. The new draft of the Real Estate Regulation and Development Bill, released by the ministry of housing and urban poverty alleviation, is finally out. The bill brings with it harsh punishments for builders who take investors for a ride – this has already resulted in the builder community crying foul at the move.
The bill might be responsible for an active Real Estate Regulatory Authority which will monitor all real estate projects and take care of investor woes in the real estate segment. Something to cheer about finally.
Salient Features of The Real Estate Regulation and Development Bill
The bill says that no builder will start a housing project unless a certificate from Real Estate Regulatory Authority of India is obtained.
Without this certificate, a builder cannot even place an advertisement of its project. Leave alone that, the builder cannot even publish a project prospectus and so bookings cannot be made till the certificate is obtained.
If a housing project is to be built in phases, then every phase will be considered a separate project and registration will need to be done for each of the phase separately. This is valid only if the total project area is less than 1 acre.
In case an investor decides to cancel his booking or withdraw from the project, then the entire money he put with the project shall be returned along with a decided rate of interest.
If the buyer brings to the notice of the builder any structural defect within a year, then the correction has to be done free of cost by the builder. If not, the authority can decide damages that will need to be paid.
The real estate regulation and development bill proposes that dispute between the builder and flat buyer be settled by the Real Estate Appellate Tribunal.
In case the regulator cancels the registration of the builder. And the project stops midway because of this, then an alternative will be made. Where in the remaining project work will be taken to completion so that investors are not affected.
The Real Estate Regulation and Development Bill – Pain for the builders ?
The bill does make it tough for the builders to err. This is good because real estate in India is leaving investors in a tough spot with delayed delivery of projects where the buyer has to pay rent and EMI till the project is completed.
Now builders will have to park 70% of the money collected from flat buyers in a bank account within 15 days of its realization. This money will need to be used towards the project.
Every 15 days, the builder will have to update the website of the authority with the new list of bookings.
In case of investors being cheated by the builders due to misleading advertisements, then the investor will be compensated. This will be in a manner decided by the Real Estate Appellate Tribunal.
In case any builder violates the provisions of the Act, he can be put behind bars for 3 years. Also he may have to pay a penalty which extends to 10% of the total cost of the project or even both. If orders of the authority are not followed, then a penalty of Rs 1 lakh each day will be imposed. This may go up 5% of the total cost of the project.
Our take ?
A flat or apartment is the single most important and big investment a small investor makes in his lifetime. So it becomes important that his experience is smooth and he takes away a confident trust of the entire system. This can only be possible if the builder is trustworthy and does his job on time.
In today’s scenario where housing projects are delayed upto many years. This is because the builder moves the funds to his other projects. This is devastating for the investor – he has to pay rent and the pre EMI simultaneously. The new rules of Real Estate Regulation and Development Bill allows him to get out if there in an unreasonable delay.
The rule wherein the money will be refunded to the investor is indeed a welcome move. This will benefit investors largely. Today, refund of money puts the investor against the wall and he has to literally fight it out to get his money back.
Builders who do a shoddy work and leave investors to fend for themselves. These will now need to be careful as investors have been empowered with the right to have defects corrected in the first year. Expect more improvements in the quality of the work.
Expect more real life advertisements now. Today builders show mountains and rivers in their prospectus to attract buyers. And deliver claustrophobic housing societies with many structural defects. That should improve now !
With a gray real estate market in India, the tough government regulations including imprisonment will help iron out the issues investors are facing in the real estate market.
Any thoughts ?
Will they also regulate the price or is it only an appellate authority to ensure speedy deliveries and good quality construction? Is it going to be a local body or a national level authority?
@Chiko, Not sure how can pricing be controlled since it really depends on factors such as the land prices in the area where the project is coming up, the locality, construction quality, amenities being provided etc.
@Jaswinder Singh, Rightly put in, price cannot be controlled at all by them. The focus is on getting things delivered in the right manner without investors being cheated.
@Chiko, This is a national level authority. Local bodies need to be formed by the local state governments.
Great news. When is this applicable from?
Hopefully now innocent investors won’t be cheated.
Rakesh
@Rakesh, It’s yet to become a rule – it’s out there for the real estate forum to respond back on.
No deadlines yet.
I guess we must ask Anna Harare to throw his weight behind this as well…
The Real estate regulators are really thinking of the investors. This segment really needed some uncompromising rules & regulations.
Hope the ministry of housing & urban… follows the bill strictly.
Your idea behind the Iron man poster is Super! 😛
@Sudip D, Only time will tell Sudip. But I like the tough regulations.
It’s needed for a sector which tilts towards rowdy-ness at times.
@Radhey Sharma, Yea..absolutely it’s required.
Wow………….. it’s really a good start whenever it gets applicable :)……. atleast something is happening….. I am very happy to see this news…….. Here Buyer (Inverstor) becomes the King again.
@Chirag, It indeed is. Everyone is waiting for it with bated breath.
Keep your fingers crossed guys, the consortium of real estate builders will do what it takes to minimize the inconveniences this regulator is going to cause them 🙂
Excellent bill, I was not aware of it at all. Any update on this Radhey? Do we know when this bill is likely to become a reality?
@Vivek K, Just talked about but I am not sure whether it saw the light of the day…Must be in the works…
@Radhey Sharma, I searched on google but there is no update. There are only speculations and experts talking about it but no one knows when will the bill be released. I think there is some more time before customers can say Cheers!
If you hear anything please let us know.
@Vivek,
Even i was trying to get the latest update on the same but no luck. The builder lobby is very strong and corrupt and they will put in all their effort to stop this bill from being passed.
But if it gets passed then nothing like it, will be a victory for house-owners.
@Rakesh, I am confident bill will get passed because these builders have crossed all the limits in terms of deviating from plans, over-priced selling. It’s high time! The real question is how effective would the bill be and what would be the penalties?
I think this bill is waiting since 2009 and last year it got tweaked to make it weak. Bills like this couldn’t progress last year mainly due to ‘Jan Lokpal’ :).
Not sure about the last version of the bill. Though we can see how it helps after it comes into act only.
How to stop black money from real estate?
1. UID should be mandatory.
2. All registration should be online.
3. No one should be allowed to purchase more than 2 houses. Currently all black money peoples are purchasing more than 100 houses.
4. All transactions more than 20 lakhs required clearence certification from income tax department.
Good suggestions kaka but are they feasible?
1) UID is still WIP and it will take years before it becomes an acceptable means of identification. PAN card on the other hand makes more sense, which is anyways being used at present.
2) Yes, this is something that is being started to avoid paying bribes to the registration office. Not sure in other cities but in Bangalore it is being proposed. When will it become reality? No one knows.
3) I don’t think this is feasible. Many projects come up as a joint venture between land owner and the builder where land owner keeps 50% of the apartments and register them under his name. This proposed rule will deny such deals and will make the projects difficult to kick off.
4) This idea will delay the whole sale process. We all know how much time it takes to get refund money from IT department, which is our own earned money. Can you imagine how much time they will tale to give such clearance? Also, it may open another door for bribery.