The union cabinet has finally approved the draft Real Estate (Regulation and Development) bill which has been pending for over 5 years. The bill aims at establishing a regulatory authority for enforcing fair practice and accountability norms and fast track dispute resolution mechanism in real estate transactions. It provides for creation of real estate regulator in each state since real estate is subject matter of state.
Let us examine in detail some off the important provisions of the bill which could impact the property market in general and the buyer in particular.
Registration and Disclosures
The bill provides that the Developer cannot book, sell or offer for sale, or invite persons to purchase in any manner any real estate project without registering it with the Real Estate Regulatory Authority. However this is not applicable where the area of land proposed to be developed does not exceed one thousand square meters or the number of apartments proposed to be developed does not exceed twelve.
Where the project is to be developed in phases, every such phase shall be considered a standalone real estate project, and the developer has to register each phase separately.
The developer will make application to the authority for registration of the project in prescribed form which will be accompanied with the following documents:
(a) Brief details of his enterprise including its name, registered address, type of enterprise (proprietorship, societies, partnership, companies, competent authority) and the particulars of registration;
(b) An authenticated copy of the commencement certificate from the competent authority obtained in accordance with the laws as may be applicable for the real estate project mentioned in the application;
(c) The layout plan of the proposed project or the phase thereof, and also the layout plan of the whole project as sanctioned by the competent authority;
(d) The plan of development works to be executed in the proposed project and the proposed facilities to be provided thereof;
(e) Proforma of the agreements proposed to be signed with the allottees;
(f) The number and the carpet area of apartments for sale in the project;
(g) The names and addresses of his real estate agents, if any, for the proposed project;
(h) The names and addresses of the contractors, architect, structural engineer, if any and other persons concerned with the development of the proposed project;
(i) A declaration, supported by an affidavit, which shall be signed by the promoter or any person authorized by the promoter, stating,
That he has a legal title to the land on which the development is proposed along with a legally valid authentication of such title if such land is owned by another person;
That the land is free from all encumbrances, or as the case may be, of the encumbrances on such land including any rights, title, interest or name of any party in or over such land along with details;
The likely period of time within which he undertakes to complete the project or phase thereof;That seventy percent, of the amounts realized from sale would be deposited in a separate bank account, within a period of fifteen days of its realization for meeting the cost of the real estate project and would be used only for that purpose.
Pre-Launch
In case of pre launch, property is sold at a very early stage even before the approvals are in place. The developer makes offer to the investors at very attractive rates in order to raise funds to finance the cost involved during the pre construction stage. The practice of pre launches, which hitherto has been widely prevalent and popular amongst developers as well property buyers, particularly investors, is likely to come to an end, ones the bill is passed. This will go a long way in protecting the interest of genuine property buyers who have suffered on account of delays as discussed earlier.
Another view on this is that it is likely to slow down the flow of new the projects and thereby limit the supply of new houses which may lead to increase in price. Further, pre-launch sales have been a major source of funding for developers who are deprived of any bank funding for land acquisition. Hence the developers will now have to resort to other modes of raising funds like private equity funding. This is likely to increase the cost of funds for the developer which will ultimately get passed to the buyer.
Sale on Carpet Area basis
The developers have been for long confusing the property buyers by using various measures like “saleable area”, “super built up area”, “built up area”,“usable area” etc. in relation to the size of the property. It’s really surprising that in our country when one is buying a bottle of cold drink say for rupees ten only, the bottle clearly mention net content 200 ml. But when it comes to buying a property worth lacs or crores of rupees, the buyer has to struggle to find out what is the net area he would be getting.
The bill seeks to address this issue by not only making it mandatory for the developers to disclose the carpet area but also by clearly defining it as “the net usable floor area of an immovable property, excluding the area covered by the walls”.
Real Estate Agents
The bill also proposes to bring within its ambit the real estate agents fraternity which is currently unregulated. It provides that the real estate agent will have to register himself with the regulator if he wants to sale any of the developers project registered with the regulator. The bill also provides that the estate agent should not make any false representation with regard to services, facilities, grades, standards, approvals, affiliations etc. being offered by the developer. He should also facilitate the buyer in getting all the documents he is entitled to at the time of booking the property.
Conveyance
Surprisingly the bill is rather muted on the issue of conveyance, which as we all know is a major concern, especially in city like Mumbai where majority of house owners are being deprived of their right of ownership to the land on which the building is constructed. It simply states that the developer shall take all necessary steps to execute conveyance without specifying the timeline for the same or penalty.
As can be seen from above, if the bill is enacted in its present form it could bring about a sea change
However, there is still more ground to be covered before the bill finally becomes an Act, as it is still subject to debate/discussion and also amendments before it can be passed in the parliament.
