Regulating realty

According to the draft Bill,a regulatory authority and an appellate tribunal will be established to regulate,control and promote planned and healthy development and construction,sale,transfer and management of colonies,residential buildings,apartments and other similar properties. The authority will maintain a website containing all project details. These bodies will aim to protect the interests of buyers by ensuring that promoters conduct themselves with integrity. They will try to ensure that residential projects are developed on time and thereafter are maintained properly.

The Bill has seven chapters. The second chapter of the Bill states that all developers and promoters will have to compulsorily register with the Regulatory Authority before they can develop and market their projects. The authority will have the power to cancel a developers registration if a customer complains against them and they are found to have violated the provisions of this Act. The third chapter states that the promoter must make available for inspection all documents and information to a prospective buyer who intends to buy a plot,house or apartment in their project. The fourth chapter provides for the creation of a Regulatory Authority.

The proposed legislation also provides for the creation of an Appellate Authority for speedy disposal of cases. Thus the Bill,if approved by the legislatures of various states,is expected to herald an era of better regulation of the real-estate sector,particularly on the supply side.

A WELCOME MOVE

According to PSN Rao,founder-chairman of National Association of Realtors NAR-INDIA,In principle,it is a welcome move on the part of the central government to bring about a model legislation for the regulation of the real estate sector. If implemented properly,it will certainly rein in developers and streamline development.

He,however,adds that in the way the Bill has been fashioned,it appears that every state government will have to enact a separate legislation for operation in that state. This would require the creation of separate regulatory authorities and tribunals in each state. Instead of leaving it to the states,Rao suggests that recourse should be taken to Article 252 of the Constitution. This Article grants power to the Parliament to legislate for two or more states after obtaining their consent,after which such a legislation can be adopted by any other state. This would result in one central legislation being adopted by many states.

Further,he suggests that a national regulatory board as well as state level regulatory boards be established. The national board would primarily play an advisory,prescriptive and directive role while the state boards would play a more direct implementation and reporting role. This will ensure uniformity among states, says Rao.

DEVELOPERS VIEWPOINT

Some industry stakeholders are of the view that few of the provisions in the draft Bill are harsh on developers. The Confederation of Real Estate Developers Associations of India Credai,a pan-Indian association of real estate developers,is of the opinion that in its present form the Bill will not be able to fulfil its objective of addressing consumers concerns. Credai wants the Ministry to reconsider some of its provisions. One argument offered by Credai is that whatever protection the proposed Bill aims to offer consumers is already being offered by existing legislation,such as Consumer Protection Act,Transfer of property Act,Specific Relief Act,Criminal Procedure Act,Registration Act and various other Acts. Says Kumar Gera,chairman of Credai: Today,when states are liberalising their policies,this Bill will take the real estate sector back to the licensing raj. More regulation will lead to operational delays and cost escalations that will make real estate more expensive for home buyers. The Bill might prove detrimental for the development of the countrys already-overregulated realty sector.

Gera adds that the current draft Bill seems to penalise developers but does not provide any real relief to customers. A model Bill should aim to regulate the relationships among various stakeholders as is envisaged in most of the Ownership Acts prevalent in various states. Also several jurisdictional issues will emerge between the Ownership Act and others that are in existence in several states and this Bill, says Gera.

As per the draft Bill,developers have been asked to disclose the time schedule within which they will integrate municipal services such as sewerage,water supply,electricity,etc. A number of times projects get delayed because of non-co-operation or non-performance by municipal authorities,electricity supply authorities,delays in water connection,drainage connection,and receipt of occupancy certificates,etc. The regulator should have control over the local authorities to ensure timely delivery of these amenities, says Gera. Like developers,he says,the other parties involved such as the sanctioning authorities,service providers,project financing agencies,allottees and others should also be made accountable.

A FEW LACUNAE

In Raos view,the drawback of this model legislation is that it is largely a copy of the provisions contained in the various state level Apartment Acts already in place. I fail to understand why the Government of India has done this copy-paste job, he says.

Gera too complains about the duplication of laws. In certain states,laws on these issues already exist. Hence,once this Act comes into force in such states,there will be duplication of procedures which will raise operational costs,lead to delays,and thereby escalate the cost of housing for buyers.

Another lacuna of the Bill appears to be that it does contain clear-cut standard disclosure norms for advertisements issued by developers. Often,advertisements in the real estate sector are misleading,the price for which is paid by gullible customers. The Bill should clearly specify the minimum information that advertisements from developers should contain.

Gera describes the provision requiring the registration of developers advertisements as irrational. The property rates provided in advertisements do not remain the same all the time. They change according to market dynamics. So every time rates change,and hence the advertisements,registering the advertisements with the regulator will become a lengthy and costly procedure,which will add to costs,thereby affecting buyers, he says.

Pointing out inconsistencies,Ashutosh Limaye,associate director- JLLM says,The definition of promoters,in the draft includes developers as well as service providers,where as the role and function of both are separate. They cannot be clubbed together in the same category.

Rao says that the earlier avatar of this model Bill is the Real Estate Management Regulation and Control Bill,2001 prepared for the National Capital Territory NCT. This,he says,was a much better and comprehensive Bill. The present model Bill of 2009 is a diluted version of this earlier draft Bill. This is again very strange. This Bill of 2001 contained a separate chapter on licensing and registration of promoters,real estate agents and contractors. It is surprising why real estate agents have been left out of the regulatory purview of the present act,since they are key players in the market, says Rao.

On the issue of bank guarantees that developers need to furnish at the time of a project launch,Gera feels that it will increase input costs for developers who have already invested heavily in the purchase of land. This cost will be passed on to buyers,making properties more expensive for them.

These then are the positives and negatives of the current draft Bill. Clearly,a lot of discussion and debate is acquired so that the loopholes in it can be plugged. While consumers definitely require greater protection,issues like duplication of laws,overregulation,and cost escalation need to be heeded. On these counts,are developers merely crying wolf,or do they have a point?  

praveen.singhexpressindia.com