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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. 

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