Buyers first

Real estate firms on Tuesday got a rap on their knuckles from the Supreme Court for making tall claims to purchasers which remained unfulfilled due to inordinate delay in completing the housing projects. “In this country, builders have developed an attitude to make commitments to the buyers and not fulfil them by delaying the projects,” a bench headed by Justice Dipak Misra said. The apex court’s observation came after real estate firm Parsvnath Buildwell Pvt Ltd said it would give flats to 70 home buyers, by December 17. One of the fundamental problems the Real Estate (Regulation and Development) Act, 2016, which was passed by Parliament earlier this year, seeks to resolve is the extensive level of information asymmetry, where one side (real estate promoters and agents) possess a lot more information than the other (home buyers). The new legislation seeks to address this information asymmetry by setting up real estate regulators in all states and union territories. Before every real estate promoter begins to sell or advertise a project, it will have to register with the Real Estate Regulatory Authority of that particular state or union territory. In its application to the regulator, the real estate promoter must report key details like the projects already launched in the past five years, and whether they have been completed or still under development. If the projects have been delayed beyond the original date of completion, the promoter must present the reasons behind the delays. “Over and above this an authenticated copy of the approvals and commencement certificate from the competent authority also needs to be submitted,” writes Vivek Kaul, a noted columnist on economic affairs. “Other important details like land title, the layout plan for the proposed project, the location details of the project, also need to be submitted to the regulator.” Once the regulator grants the approval for a project, the promoter is now rule-bound to upload all these details on to the regulator’s website. At the time of booking, the developer must furnish the precise schedule of when the project is to be completed. Another fundamental problem that the Bill seeks to address is that the buyer often does not get possession of the property, as promised by the seller due to delays in construction and changes to the sanctioned plan, layout plans, and other specifications. Delays are often the result of unfair financial practices undertaken by promoters, whereby the money raised for the new project is used to complete an earlier project or pay off debts. The bill seeks to ensure that 70 percent or “such higher percent, as notified by the appropriate (state) government” of the money taken from buyers is kept aside in a separate bank account. The sum can only be used for construction activities. The law states that any changes to the sanctioned plan or layout plans will require the consent of two-thirds of the home buyers other than the promoter.  If the developer violates any of the above provisions, he is liable to either a three-year prison term or a massive fine, or both. Unfortunately for the consumer, the Centre has sought one year before the guarantees and relief assured under the Real Estate Act are implements. In late April, the Ministry of Housing and Urban Poverty Alleviation notified Sections of the Act, effectively setting April 30, 2017, as the deadline for all states to establish a Real Estate Regulatory Authority and an Appellate Tribunal.