Real estate Bill: Will it create consumer comfort?

The government has been proposing to introduce a law to regulate the real estate business, which is probably one of the largest and worst regulated sectors in India.

The activity in the Indian real estate market constitutes five to six per cent of gross domestic product, and the market is expected to grow further in the coming years as is the need for affordable housing.

The Bill intends to cover the construction development sector, including townships, housing and built-up infrastructure. The business and the market have so far been the monopoly of promoters, developers and builders.

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The promoter, who usually wears all the above hats, starts off with a promise of delivery within a few months and provides a payment plan, linked to completion involving huge instalments, which are demanded, even if the progress of the project lags, due to  recessionary trends  or any other extraneous reason, the customer is the one to suffer.

Inevitably, the window for the payments is brief, and the interest rate for delayed payments is exorbitant.

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In the Competition Commission of India ruling in the complaint by the Belair Owners Associations against DLF Limited, the commission observed that the developer/builder had reserved sole discretion in changing zoning plans, super area, carpet area, location of apartment, with no opportunity being afforded to the customer to raise any objection and the discount on the overall cost.

A discount, if at all given, is negligible and on completion, the final price is inevitably beyond the estimated budget of the customer, who has to serve the banker's loan with interest.

In the above DLF case, delays by the customer attracted interest at the rate of 15 per cent an annum, while in the case of consumer, the rate was 15 per cent an annum for the first 90 days and 18 per cent thereafter.

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Delays are inherent in the system as many approvals are to be taken at the start of the project because of objections by other authorities.

Real estate is a state subject and all the approvals are at that level. Land availability and procurement, and infrastructure development are the key issues. Very often, land has to be acquired by following the legislative process, unless purchased from farmers and other small land owners.

Even otherwise, there are around 50 approvals required, of which, the ownership certification, land use conversion, non-encumbrance from the registration authorities, no objection certificates from the State Pollution Control Board and the central ministry, NOCs from the forest authorities, coastal zones, airport authorities, Archeological Survey of India, road access clearance, in most cases have to be taken separately from each regulator.

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The contractor/subcontractors have to be registered with the local labour department, and possibly in some states under the Contract Labour Regulation Act, as well.

And there are post-commencement approvals pertaining to construction, arranging electricity and water connection, establishment of a substation, back-up arrangements such as installation of generators.

The Bill seeks to specifically define 'apartments' and also provides for it to include garage or open space following the above determination of the CCI. Competent authorities are to be set up in each state having powers to give permission for development. And there is to be an Appellate Authority at the Centre.

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The promoter is defined as the person who constructs or cause to be constructed an independent building consisting of apartments for sale to the general public.

What is required is that the promoter has to be specifically registered for real estate purchase and the transfer of immovable properties including conversion thereof with the Real Estate Regulatory Authority for a plot of land exceeding 4,000 Sq metres.

On receipt of all the approvals for the development, the promoter has to seek registration. Therefore, unless all the approvals are in place, the promoter is barred from approaching the public, or issuing an advertisement or prospectus to the public.

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The Bill proposes that, for being eligible for certification, a promoter has to deposit 70 per cent of the amounts realised for the real estate project from the allottees from time to time, would be deposited in a separate account to be maintained in scheduled banks, within 15 days of its realisation for meeting the costs of thee real estate project and would be used only for that purpose.

This will help keep a check on possible misappropriation of consumer money. The state authority has to within 30 days of receipt of the application along with all necessary paper work grant or reject the application provided the applicant will be given an opportunity for hearing to clarify any sensitive issues.

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The prospectus has also to be approved by the authorities. Once the prospectus is in the public domain, based on access password and login granted by the authority, the promoter has to give certain information to the allottee as well as its website on the site plan, design and specifications, stage-wise time schedule for completion of the project along with municipal and other essential services.

A certificate of compliance regarding building plan, structural safety, fire safety and other requirements has also to be provided to the customers. In case the promoter is unable to complete or give possession then the promoters are bound to refund the money forthwith along with penalty.

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The Bill is, however, not entirely punitive in its approach, unlike the other laws, such as, the Consumer Protection Act, Indian Penal Code and Transfer of Property Act.

By regulating the promoters and requiring transparency and accountability this will hopefully work in favour of the consumer, and protect them from unscrupulous operators.

Hopefully it will also improve the standards of construction and services provided by the promoters, thereby giving the consumers better options to choose from.

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The grant of registration would be subject to the promoters making full disclosures about the company or enterprise proposing to develop a real estate project.

Further, the promoter will have to file the development plans (layout plans, date of start of construction, date of completion of construction, handover date etc) and the names of real estate agents associated with the project.

This will prevent subsequent arbitrary changes that are generally made by promoters, who reduce the carpet area of their units causing loss to the consumer.

Kumkum Sen is a partner at Bharucha and Partners Delhi Office. Email: kumkum.sen@bharucha.in