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Real Estate Bill Analysis for IAS Exam

Apr 5, 2016 13:10 IST

                              Relevance of Topic

    General Studies II: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

    General Studies III: Changes in industrial policy and their effects on industrial growth and Economy

    Practice Question for Students:

    1. How the enforcing of Real Estate (Regulation and Development) Bill-2013 would result into growth promotion and better accountability. Discuss

    2. How the real estate buyers stand to gain by passing this bill? Explain major features of this bill.

    3. Despite of having all the necessary measures to safeguard the buyers, the Real Estate (Regulation and Development) Bill-2013 do have some issues and challenges associated with it. Discuss

     

    Real Estate Bill tries to regulate the Real Estate Sector in India. Real Estate means Land and anything fixed, immovable, or permanently attached to it such as appurtenances, buildings, fences, fixtures, improvements, roads, shrubs and trees (but not growing crops), sewers, structures, utility systems, and walls. Title to real estate normally includes title to air rights, mineral rights, and surface rights which can be bought, leased, sold, or transferred together or separately. Also called real property or realty.

    Real Estate Sector which is mostly in the private hands is the one of the most important sectors of the economy which is the consumption sector for the Cement, Steel, Paint, Ceramic and the other related industry. It also employs different skilled man force such as plumbers, electricians, civil engineers, daily wages laborers. The Skill India Mission can be integrated with the real estate bill because most of the services taken by the real estate sector are in the unorganised hands. If the Government push for the Skill certification through the Skill India Mission and make those certification mandatory in the real estate services then a major chunk of the unorganised sector can be institutionalised in a semi organised way. Aadhar Number can play a important role here. These are some of the aspects which can be worked out by the Government in the long run.

    Background

    India has largest population of middle class people. According to a research, a major chunk of their income is spent on Education, Housing and Health. The greed of having own house always drives people to earn more and save it. And this part of saving from the income plays vital role in India’s growth. The idea of this part of saving from the household is generally driven by the dream of having own house. But, Real estate sector is one of those sectors which were highly unregulated despite it being most in demand in the country. However, overall demand has seen an upward trend, delays in completion of projects have punctured retail home-buyers' confidence. It also adversely impacted the sector's overall image. The additional cost on home buyers on account of prolonged bank interest has been adding to their existing pain. For years, home buyers have been the most exploited lot with flats and houses never delivered on time and people’s hard earned money going down the drain many times, cheated by the builders and many other problems. All that is now supposed to change.

    What it’s all about?

    In this backdrop, since the need for a regulatory authority has been felt since a long time in the real estate sector, the central government cleared the Real Estate (Regulation and Development) Bill which was originally brought in by the government in 2013. This bill has brought the amendments in the previous law which includes not only the residential properties for regulation but also the commercial one into the ambit of the regulator. This bill has suggested the various measures which aim to protect the rights of buyers and real estate investors, which is expected to boost domestic and foreign investment in real estate sector.

    The significant importance of this is that India has been facing huge housing shortage, whereas buyers are put off to a sky high real estate prices and corrupt practices by many developers. In this backdrop, country required a law which would not only bring the transparency in this sector with more investment and efficient cost that make affordable housing for all. It would be very essential for the success of government’s vision for the program ‘Housing for all’ by 2022 which was prominently presented in the budget by the government.

    The Bill seeks to set up a regulatory mechanism which will supervise contracts between buyer and seller. Till date, the home buyers were taking anything from the builders under one sided contract terms, years of delayed project, cost increment, and abrupt change of plan etc. But the Real Estate (Regulation and Development) bill-2013 proposed to stop such malpractices by establishing of Real Estate Regulatory Authorities in all states, which would maintain the records of projects, its developers, agents and also a database for all violators. This information shall be made available to the house buyers. It would also have strict guidelines for developers to put up advertisement.

    The Bill also has the provision for any project which is been launched, the promoter has to provide all the details like approvals, names of developer and promoter, roadmap of project, time frame for project completion on their website and register with the concern authority. The approvals must be taken before the project is being marketed. Two-third of customers must give their consent for any changes after project been sold off.

    Developer must keep 70% of the amount in escrow account to be used in the same project. Contract violations complaints can be taken up with the regulatory authority and appellate tribunal and they will have powers to punish defaulters. Consumer courts as an option shall also be made available to the costumer. The fine could be 5-10% of project cost and also the cancellation of registration is possible with imprisonment. Buyers have the rights to get refunds and compensation in case of default. Quality can also be asked by buyers.

    The Bill also covers real estate agents and commercial developments. To address promoter concerns of lengthy approval process causing delays, the Parliamentary panel is reported to have recommended single-window clearances by State governments.

    The major highlights of this bill are:

    1) All the projects must get the approval and the promoter has to provide all the details like approvals, names of developer and promoter, roadmap of project, time frame for project completion on their website and register with the concern authority.

    2) The problem of builders diverting the funds collected from house buyers and use it for some other projects. And this is been tackled by asking the Developer to deposit 70% of the amount in escrow account to be used in the same project which shall be used for construction and land for that project. It would ensure that major part is completed in given time period. Monitoring and ensuring timely completion will be under the aegis of state-level Real Estate Regulatory Authorities.

    3) Strict guidelines for developers to put up advertisement come under the scanner as promoter can no longer put superficial designs or photos of a uncompleted project to attract buyers if the final project does not match the photographs. In a scenario where both doesn’t match, the builder has to return the payment with interest to buyers.

    4) Home owners can verify the quality of the builders since the bill now makes it mandatory for developers to provide details of projects launched in the past five years, both completed or under -construction. These will also be available on the regulator's website.

    Issues and Challenges

    The approval of this bill makes it very clear that the real estate buyers stand to gain and shall be protected from any malpractices from developers in future. The required prior approval for starting the projects from the authority and after approval the monitoring powers with the authorities is a big relief for buyers. With all these strong features Real Estate (Regulation and Development) Bill-2013 is no sacrosanct. It too has some issues and challenges to deal with. Such as:

    • One may question Parliament’s jurisdiction to make laws related to real estate as “land” is in the State List of the Constitution. However, it may be argued that the primary aim of this Bill is to regulate contracts and transfer of property, both of which are in the Concurrent List.
    • Some states have enacted laws to regulate real estate projects. The Bill differs from these state laws on several grounds. It will override the provisions of these state laws in case of any inconsistencies.
    • The Bill mandates that 70% of the amount collected from buyers of a project be used only for construction of that project. In certain cases, the cost of construction could be less than 70% and the cost of land more than 30% of the total amount collected. This implies that part of the funds collected could remain unutilized, necessitating some financing from other sources. This could raise the project cost.
    • The Standing Committee examining the Bill has made several recommendations. These include: (a) the Bill should also regulate commercial real estate, (b) smaller projects should also be covered, and (c) all real estate agents must be required to register.
    • The real estate sector has some other issues such as a lengthy process for project approvals, lack of clear land titles, and prevalence of black money. Some of these fall under the State List.

    However even with all these issues and challenges the bill strongly seeks to and promises to safeguard the interest of buyers and developers in better way. The establishment of regulatory authority will make all stakeholders accountable towards the buyer. But, it is necessary to see how efficiently the proposed regulators would be able to perform their duties and how quickly do they address house buyers' complaints and grievances. However, enlarging the scope of the regulator without adequate infrastructure and resources could be a risky proposition as it might burden the authority with voluminous cases. State government’s efficiency to ensure transparent and effective implementation of the law at the lower level would also play a vitol role in the overall success of this Bill. It would be too early to anticipate any such weaknesses of this bill at this level; it requires pro-active measures for a quick implementation of the Bill should be on the focus area of the government to ensure seamless execution later on.

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