyers.

This is another grey area the Bill has addressed. Most builders delay the formation of the housing society and transfer of title in order to extract “transfer charges” from buyers who wish to sell their flats to a third person. This is patently illegal on the part of the builder.

If the builder fails to complete the development or is unable to give possession as per the terms of the agreement,he would be obliged to refund the payment with interest and also pay penalties to be decided by the regulator.

The buyer is obliged to make the payments as per the agreement and is liable to pay interest on account of delay.

Penalties

The Bill also provides for stiff penalties on the builder for failing to comply with its provisions.

For any contravention on the provisions related to registration,the builder can be fined up to 10 per cent of the estimated cost of the project or up to three years imprisonment or both. Any contravention of the other provisions can cost the builder up to 5 per cent of the estimated cost of the project. Any contravention of the regulator’s orders can cost the builder Rs 1 lakh per day,till the time the default continues,extending to 5 per cent of the project cost.

Currently,getting a grievance redressed against a builder is not easy. Courts are the best forum,but take time and litigation costs are high. Consumer forums do provide relief,but have appeal provisions that can lead to more litigation and the consequent delay in getting justice. By providing for penalties,the regulator has brought in a deterrent,which is in the interests of the consumer.

Builders,however,have reservations over the Bill. “This is another layer of regulation on an already over-regulated sector. It is primarily working as a consumer protection authority,” says Brig RR Singh,director-general of the National Real Estate Development Council,a self-regulatory body for the sector under the aegis of MHUPA. “The sector is not made up of builders alone. The role of other stakeholders such as financial institutions and authorities have been kept out.”

Santhosh Kumar,CEO-Operations,Jones Lang LaSalle India says,“By putting accountability on the builder with respect to timely delivery,quality of delivery etc. the Bill looks to conclusively address its primary goal of protecting the consumers.”

Kumar expects marginal impact on property prices due to this Bill: “Developers expect prices to rise as more layers of approvals are added to the already long drawn process thus delaying the project and adding to project overheads and increasing costs. Property price impact will depend on the acceptability of this Bill by the developer community.”

What form the Bill would take finally,remains to be seen. One fact is certain though,buyers are being given their due,at last.

L.Ramakrishnan@expressindia.com