Will the Real Estate Bill Protect Home Buyers?

MUMBAI:  Property buyers in India have much to cheer about as the Parliament is all set to discuss and pass the much-awaited Real Estate (Regulation and Development) Bill in the current Budget session.

N.Nandakumar

Will the Bill be beneficial to the buyers and protect their rights from the errant developers and fraudulent means of transactions?

“The Real estate Bill will surely protect buyers from errant developers,” says N.Nandakumar  Managing Director, Devinarayan Housing & Property Developments Ltd and executive committee member of CREDAI, Chennai.

However, Nandakumar points out that the cost of administering the regulations by developers will lead to a significant increase in the price of the dwelling unit. “Even already compliant developer companies of repute who are self-regulated are compelled to take the additional admin of the regulatory bill compliances burden resulting in extended project tenure and costs thereof.”

According to property experts, a strong legislation would put a restrain on unethical and unscrupulous practices in the real estate industry, which from the outside looks very fascinating when the skyline of several Indian cities is changing.

“While the penal interest provision could hurt realty players; the Bill if it goes through would indeed in the interest of several buyers - especially the middle class, for whom purchasing a property has been a herculean task (due to skyrocketing prices) and unscrupulous practice adopted by some developers,'' said Ramesh Prabhu, a consumer activist.

Ruing that the Bill should have been passed a few years earlier, V Padmanabhan, an IT consultant in Chennai, says, “I bought a flat from a moderately sized builder who has his presence in west Chennai two years ago. Within one year, we have seen a lot of cracks on the walls of all six flats, all the bathroom fittings have turned rusty and seepages in two flats. On approaching the builder, he refused to entertain any of our grievances. Now, we have found that the sump too small and not properly built. As a result, stagnated water from the neighbouring vacant land gets leaked into the tank. We are now reconstructing the tank at our own cost. Had the bill be passed a few years ago, we could have approached the appropriate authority against the builder for redressal.”

The Bill has been framed under provisions dealing with "property transactions" in the concurrent list of the Constitution that applies to states, making the proposed legislation more than a model law.

Agreeing Prabhu’s view that the Bill would filter out the non-serious players in the industry, Nandakumar,  further says, “ It is also perceived that the challenges likely to be faced by developers in adhering to the regulatory bill, will dissuade entrepreneurs lacking core competency in the building industry to move away from this Industry, thereby leaving more room for serious long term players.”

The Real Estate (Regulation and Development) Bill has proposed the following, which intends to protect the interest of property buyers:

 -- Developers will have to disclose project and contractual details to ensure transparent, fair and ethical business practices. Hence, there could be model agreement which could reduce ambiguities in realty transactions, which buyers may not be familiar with.

-- Moreover, the regulation will make it mandatory for private developers to register all projects before they sell it to buyers. The property shall be registered with all necessary clearances from local authorities.

-- If a developer fails to declare the status of clearances, the Bill provides for levying a fine that can amount to 10% of cost of project or three years of imprisonment.

-- Also ensuring that the developer adhere to timelines, the Bill states that the realty player will have to park 70% of funds for the project in a particular bank account, thereby preventing the  money being diverted to other projects and thus safeguarding property buyers.

-- The Bill also enunciates that developers should sell a residential property on the basis of "carpet area", instead of the current practice of "super area", thereby ensuring that buyers get a better deal and transparency. People know the exact livable area in their flat excluding the common and plinth areas.