The new law is likely to help Prime Minister Narendra Modi achieve his election promise of providing homes for all Indian families by 2022
The Rajya Sabha passed a bill on Thursday (10 March) to regulate the real estate sector, protect home buyers and ensure the timely execution of projects with an aim to boost investor confidence and stamp out illegal practices.
The new rules, applicable to residential and commercial developments, will make it mandatory for all projects and brokers to be registered with the real estate regulator who will oversee transactions and settle disputes.
The bill will apply to new and ongoing projects.
Over the years the sector has acquired a degree of notoriety which needs to be addressed to enable enhanced flow of investments, Venkaiah Naidu, Minister of Housing and Urban Poverty Alleviation said in Parliament when tabling the bill.
The Bharatiya Janata Party-led National Democratic Alliance is in a minority in the Upper House. That the bill would be easily passed was evident when the Congress expressed its keenness to get the bill passed.
Most of the regional groupings, except for the AIADMK supported the bill.
With this the Modi government has heaved a sigh of relief that its legislative agenda, especially the economic bills, is not held to ransom by the Congress.
The bill will now be taken up by the Lok Sabha.
The Real Estate (Regulation and Development) Bill, 2015 was opposed by the AIADMK which said that the bill would encroach upon states’ turfs.
The Bill provides for imprisonment of up to three years in case of promoters and up to one year in case of real estate agents and buyers for any violation of orders of Appellate Tribunals or monetary penalties or both.
Naidu said it proposed that a minimum of 70 per cent collections from buyers should be deposited in separate escrow account to cover cost of construction and land.
Presently, there’s little or no regulation for the real estate sector. All sectoral grievances presently are routed through courts; after the new act, the consumer can go to the real estate regulator against the erring builder.
Speaking on subject, BJP’s Anil Dave, who also headed the select committee on the bill, said that transparency and good governance will be the hallmarks of the new regulatory regime, which would also benefit “good builders”. “Presently, many projects are being marketed like street food,” he said.
There will be a boom in the sector after this bill becomes a law, he added.
SP’s Naresh Agrawal said that with the bill there was a possibility of conflicts with similar legislative mechanisms in various states, including in Uttar Pradesh. Congress’s Rajeev Gowda also held forth on the subject saying that there should be uniformity in state level implementation and tribunals.
JD(U)’s K C Tyagi said that all disputes related to the sector should be resolved mandatorily in six months.
While supporting the bill, and calling it a good beginning, NCP’s Praful Patel also listed some concerns of the construction sector.
The bill will help establish state-level Real Estate Regulatory Authorities (RERAs) to regulate transactions related to both residential and commercial projects and ensure their timely completion and handover, Naidu said.
Appellate Tribunals will now be required to adjudicate cases in 60 days as against the earlier provision of 90 days and Regulatory Authorities to dispose of complaints in 60 days while no time frame was indicated in earlier Bill, he said.
“It brings in only a regulation and not strangulation”.
“This Bill is not against anyone...Real Estate Bill will renew investors' confidence and ensure timely completion of projects and create more opportunities. In this way, it will help in achieving the target of ‘Housing for All’,” he added.
"The Real Estate (Regulation and Development) Bill will have a far reaching implication for the real estate and construction sector. It will help regulate the sector and promote transparency. Home buyer confidence in the property market is also likely to revive," said Anshuman Magazine, chairman and managing director of CBRE South Asia Pvt Ltd.
During recent years sluggish economic growth and delays in getting approvals stalled several projects, leaving buyers waiting for their homes and developers holding high debts. It has also put a strain on investors such as banks, private equity firms and non-banking financial companies.
"The Bill will make the real estate industry more organized and mature. It will bring transparency to the sector and the passage of this bill will mean that the reputed long term players will be greatly benefited along with customers. Timelines will be more closely adhered to and also the quality of construction in projects will increase. The only worry is about the inclusion of under construction projects as it will mean a lot of difficulty for the developers. Therefore, only new projects should come in the ambit of this bill," said Rajesh Prajapati, managing director, Prajapati Constructions.
The bill, designed to bring transparency and accountability to the sector that contributes about 9 per cent of India's gross domestic product, is expected to revive investor and buyer confidence.
"It will help distinguish good real estate companies that conduct business by the book from those who have not ... It will make buyers more confident and will perk up market sentiments as well," said J C Sharma, managing director of Bengaluru-based developer, Sobha Ltd.
The new law is expected to benefit developers such as DLF Ltd, Oberoi Realty, Prestige Estates Projects Ltd and Godrej Properties among others.
It is also likely to help Prime Minister Narendra Modi achieve his election promise of providing homes for all Indian families by 2022.
"Effective regulatory mechanism will lead to orderly growth of the sector and give a strong impetus to our vision of 'Housing for All'," Modi tweeted after the bill was passed.
“Real estate sector, finally gets a regulator through clearance of much awaited real estate bill in Rajya Sabha today. This development will significantly enhance the transparency levels in the sector, apart from creating a level playing field for both the buyers and the developers," said Neeraj Sharma, director, Grant Thornton Advisory.
Extending the support of her party, Congress member Kumari Selja said consumers were falling prey to unfair practices as there was no regulatory mechanism. "The whole country is waiting for this bill...Consumers are waiting with baited breath for this," she said.
Selja suggested all housing projects should be brought under purview of this bill and there should be no limit and a clause be brought in to prevent discrimination against anyone including dalits, women and transgenders.
Even realty sector association CREDAI said ongoing projects should not come under the purview of the Bill.
"The real estate Bill will place the Indian real estate market, which currently is fragmented and unorganized, at par with that of other developed countries with clear accountability of developers through the establishment of the Real Estate Regulatory Authority (RERA). Additionally, buyers and developers will now finally be on a level playing field with respect to penalties on delays," said Sanjay Dutt, managing director, India, Cushman & Wakefield.
PROVISIONS AND PENALTIES
Several projects in India have been delayed in recent years after developers diverted funds raised for one project to another, leaving them unable to complete construction and resulting in buyers still waiting for their homes.
The bill seeks to stop this practice and impose penalties in case of a breach.
In a key provision, the bill makes it mandatory for developers to put aside 70 per cent of money collected from buyers during the pre-sale of homes and use that solely for funding the construction of the project.
The bill also proposes that consumers and developers pay the same interest rate for any delays on their part. It also allows for developers to be arrested and jailed for up to three years for any violations.
"Even though some clauses are heavily stacked against the builders, we believe that this bill has the potential to transform our industry," said Rajeev Talwar, group executive director at Delhi-based developer, DLF.
This article was published in the Business World, to read please click here.