Realty watchdog bill needs matching reforms for efficacy

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Vinod Behl | 06 Aug, 2013
A recent survey by the Ministry of Consumer Affairs has dubbed the real estate sector as the second worst industry after telecom in terms of quality of service. This, it said, was causing a monetary loss of Rs 32.3 crore (USD 5.5 million - though the figure is only a tip of the iceberg) due to delayed delivery and poor quality of houses. Add to this the funding crisis, unaffordable property, rising delivery defaults, falling sales and plummeting investor confidence, and the picture is complete.

The one single biggest factor responsible for the real estate mess is the lack of a regulatory and redressal mechanism. In this backdrop, the Real Estate Regulatory Bill cleared by the union cabinet assumes significance. The key provisions of this bill include:

- Compulsory licensing of developers and property brokers;

- Mandatory registration of projects;

- Complete disclosure of approvals and project plans;

- Ban on launching and advertising any project without necessary approvals;

- Mandatory disclosure in advertisements and prospectus to check gap between promise and delivery;

- Property sale on the basis of carpet area;

- Removing the ambiguity with regard to carpet and super area;

- Restriction on fund diversion with mandatory escrow account;

- Compensations for delays in delivery;

- Obligation on developers to address quality issues after delivery; and

- Appellate tribunal for dispute resolutions and imprisonment and penalty for non-complying developers.

Today, the consumer is at the receiving end with no effective redressal mechanism in place. Besides quality issues, consumers have been facing problems of delayed delivery, super area manipulations and unfulfilled promises.

But the real estate regulator promises to put malpractices to an end, ensuring fair play and transparency in real estate transactions. But then, the key to its success lies in implementing it in letter and spirit so that this does not end up as just another piece of legislation, adding to yet another layer of red-tapism and corruption, resulting in delays and price escalations.

One major flaw in the bill is that government authorities are not under the purview of the regulator. As such, it poses a challenge to check delays and subsequent increase in prices due to long approval processes. Therefore, there is a need for supporting reforms to simplify and streamline approval processes which hold up projects, choke up supply and add to cost of property.

One hopes that the government will put the single-window clearance system in place soon following the report submitted by the expert committee set up by the Housing Ministry on this subject.

Also, pro-consumer provisions in the bill that builders will not be able to advertise and launch their projects without all the required permissions being in place will further constraint the supply. As such the government will have to come up with a policy to boost affordable housing by way of incentives to developers in terms of cheap funding and liberalized area and density norms, and lower tax structure, besides favourable rental housing policy. Property buyers also need to be given relief by way of cheaper home loan and reduced registration charges.

The government's recent move to classify home developers under the commercial real estate-residential category, will bring easy and cheaper funding to both developers and home buyers. Loans for low-cost housing are also likely to get cheaper with National Housing Board (NHB) formulating guidelines to ensure companies raise cheaper funds through overseas borrowings and pass on the benefits to home loan seekers.

The land reforms including the Land Acquisition Bill and proposed amendments in the Registration Act would help prevent fraudulent transactions and also make compensations under the proposed Land Acquisitions Bill easier.

Going forward, the Real Estate Regulatory Bill will prove its efficacy only if relevant reforms are also made alongside, paving the way for more fair, credible and transparent transactions, thereby making real estate investor-friendly.

(Vinod Behl is the editor of Realty Plus, a real estate monthly. He can be reached at vbehl2008@gmail.com)