Real Estate Bill: One for the home buyer
The Real Estate (Regulation and Development) Bill, 2015 was passed by the Rajya Sabha on Thursday. Suffice to say, it has already received the assent of the Lok Sabha. It is an important bill primarily because real estate is the second largest employer in the country, after agriculture, and contributes 9 percent to the gross domestic product (GDP). One of the fundamental problems the bill 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). “These consumers were unanimous in their submission that they have no means to know about the real status of the project for example whether all the approvals have been obtained, who is holding the title of the land, what is the financing pattern of the project and what has been the past record of the builder, etc.? As a result, they invested their money without having any information about the project. In many cases, they were not given what was promised to them and in almost all cases the project was delayed,” wrote the Rajya Sabha Select Committee, in its assessment of the Bill. So how does the Bill seek to address this information asymmetry in a largely unregulated sector?
The answer lies in the setting up of 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 state 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, the author of the well-known Easy Money trilogy. “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 approval for a project is granted by the regulator, the promoter is now rule-bound to upload all these details on to the regulator’s website. If the promoter seeks to advertise the project, it will have paste the precise link for the project details uploaded on the regulator’s website.
More importantly, at the time of booking, the promoter must furnish the precise schedule of when the project is to be completed, which includes important provisions for electricity, sanitation and running water. What usually happens in many instances is that the homes and apartments are often sold without the basic civic infrastructure in place, leaving the home buyer stranded. In asking the promoter to furnish all these details, the bill seeks to protect the home buyer from scenarios where he/she buys an apartment without a basic water connection. Another key 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 convenient and 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. Suffice to say, the bill also makes it evidently clear 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 promoter violates any of the above provisions, he is liable to either a three-year prison term or a massive fine, or both. This newspaper welcomes the bill, as it seeks to protect the home buyer. However, questions do remain on how the Bill, once enacted into law, will be implemented by the state governments. One hopes that the state governments implement the law in letter and spirit. As with most laws in our country, the devil always lies in how they are implemented.