Real Estate Regulatory & Development Bill a welcome move – Cushman & Wakefield

The approval from the Union cabinet on the Real Estate Regulatory & Development Bill is a welcome move from the government. This Bill, introduced in 2013, has been amended to include key measures that envisage to bring forth higher levels of transparency, accountability and standardization for the industry, which for long has been either self- regulated or working on best practices principles.

One of the key changes is inclusion of ongoing projects (which have not received completion certificates) within the ambit of this bill, thus enabling increased relevance & impact of the bill provisions for the existing investor / end user base. The need for the consent of 2/3 rd allottee for changes in structural designs will now ensure adherence to declared plans as well.

Apart from protecting end-user / home buyers’ interest and bringing in credibility to the developer community, we also see this working positively in terms of attracting investments from domestic and international funds. Commercial Projects have also been included within the Ambit of the Bill and regularization will act as a major confidence building mechanism, especially from the Occupiers perspective and strengthening investor confidence.

Lowering the cash deposit from the earlier 70% to 50% increases working capital availability and will also be an enabler for dealing with prevalence of high land cost on a case-to-case basis.

In all, the approval of Real Estate Regulation & Development Bill (amended in 2015) is a welcome move taken by the Indian Government to boost the morale of the sector and bring in the right kind of momentum through provisions such as setting up of project specific escrow accounts, establishment of a Regulatory Authority, mandatory registration of projects, developers and brokers, and public disclosure of project details, etc.

http://www.epcworld.in/epcnews/real-estate-regulatory-development-bill-a-welcome-move-cushman-wakefield.aspx

Real Estate Bill: No accountability for government agencies?

The Real Estate Bill passed by the Modi cabinet, would bring some accountability among realty players. However, government agencies whose slow approval processes delay projects, would remain as unaccountable as before

 

The union cabinet, chaired by Prime Minister Narendra Modi, on Tuesday gave its approval to amendments to the Real Estate (Regulation and Development) Bill, 2013 pending in the Rajya Sabha. The Bill will help reduce numbers of one-time builders and developers as well bring in transparency and accountability in realty segment deals. However, at the same time, it fails to include or hold accountable, government agencies whose slow approval processes   contribute to project delays.

 

Two of the major changes in the Bill are reduction in the amount deposited by developer and bringing in commercial properties into its ambit. The minimum balance to be maintained in the escrow account of a project has been reduced to 50% from 70%. This amount from the monies collected from the buyers must be placed in an escrow account within 15 days.

 

However, this will allow developers to continue the practice of diverting funds collected for a project towards land acquisition or other projects, and will work in their favour by also allowing them to grow their land or project portfolio. The result will be buyers will be more worried due to the fund diversion.

 

Other revisions include bringing in commercial projects under the purview of the bill, which will provide protection to investors of commercial assets. In addition, brokers and agents have been now been included under the purview as well, and are effectively rendered punishable in case of non-compliance with the Authority's and Tribunal ruling.

 

All under-construction projects have to be compulsorily registered within three months of setting up of the Regulator, and developer cannot make changes to original plans or the structural design unless he gets the consent of two-thirds of the customers.

 

If the developer fails to register the project within the prescribed time, he will have to pay a penalty of 10% of the overall project cost and an additional penalty of 10% penalty and/or a three-year prison term in case of continued non-compliance. Incorrect or incomplete disclosures will attract a penalty of 5% of the project cost. Continued non-compliance can lead to project cancellation as well.

 

Consumers can approach other forums for justice

In the previous Bill, the consumers had no other forums to go for justice except the Real Estate Regulatory Authority’ (RERA) and Real Estate Appellate Tribunal (REAT). Such a stance may have lead to pressure on this regulatory body in terms of an increased log of cases, though it would certainly reduce instances of multiplicity of suits. 

 

This clause has been done away with in the version that the Modi cabinet has cleared. This means customers can now seek recourse with consumer courts and forums as well. All projects which have not received their completion certificates will also be now covered under the bill, so it now allows bigger umbrella coverage for buyers and investors.

 

Key pointers about the Bill 

1. Applicability - Applicable to new residential and commercial projects having developable area of 1,000 metres or more

 

2. Detailed Information sharing - Detailed Information to be shared by the builders about the project, land and bank details prior to launch of any new project

 

3. Escrow Account - Minimum 50% of the receipts to be kept in escrow account for construction expense.

 

4. Higher Transparency and credibility for the sector

 

a. Project to start only once all applicable approvals are in place

 

b. Builder can’t change the building plan and structural designs without consent of 2/3rd of the buyers.

 

c. Not more than 10% of the cost to be taken as advance till formal agreement is signed

 

d. Structural defect found within two years of possession to be corrected by the builder at no extra cost

 

e. Grievance redressal mechanism to be in place in each state for quick resolution of related issues and better after sales service by builders

 

5. Land being a state subject, States are required to make rules in this regard within one year. The act provides that two or more states may choose to appoint single regulator

 

In June 2013, while speaking at the Moneylife Foundation seminar, Parimal Shroff, the top real estate lawyer in Mumbai, pointed out that the Central Act is “too ambitious”. He said, the functions of RERA includes administrative, advisory, executive, judicial and regulatory and it needs to be rationalised as it can be overburden by solving smallest to largest issues across the country.

 

In addition, the state governments are expected to establish REAT to hear appeals from the orders or decisions or directions of the authority and the adjudicating officer. The REAT should be headed by a sitting or retired Judge of the high court with one judicial and one administrative or technical member. This is also not practical, especially looking at the dearth of high court judges today.

One of the issues that could put brakes on setting up RERA and the REAT is the cost factor. As per the Bill, the state government should set up RERA and tribunals. However, the states would be too reluctant to bear the financial burden on setting up these huge authorities, unless the Centre provides sufficient funding. 

 

The Bill also fails to mention wilful defaults and is silent on unaccounted money. While speaking at a Moneylife Foundation seminar, Pranay Vakil, a respected name in the real estate industry and former chairman of Knight Frank India had said, there is no regulation in place to deal with the menace of unaccounted money.

There are some short term and some long-term effects of the Bill on real estate. For the short term, the additional requirement of registration with Regulator may delay new launches. Similarly, the requirement of launching the project only after receiving all approvals may lead to delayed sales and hence delay in cash flow in the short term for the developer.

 

It remains to be seen as to how soon the regulator comes up, what kind of costs it imposes on the system, and how extensive is its coverage and how it handles grievances. Following the approval from the Cabinet, the Real Estate Regulatory Bill will be tabled in the Parliament for making it an Act.

http://www.moneylife.in/article/real-estate-bill-no-accountability-for-government-agencies/41222.html

Real estate regulatory bill makes project execution faster.

 The Bill will bring about a common regulatory platform for all stakeholders in the industry thereby ushering in a higher degree of accountability amongst builders and sales intermediaries.

The cabinet approval of the long pending Real Estate Regulatory Bill is a positive first step towards bringing in the much needed transparency to the sector. The Bill will bring about a common regulatory platform for all stakeholders in the industry thereby ushering in a higher degree of accountability amongst builders and sales intermediarles. 

The Bill in its current form applies to both residential and commercial real estate, and is far more comprehensive and wholistic in approach, addressing both the regulatory and development oriented aspects of the industry. The following features are notable- 

1. Creation of statewise regulatory authorities for the sector

 2. Mandatory registration of real estate projects and agents   

3. Mandatory public disclosure of all project details- will go a long way in ensuring easier scrutiny on compliance to approved plans, progress on statutory approvals etc 

4. Functions and duties of a promoter are clearly defined- will bring in greater accountablitly on the part of builders and give room for a clear locus standii for buyers to pursue legal procedings if any against errant builders 

5. Builders are required to deposit 50% of the amount realized towards bookings on a project in a commercial bank account within 15 days of receipt, and deploy the funds for construction of the project. This will ensure better adherence to delivery timelines and will also minimise cost overruns due to delays on account of inadequate capital.

 6. Functioning of real estate agents will be better monitored as they are required to regsister themselves with the Regulator. However the Bill does not propose any mandatory traiing program or certification required to operate as an agent. Also agents are required to sell only registered projects. This will help control price rise to a great extent particularly in investor dominated markets. 

7. Punitive measures outlined for transgressions by builders 

8. Responsibilites of the allotees is also defined making the bill a lot more enabling and development oriented.

 9. Additionally, creation of a Central Advisory Council to oversee the implementation of the Act is commendable. Execution and enforcement of the Act is crucial to bring about the changes that the Bill seeks to achieve. The role of the CAC will be an important element in the success of the regulation.

Read more at: http://www.moneycontrol.com/news/real-estate/real-estate-regulatory-bill-makes-project-execution-faster_1352993.html?utm_source=ref_article

 

Kerala clears ordinance on real estate development

IANS  |  Thiruvananthapuram  

April 8, 2015

To streamline real estate development in Kerala and to eliminate fly-by-night operators, the state government has approved the Kerala Real Estate (Development and Regulation) Ordinance, Chief Minister Oommen Chandy said on Wednesday.

"This ordinance was cleared by the cabinet today (Wednesday) and through this, we expect to prevent frauds taking place in the real estate sector. Through this ordinance, two regulatory bodies -- the Real Estate Authority and the Real Estate Appellate Tribunal -- will come into being to look into all aspects of new flats, villas and commercial buildings," Chandy said.

The measure has been sent to Governor P. Sathasivam for its issuance.

Of late, the number of complaints by people who have paid money for buying flats and villas promoted by real estate companies have gone up drastically.

The most affected are the Kerala diaspora who have reportedly fallen victim to errant builders.

Kerala Minister for Urban Affairs Manjalamkuzhi Ali said that through this measure, they were confident of protecting the interests of investors who pay for a flat or a villa.

"The Real Estate Appellate Tribunal will be a quasi-judicial body and would have enormous powers to ensure that land deals are fair. Right from the time advertisements appear from real estate developers, the construction period and after the property is handed over, everything will be under scrutiny.

"Those who do not complete their project on time would be fined. We are confident that through this, there will be no more apprehensions by the investors," said Ali.

Chandy said that Kerala, through this ordinance, has become only the second state after Maharashtra to have such a stringent law.

Property regulator +ve; need faster approvals: Realtors 

The Cabinet’s decision on Tuesday to approve creation of a real estate regulator is positive 

for the sector over the long term as it will increase transparency, HDIL MD Sarang 

Wadhavan told CNBC-TV18’s Latha Venkatesh and Sonia Shenoy in an interview.

 The Cabinet’s decision on Tuesday to approve creation of a real estate regulator is positive 

for the sector over the long term as it will increase transparency, HDIL   MD Sarang 

Wadhavan told CNBC-TV18’s Latha Venkatesh and Sonia Shenoy in an interview.


 The bill proposes the setup of state-level real estate regulatory authorities (RERAs) that will 
ensure higher disclosures, ensure fair transactions, prevent flouting of laws and make 
developers more accountable towards their projects. A key clause in the proposal is to have 
developers mandatorily tie up 50 percent of funds sourced from buyers into construction of 
the projects, something that has been said will add to project costs. But the HDIL chief said 

such concerns were not valid for large developers as they anyway put funds sought from 

institutions into escrow accounts. Wadhavan added that the proposed regulator should also 

look into granting speedier clearances – which realtors say sometimes hold up projects for 

years. CB Richard Ellis South Asia CMD Anshuman Magazine said that a regulator may 

facilitate greater investments into the sector over the long term (by adding to its credibility) 

but he too pointed out that the government should also focus on reforming the approval 

process, such as by looking to digitize land records. While Religare Capital Markets' Arun 

Aggarwal said things over improving overall for the sector -- both on the regulatory side and 

cost of funds side. Below is the transcript of the interview on CNBC-TV18. Sonia: Form a 

company’s point of view what are the positives and from an industry perspective, how much 

of a relief do you think this bill could bring about? Wadhawan: It is a positive step by the 

government. The ‘Housing for all’ vision of the government will get a boost with the real 

estate regulator coming in. It will bring in transparent processes and the responsibility will 

be fixed on developers to deliver the products to the consumers as and how they have 

been decided. 

It is a great step but there are lot of issues which are left open with this bill. The government 

needs to address those as well as far as the approval processes are concerned and the 

fixation of responsibility of the government officials who give the approvals are concerned. 

Latha: How are you looking at the imminent passage of this bill? Will it mean at least 

immediately probably a cash crunch because 50 percent of the money is received from 

consumers will have to be put in an escrow account? Immediately will that be a negative 

before it becomes a corporate governance positive for the sector? Magazine: Yes, it will. It 


will also increase the cost of capital. Already the developers are facing a big funds crunch. 

As we know, there is a liquidity problem so this will create that problem. However, I must 

say that overall this regulator bill will give confidence to more investors, it will facilitate more 

investment in the long term. This is both individual as also institutional investment, be it local 

institution or foreign investment who are coming in to this sector. So, that way it is very 

positive. But Mr Wadhavan said, there are still issues that are open. There has to be more 

accountability from the government and along with the regulator bill which I think the overall 

it is a positive step, there has to be steps taken by the government, for example, digitisation 

of land records. Getting the approval for the completion certificate which takes time. So, 

there has to be some accountability from the government from the fact that, from the point 

that they also have some time period -- that within this time period the developer will get 

completion certificate for projects, get other approvals which are required for the project. 

Because if you are keeping developers accountable -- which is very good -- but the 

government also should take some accountability because otherwise you are putting 

regulation and the developers will still have an excuse that: “Look, we have done everything 

from our side, but we are still, from the government’s side, there are delays in project 

approvals.” There is also environment issue which is a big issue now in the development 

world. How to, lot of projects are stuck because of environment clearances. How do you 

address that? So, overall this bill is good, long-term it will benefit the sector -- like I said, it 

will facilitate investment. But on the ground, there are a still lot of issues and my one 

concern is that this should not be a deterrent for development for more projects to come in. 

Sonia: How much will this actually increase your cost of capital and how difficult is it for 

developers to keep 50 percent of advances in an Escrow account? Will it deter you from 

future projects? 

Wadhawan: Actually, no. Honestly, the way the cash flow of companies work is: if there is 

any loan taken from any financial institution, they already insist on the money being 

deposited in their escrow account. So irrespective we are anyway depositing 50 percent or 

more of the proceeds into the escrow account of the banks. So, it is not going to change 

much where we are concerned. For small time developers, it will make them a little more 

accountable. For large developers who have taken loans or done project finance, it is really 

not going to make any difference. 

Latha: How are you approaching the sector now? With 

this as well as with the rate cuts are you turning more positive on real estate? Are there any 

buys in that space for you? 

Agarwal: There are two things. As everybody is saying, the long-

term positive feelers that you are getting is that you expect the sector to be more 

transparent and credible from buyer’s and investor’s perspective obviously that is a big 

positive. At the same point in time, the short-term issues that you talked about may it be 

related to slight delays in new launches probably because you still need to get one more set 


 of approval or registration with the regulator. You cannot really launch property till all 

approvals are in place. Frankly from the sectors perspective, I will be looking at it more 

positively. As far as the interest rate cuts are concerned, a miniscule 15-20 bps kind of cut in 

base rate, I do not really think that to have a significant impact. But overall, from the view 

point of where do you look at the sector from here onwards, there are some positive 

movements that are happening but are we really seeing the structural issues getting sorted. 

Are we seeing some kind of improvements in volumes coming through across the major 

 cities? That is the key question that we need to ask and we are really not seeing too much 

 of a movement on that part. Latha: How are things changing on the ground? Will the cash 

crunch ease a little because bank related money is going to get a little cheaper? Will 

consumers buy do you think because of lower equated monthly installments (EMI)? 

Wadhawan: Definitely, things are improving. We are seeing an uptake in sales that are 

taking place on the ground. So, overall the cost of funds has not come down as we had 

expected. It is still pretty expensive to raise money. Till the time we do not see RBI taking 

any corrective action, we are still going to see rates at an all-time high and it is still going to 

be really expensive. Sonia: The last time when we spoke with you, you had indicated that 

you are on a massive debt reduction plan where you have a lot of your non-core assets that 

 you will be selling. Now that the new fiscal has become, can you give us a target of how 

much you plan to sell and which are the properties on the block now from the several ones 

 that you have across Delhi, Gujarat, etc? Wadhawan: The company’s focus remains on 

 Mumbai and development within the Mumbai metropolitan region: whether it be Vasai-Virar 

or Panvel areas. We are looking at debt reduction through sale of assets in Cochin, 

Hyderabad, Gujarat -- all of these areas outside of Mumbai -- and for us it is important right 

now to reduce debt by another Rs 700-750 crore. We will be able to achieve that this fiscal, 

we will be in a very comfortable position. Latha: The bunch of regulators in other sectors has 

not made a material difference. The banking ombudsman for one is loaded with cases. The 

relief comes in trickles. Real estate is a sprawling industry and with a whole lot of unbranded 

and really small players. The regulator just got a cabinet approval. So many of the 

regulators we already have, the government is not able to find people to man them and this 

is really something that has to be extremely widespread and spread throughout the country. 

It is not just one real estate regulator who can make magic. How much time before it really 

makes a difference to the sector? Magazine: The fact is if our courts worked, if our legal 

system worked, we do not need another regulator. There is enough in the law that if a 


consumer has a problem, we can go to the court, but why does he not go to the court? 

Because he knows it may take 20 years before he gets redressal. So, really we do not need 

a regulator as such but because the court system is slow -- of course in some parts 

improving -- but still people are not comfortable really taking their legal route because of the 

delays, this regulator has come in. The fact is in theory if this regulator, the way it is set up, 

if it really works, it certainly will be beneficial but a lot of the developers and others feel that 

this may add another layer of approval process although they are saying it is gong to be 

online. It will be more efficient. But like you rightly mentioned, does the government have the 

capacity to execute? The fact is there is capacity building which is required in the 

government’s side and lot of people do not talk about that. There is capacity building 

required at the municipal level, at the state level and there is a real apprehension that this is 

one more layer. Already you have to go through so much of approval process to do any 

development and then you have one more layer. But if it really works, like I mentioned 

earlier, the positive is that if let us say a private equity player, there is a institutional player 

putting money and even a consumer, they will get that confidence that look: there is more 

 transparency, all the details of the projects are registered, the government is keeping an 

oversight, so hopefully that if they invest in this project, this project will be delivered and 

 delivered as it was promised at the price which it was signed up for. So, that is no doubt a 

positive. However I agree with you that implementation on the ground, let us see. I think it 

will take some time before it starts working the way it should. Sonia: Do you think the 

approval process will take longer now and longer than before at least and will it lead to any 



delays in any of your own projects and anything in the industry? Wadhawan: No, not at all. 


This is just another new set of approvals that we need to get. We need to get every project. 

And the problem is that now it will be with retrospective effect, so all my other projects 

which have not been completed need to be registered. Beyond that the focus of the government 

should also be to enforce or put a time limit to the approval processes to be given by the 

municipalities or the local authorities. Till the time that does not come in, real estate 

regulator would be clogged with all cases and it is really not going to help till the time that 

that mechanism is set in.



 HDIL stock price On April 08, 2015, Housing Development and 

Infrastructure closed at Rs 133.60, up Rs 5.05, or 3.93 percent. The 52-week high of the 

share was Rs 139.40 and the 52-week low was Rs 58.90. The company's trailing 12-month 

(TTM) EPS was at Rs 8.18 per share as per the quarter ended December 2014. The stock's 

price-to-earnings (P/E) ratio was 16.33. The latest book value of the company is Rs 248.81 

per share. At current value, the price-to-book value of the company is 0.54.

Read more at: http://www.moneycontrol.com/news/business/property-regulator-+ve-need-faster-approvals-realtors_1351753.html?utm_source=ref_article

Single window clearance should be put in place before Real Estate Bill becomes a law: realtors

Realty players have been demanding a fast track mechanism for all the required permissions to start a project.

Real Real estate developers are demanding a single window clearance system before the Real Estate (Regulation and Development) Bill, 2013, becomes a law. Also, authorities giving permissions should be brought under the ambit of the regulations, according to developers.

Currently, developers need to take over 50 approvals before they can launch a project. Realty players have been demanding a fast track mechanism for all the required permissions to start a project.

According to an expert if the government creates a single window clearance system, the prices of residential real estate units could come down by 15-20 per cent. "It will also prevent unnecessary delays in delivery of the projects, which is one of the major concern areas for buyers."

R K Arora, chairman and managing director of Supertech, said, ''The proposal to create regulators to safeguard the interests of buyers and investors is a positive step. However, the usefulness of setting up such bodies without addressing the long pending issues such as a single window clearance system, giving infrastructure status to the real estate industry, is still unclear."

Shishir Baijal, Chairman and Managing Director, Knight Frank India, said: " On the flip side, the Bill would have been more effective had all the approving authorities been brought under its purview. But overall, the bill is expected to infuse a fresh lease of life into the sector. "

The Cabinet gave approval to the amendments in the Bill on Tuesday. The Bill will now go to Parliament for approval before becoming a law. Commercial real estate sector has also been brought under the ambit of the Bill.

The real estate sector has been devoid of any kind of regulation till now. The development assumes significance in the wake of rising consumer complaints against developers for delaying projects by over 4 to 5 years, with no mechanism to curb the delays. On the contrary, if a buyer defaults on payment, he has to pay high interests while developers escape through loopholes in the sale agreements.

The Bill, no doubt has come as a boon for the aggrieved buyers, who were forced to come down to streets to protest against the erring developers. Recently, through various forums - Competition Commission of India and High Court, developers including DLF and Supertech have borne the brunt of aggrieved buyers.

"The proposed legislation should not be enforced retrospectively as it is impossible to comply with various rules and regulations for the under construction projects. It should be applicable for new projects starting from the date the proposed legislation comes into effect," Arora said.

Baijal adds: "Over the last few years, the industry has been passing through a credibility crisis with fresh deals almost drying up. The Bill will only help drive in greater accountability and bring back customers who have so far been sitting on the fence. The expected transparency is likely to enhance the credibility as developers will be able to borrow funds at competitive rates, which in turn will help rationalize property prices in the months to come."

The Bill, which has been in the making since 2009, also mandate developers to deposit 50 per cent of the money collected from the buyers in a project within 15 days to a separate bank account to be used for construction of that project. However, this is less than what was formulated by the previous UPA government, where about 70 per cent of the amount had to be kept for construction of that project.

Developers are not too happy with this clause and said this could create problems.

"Those developers who are squeezed for credit will find it difficult to manage the business," said Niranjan Hiranandani, managing director of Hiranandani Constructions.

However, Rajeev Talwar, executive director of DLF said the developers' dependence on the banking system will increase since they will build the project to a certain level and then seek funds from banks to buy materials, hiring of professionals and so on.

Talwar also said it was not correct to bring in commercial real estate inside the real estate regulation bill. "People do not put their hard earned money in commercial real estate. Commercial real estate is about making wise investments. So government should allow developers to make that," Talwar said. Also, imprisonment of developers is not correct given that the issue is civil in nature, he added.

Developers are also unhappy about bringing those projects which have not received occupation certificate (OC) under the bill. "Half the buildings in the country do not have OC. There is no concept of OC in many places," Hiranandani said.

Under the proposed law, 10 per cent of project cost will be imposed as penalty for non-registration and another 10 per cent of project cost or 3 year imprisonment or both if still not complied with the rules and regulations. For wrong disclosure or non-compliance of information, 5 per cent of project cost will be imposed. The regulators will have the power of cancelling registration in case of persistent violations.

The Bill was introduced in the Rajya Sabha on August 14, 2013 and referred to the Parliamentary Standing on Urban Development, which gave its recommendations and most of them have been incorporated in the Bill.

Developers, both in residential and commercial sectors, will be required to register their projects with the Regulatory Authorities to be set up and they will have to mandatorily disclose all information regarding the promoters, project, layout plan, schedule of development works, land status, status of statutory approvals amongst others. Ongoing projects that have not received completion certificates have also been brought under the purview of the Bill and such projects will need to be registered with the regulator within three months. Developers will not be allowed to change plans and structural designs without the consent of two-third of buyers of a project.

http://www.business-standard.com/article/economy-policy/single-window-clearance-should-be-put-in-place-before-real-estate-bill-becomes-a-law-realtors-115040800872_1.html

Amendments to “The Real Estate (Regulation and Development) Bill, 2013

 

The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, today gave its approval to amendments to the Real Estate (Regulation and Development) Bill, 2013 pending in the Rajya Sabha, and approved amendments proposed in the Bill. The recommendations of the Standing Committee of Parliament on Urban Development and suggestions of various stakeholders (consumer organizations, industry associations, academia, experts etc.) have also been included after extensive consultations.

The Real Estate (Regulation and Development) Bill is a pioneering initiative to protect the interest of consumers, to promote fair play in real estate transactions and to ensure timely execution of projects.

The Bill provides for a uniform regulatory environment, to protect consumer interests, help speedy adjudication of disputes and ensure orderly growth of the real estate sector. The Bill contains provisions of registration of real estate projects and registration of real estate agents with the Real Estate Regulatory Authority; functions and duties of promoters and allottees; establishment of Real Estate Regulatory Authority; establishment of fast track dispute resolution mechanism through adjudication; establishment of a Real Estate Appellate Tribunal; offences and penalties etc.

These measures are expected to boost domestic and foreign investment in the sector and help achieve the objective of the Government of India to provide ‘Housing for All by 2022’, through enhanced private participation.

The Bill ensures mandatory disclosure by promoters to customers through registration of real estate projects as well as real estate agents with the Real Estate Regulatory Authority. The Bill aims at restoring confidence of the general public in the real estate sector; by instituting transparency and accountability in real estate and housing transactions. This in turn will enable the sector to access capital and financial markets essential for its long term growth. The Bill will promote orderly growth through consequent efficient project execution, professionalism and standardization.

The Bill is expected to ensure greater accountability towards consumers, and to significantly reduce frauds and delays. The Bill is also expected to promote regulated and orderly growth through efficiency, professionalism and standardization. It seeks to ensure consumer protection, without adding another stage in the procedure for sanctions.

The salient features of the Bill are as under:-

(a). Applicability of the Bill:

The proposed initial Bill was applicable for residential real estate. It is now proposed to cover both residential and commercial real estate;

(b). Establishment of Real Estate Regulatory Authority:

· Establishment of one or more ‘Real Estate Regulatory Authority’ in each State/ Union Territory (UT), or one Authority for two or more States/UT, by the Appropriate Government for oversight of real estate transactions,
· To appoint one or more adjudicating officers to settle disputes and impose compensation and interest;

(c). Registration of Real Estate Projects and Registration of Real Estate Agents:
Mandatory registration of real estate projects and real estate agents who intend to sell any plot, apartment or building, with the Real Estate Regulatory Authority;

(d). Mandatory Public Disclosure of all project details:
Mandatory public disclosure norms for all registered projects such as details of promoters, project, layout plan, plan of development works, land status, status of statutory approvals and disclosure of proforma agreements, names and addresses of real estate agents, contractors, architect, structural engineer etc.;

(e). Functions and Duties of Promoter:
· Disclosure of all relevant information of project;
· Adherence to approved plans and project specifications;
· Obligations regarding veracity of the advertisement for sale or prospectus;
· Rectify structural defects;
· Refund money in cases of default;

(f). Compulsory deposit of 50 percent:
To compulsorily deposit 50 percent (or such lesser percent as notified by the Appropriate Government) of the amounts realized for the real estate project from the allottees in a separate account in a scheduled bank within a period of fifteen days to cover the cost of construction to be used for that purpose;

(g). Adherence to declared plans:
· To bar the promoter from altering plans, structural designs and specifications of the plot, apartment or building without the consent of two-third allottees after disclosure;
· However, minor additions or alterations permissible due to architectural and structural reasons;

(h). Functions of Real Estate Agents:
· Real estate agents to sell properties registered with the Authority;
· Maintain books of accounts, records and documents;
· Not to involve in any unfair trade practices;

(i). Rights and Duties of Allottees:
· Right to obtain stage-wise time schedule of project;
· Claim possession as per promoter declaration;
· Refund with interest and compensation for default by the promoter;
· Allottees to make payments and fulfill responsibilities as per agreement;

(j). Functions of Real Estate Regulatory Authority:
The Authority to act as the nodal agency to co-ordinate efforts regarding development of the real estate sector and render necessary advice to the appropriate Government to ensure the growth and promotion of a transparent, efficient and competitive real estate sector;

(k). Fast Track Dispute Settlement Mechanism:
· Fast track dispute resolution through adjudicating officers (District Judge);
· Appellate Tribunal to hear appeals;

(l). Establishment of Central Advisory Council:
To advise the Central Government on implementation of the Act, recommend policy, protection of consumer interest and to foster growth and development of the real estate sector;

(m). Establishment of Real Estate Appellate Tribunal:
Real Estate Appellate Tribunal to hear appeals from orders of the Authority and the adjudicating officer. The Appellate Tribunal is to be headed by a sitting or retired Judge of the High Court, with one judicial and one administrative/technical member;

(n). Punitive Provisions:
Punitive provisions including de-registration of the project and penalties in case of contravention of provisions of the Bill or the orders of the Authority or Tribunal;

(o). Bar of Jurisdiction Courts:
Provision for barring jurisdiction of court and any authority from entertaining complaints in respect of matters covered under the Bill;

(p). Power to make Rules and Regulations:
· Appropriate Government to have powers to make rules over subjects specified in the Bill;
· Regulatory Authority to have powers to make regulations;

Background:

Real estate development and housing construction was largely the concern of State institutions till the 1980s with very few private promoters and a nascent industry. With the liberalization of the economy, conscious encouragement was given to the growth of the private sector in construction, with a great deal of success, and the sector today is estimated to contribute substantially to the country’s GDP.

Currently, the real estate and housing sector is largely unregulated and opaque, with consumers often being unable to procure complete information, or to enforce accountability against builders and developers in the absence of effective regulation.

Project Delays, Project Deviations And Other Customer Woes

 Anuj Puri, Chairman & Country Head, JLL India

Reams of newsprint have been dedicated to discussing the sufferings of consumers in the Indian real estate sector. Particularly, homebuyers’ woes related to late delivery of projects, deviation of housing projects from promised quality, additional payments due to change in apartment area and inadequate protection of their rights have been well-documented.

The question that invariably arises is whether the developer is at fault, or whether larger market forces beyond the control of developers are at play.

Construction Delays – By Developer or By Approval Authority?

Technically speaking, the time consumed in obtaining all approvals adds to the total time expended in completing the project. Any approval which is needed between the launch to the actual start of construction up till handover of the apartments to the buyer will be an additional time factor. Delays here will cause cascading delays in delivering the project as per the promised time.

Before a project is officially launched in the market and offered to buyers, there are myriad approvals that a developer needs to obtain from the state and central agencies and ministries. In any business, the longer raw material is held, the higher is the holding cost – which, in addition to interest costs in case of borrowed funds, causes an increase in the overall price of the finished product.

This analogy, when extrapolated to the real estate sector, considers land as the basic raw material for real estate development, with construction materials being the variable costs. The longer a developer has to hold his land without getting any receipts through the sale of proposed apartments, the higher his project costs escalate.

This can, in fact, be a very costly proposition all around. In the current scenario, obtaining the 57-odd permissions to begin construction of a project can take as much as two years. During this time, the cost of acquisition or even just holding the land for a project rises. Builders already have to cover external and internal development charges, license costs and often charges for change of land use from various departments, which have also risen. Cost of construction has gone up by more than 50%, as well.

However, this is only one side of the picture. Many developers intentionally undertake a slower pace of construction if sales in their project are sluggish or a larger part of the project is unsold. They may have diverted a sizeable chunk of the revenue generated from pre-launch sales to another project, or utilized it to pay off a pressing bank debt. At other times, the authorities can be blamed for not granting timely projects approvals.

Project Quality And Deviations

A major concern has been the difference in the promised quality and actual delivery status of the apartment, which remains a concern for real estate buyers. A change in the apartment area after buying from the developer can occur if a change in project plan is necessitated due to a design or approval issue. A deviation of up to 10% is usually acceptable – for a higher deviation, a customer must definitely seek legal recourse. That said, project deviations can also happen because of structural deficiencies of the overall system, wherein rules are being made by the governing authorities in a reactive manner rather than on a proactive basis.

There are readily recallable examples of how abrupt changes in regulations governing real estate development can work against both developers and buyers. The revisions made in the DCR regulations in the Mumbai Metropolitan Region a couple of years ago caught the industry unawares, and added to development costs by about 15%. This included the fungible premium payable if the builder opted to take the additional 35% FSI option. These cumulatively accounted for a 20% hike in construction cost. This move has led to an increased pressure on the developers’ margin – which, in turn, resulted in price increases across most projects in MMR.

The fact that developers had to re-work their project specifications (upcoming as well as on-going unapproved projects) resulted in significant project delays. The result was an exacerbation of the cash-crunch on developers, and an outcry from their buyers.

This is not to say that developers do not tamper with overall project quality or make arbitrary changes in their project designs with a clear intent to maximize profit. By pinching off space from designated open spaces, children’s play areas, compound perimeters and guest parking areas in an originally approved plan, an unscrupulous developer can make a limited plot yield more saleable space.

Recourse For Consumers

Regardless of what causes delays or abrupt changes in project blueprints, consumers must be able to get justice. Many examples of customers obtaining favourable decisions upon approaching consumer courts exist, and the power of these forums should not be under-estimated. However, the larger and less wholesome truth is that the current legal dispensation is ill-equipped and under-regulated to offer complete consumers protection in matters related to real estate.

The Real Estate Regulation and Development Bill – long languishing on the policy drawing board and still under consideration by the government – was intended to offer vastly enhanced protection to buyers. However, after the most recent revisions to RERA, it seems that it will in fact now be less protective towards buyers. While the bill aimed at providing an alternate redressal mechanism, the new provisions are talking of no recourse to other consumer forums. This can, in fact, lead to pressure on this regulatory body in terms of an increased log of cases, though it will reduce instances of multiplicity of suits.

Consumers should be aware that a certain degree of due diligence and awareness about their rights can protect them against unscrupulous practices by developers. In the first place, due attention should be paid at the time of drafting the sale agreement. A property buyer should fully understand the contents, if necessary with the help of a lawyer, and make a clear note of what the developer has agreed to deliver.

Developer’s sales team will usually present a buyer with a ready-made agreement format, and a buyer must ensure that this captures every relevant detail. If it does not, the buyer is fully entitled to ask for missing details to be included, and potential grey areas to be clarified. A copy of the final agreement must be retained under any circumstances, as this will serve as the primary evidence in a legal action filed for agreement violations.

http://www.joneslanglasalleblog.com/realestatecompass/real-estate/2015/03/project-delays-project-deviations-customer-woes/