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The Real Estate Bill Sees Some Light, But Buyers Will Not See Immediate Benefits

The new real estate bill is here, and has been passed by the Rajya Sabha. Now it goes to the Lok Sabha and then will get a signature from the President. This is significant only because the current party in power has a majority in the Lok Sabha (so anything will pass) but doesn’t in the Rajya Sabha – so this bill is nearly as good as passed.

The Features That Are Brilliant

Let’s face it. Real Estate is a dirty business. You never know what you’re going to get in a new project, and clearances take enormous time, loans keep piling up, builders default, owners default, and in general it’s a rough experience. The bill addresses some concerns.

There will be a Real Estate Regulatory Authority in each state. That means each state has to ratify this bill and then setup this authority. If you’re in a state that doesn’t do so or delays things, this will be a complete waste of time for you. 

All RE projects – defined as those in 500 sq. mt. land (think of a 100×50 ft site or more), or having more than 8 apartments – have to be registered. And all current projects too. And if a project is done in phases, each phase has to be registered separately. And this includes commercial real estate also.

Registration will include details of the promoters/builders, commencement certificate, plan approvals, facility plans, proforma/sample agreements etc. These will be available on the web site of the authority.

Promoters must keep this site updated with quarterly progress reports, completion status, certificates etc. 

All real estate agents must be registered. There are penalties for false representations or misselling etc. 

No selling based on anything except carpet area. Today they sell you stuff that’s actually 800 sft carpet area, but you pay for 1200 sft as “super built up” area, which is calculated by a formula unknown to humankind.

50% of the money collected for a project should be in an account that is used only for that project. That reduces the amount of money that can be taken out and used in other projects – a common ploy by developers whose main aim is to sucker more customers.

No changes to the plan are allowed, unless a large percentage of buyers agree.

Delay penalties are the same for a buyer and a builder.

If there is a violation, the builder can be arrested and jailed for upto three years, and fined too. But here’s the catch: if you as a buyer default on your obligations to pay, you can also be sent to jail for a year, and fined upto 5% of the apartment cost. 

There will be fast-track settlements through Judges and an Appellate tribunal. But to avoid people going ballistic over things, regular courts are barred from hearing cases.

Our Views

Okay everyone’s saying this is a good thing, so I will also say it’s a good thing. But you can get the really good points everywhere. We bring you our views – The points to note are:

Carpet area versus super built up. You will see a much higher carpet area price. This actually changes a few things for you as a buyer, because the registration value will now have to have the carpet area based price. People have tried to get away from high registration charges by claiming that the remaining costs (club house, pool etc) don’t need to be registered – however, with a single all inclusive price, you will find that the registration costs will go up.

Builder restrictions will make them go to cash. Builders aren’t suddenly going to become clean after a new bill. So they will just demand a higher “cash” compensation so their funds aren’t blocked in a bank account. You should resist this, but real estate makes people turn to jelly so I don’t have high hopes.

The requirement of an Appellate Tribunal can be a double edged sword.  In telecom, you could go to consumer courts for redressal until the government decided to have a tribunal for telecom complaints. Then they didn’t appoint a tribunal committee or judge. That meant you could neither go to a court (since they don’t allow courts to take telco cases) and you don’t have tribunal to go to. What happened? For two years, telcos got away with mis-billing and all sorts of mischief, until some courts decided to call the bullshit and take the cases anyhow. In real estate, while they have banned courts from taking cases, they should also be required to maintain a working tribunal at all times. 

Builders will divert funds anyhow. This is India. That’s how it is. 

The process will take time. Each state has to ratify the bill after the LS clears it and the president approves. Each state has to create a web site where builders can register and the builders need to put in properties etc. There will be teething issues too. And then we need that Appellate Tribunal. So forget about most of 2016, but hopefully it will help in the future. 

Does Not Solve the Title Problem. In India title to a land is often disputed. So much that even government agencies that claim to hold land don’t have ownership documentation. The fact that titles are such a problem makes it difficult for banks to lend (so they actually hold your personal guarantee on a loan) and difficult for people to assess the viability of a property. The RE bill doesn’t address that problem.

It will overall be helpful, but you should be ready to go and complain.  Builders are, for the most part, unsavoury and can bully you into not complaining. Especially if they take a large cash component (“black”) on your purchase. The bill is good but it will require you to know that if the builder violates his side of the agreement you have to go to the judge/appellate tribunal to enforce your claims. Many people try to use twitter nowadays, which isn’t going to really be helpful. 

We think this is a good bill to have. If enforced properly it will help transition through the horrendous situation that real estate is currently in, but some of its provisions are going to hasten the bursting of the RE bubble as we have it today. Buyers of properties that suffer due to a bust will only be helped by the strong regulation in the bill, assuming that the major states ratify and implement the bill fast. 

  • Vamsy says:

    There is no concept of consumer protection in India. Everyone is by himself. Laws are made in India meant to be broken there will be no justice for the consumers. We will soon see someone extracting money from both the parties just like how the Police do real estate ‘settlements’.

  • Kumar says:

    One more govt org/baboo on genuine builder head and an extra % bribe to get clearances

  • hemen parekh says:

    Thanks , Shri Naidu !
    A few days back , Parliament passed a bill to regulate the Real Estate Industry
    On 04 Nov 2015 ,I sent to Shri Venkaiah Naidu ( mvnaidu@sansad.nic.in ) , an email containing following suggestions
    Some of these have been incorporated in the new Act .
    Thank you , Shri Naidu for listening !
    ————————————————————————————————-
    E-Delivery of Services to Construction Industry
    Here is how :
    * All builders / developers must register on Municipal Web sites and obtain
    unique BUILDER REGISTRATION NUMBER
    * Builders must fill in online, on web site of concerned Municipality, a form :
    BUILDING PERMIT APPLICATION
    * Building Permit Application Form will have a STANDARD FORMAT , into
    which applicant will need to submit exhaustive details re the project
    This will include detailed Floor Plans and Structural Drawings , along with
    names / contact details of Architects / Structural Engineers etc
    The FORM will require slab-casting dates for each slab and the final
    completion date when builder will apply for Occupation Certificate
    * The Form will have a section called
    SELF CERTIFICATION / DECLARATION
    Builder would be required to tick YES / NO against each item as shown :
    Does your proposed Building / Structure / Project , satisfy the criteria /
    notifications / regulations , issued by the concerned Ministries in respect
    of :
    # Built-up Area……….. ( YES ) / ( NO )
    # Height Restriction
    # Fire Fighting
    # Water Harvesting
    # Roof-top Solar Power
    # Effluent Treatment
    # Garbage Disposal
    # Earthquake Resistant Structural Design…………..etc
    Clicking on each item will reveal the relevant ” Notification / Regulation ” issued by the concerned Ministry
    To make the process absolutely fool-proof , the form will insist on an ” Electronic Signature ” of the applicant
    DECLARATION / UNDERTAKING :
    ” I declare that I have read each and every notification / regulation , listed in respect of items mentioned above
    I further declare that I explicitly agree to abide by these regulations
    I am aware that Occupation Certificate will not be granted if my completed project is found to be in violation of any of these notifications / regulations
    I will not allow any person / entity to occupy any part of this premises , until and unless , Municipality issues to me , the Occupation Certificate
    If Municipality finds any violations , I agree to rectify the same before applying for a fresh Occupation Certificate
    If Municipality is not in a position to issue Occupation Certificate due to any
    violations which simply cannot be rectified , then I will demolish the said building / project / structure on my own and before such demolition , refund with interest , payments collected from the buyers
    The plot of land is free from any encumbrances / litigations
    I am not in default of any loans taken from any bank / individuals
    I will not accept any payment in cash , nor make cash payments
    I absolve the Municipal Corporation of any liability arising out of non completion of my project
    I agree that my Building Permit Application and my Registration Application details , be made accessible to public on your web site , along with full details of my past / current projects and full details of my balance sheet / bank borrowings ”
    GRANT OF APPROVALS BY MINISTRIES :
    As soon as the builder submits the online BUILDING PERMIT APPLICATION , it automatically and instantly , appears on the web sites of ALL the concerned Ministries
    The concerned officer of each Ministry , makes APPROVED / REJECTED entries in the application form , from the backend
    If rejected , he will provide the reasons
    Ministry officers are required to carry out this entry , within 24 hours
    As soon as an officer of any Ministry makes entry and SUBMITS , the application forms on web sites of ALL Ministries and web site of the concerned Municipality , get updated simultaneously and instantly , making for MIRROR IMAGES at all times
    As soon as any entry is made , a copy gets emailed to the applicant builder
    Any ” editing ” of the application form by the builder , will start the entire process , all over
    Applicant builder will be obliged to display the latest emailed form at the site
    The database so created on web sites of ALL Ministries – and concerned Municipality – will be searchable State-wise / City-wise
    CHANGES IN RELEVANT LAWS :
    To speed up any litigation between the parties concerned ( Builder / Buyers / Central & State Govts / Municipality / Bankers etc ) , existing laws may be changed
    IMPORTANT :
    Every application must be in the open domain and visible to anyone , online and transparently
    There should be provision for any visitor of the web site to report any abuse / violation of regulations or any objection to the proposed construction
    ADVANTAGES :
    If such SELF CERTIFICATION process is implemented , it should be possible for India to beat Singapore , where getting 11 approval takes only 26 days !
    It would be ZERO days in our case !
    Now couple this with abolition of Corporate Income Tax for Construction Industry for the next 10 years and witness a MIRACLE
    ————————————————————————————-
    hemenparekh.in / blogs
    15 March 2016

  • Amar says:

    STOP buying under construction properties anywhere in the country. DO NOT BUY Projects where there aer Phase I and Phase II etc…Wait for all Phases including Club House and amenities are completed in all aspects. Wait for the Completion Certificate from regulatory authorities before even making visit to the property….Do not waste your hard earned money in any manner with Real Estate Business or Builders….You would only regret