Regulating dream realty

In spite of the recommendations of the Parliamentary Standing Committee on Urban Development and comments of relevant stakeholders, in-cluding consumer organisations, industry associations, academia, experts, and the media, the Real Estate (Regulation and Development) Bill, 2013, was watered down by the government under pressure from the builder lobby. It did not go through in the last session of Parliament and a combined opposition has ensured that it be revisited so that it is fair to all parties, particularly the consumers. The Bill is now before a select committee of the Rajya Sabha, which has invited comments from all stakeholders.

The Bill was introduced in the backdrop of shallow and an underdeveloped regulatory regime in the country. It provides for establishment of the state-level regulatory authorities called Real Estate Regulatory Authorities (RERAs) to register all defined real estate projects and intermediaries such as real estate agents for regulation of the sector. The designated state agency is expected to uphold and balance interests of all relevant players, and promote transparency and competitiveness within the realty space.

Regulation for real estate sector is much needed as the sector is largely unregulated and opaque, with consumers often being vulnerable at the hands of unscrupulous real estate promoters and their agents. This creates uneasiness among middle-class consumers as they are unable to procure complete information or enforce accountability against builders/developers in the absence of effective regulations and enforcement.
Experts also opine that the need for a specific regulator in the real estate sector is more than that of a regulator for stock market, since real estate per se affects a larger set of consumers. The Competition Commission of India (CCI) concurs with this and has observed that absence of a specific regulator for real estate sector is one of the main reasons for poor grievance redressal.

Accordingly, the Real Estate Bill provides for mandatory public disclosure of all project details by uploading on RERA’s website, thereby bringing greater transparency and standardisation of business practices. It, therefore, is a pioneering initiative to protect interest of consumers, promote fair play in real estate transactions and ensure timely execution of projects. Developers are also expected to benefit as transparency and accountability are expected to boost domestic and foreign investment in the sector.

The Bill was first introduced in the Rajya Sabha in 2013 and subsequently referred to the Standing Committee, which submitted its report in February, 2014 after deliberating key provisions, with relevant stakeholders and interested parties. It is noteworthy that many suggestions by various NGOs have also been incorporated.

The original version of the Bill mandated that the developers must use not less than 70 per cent of the amount collected from purchasers for construction of that project. Often, cost of construction is less than 70 per cent. As a result, a portion of amount collected would have remained unutilised, indirectly increasing the cost of purchase for consumers. This has now been reduced to 50 per cent. Another major modification was to include commercial real estate within the ambit of the Bill, which was originally limited to regulating residential properties.

This is a welcome move and will safeguard interests of consumers of commercial real estate as well, such as self-employed entrepreneurs etc. In addition, under the revised bill, approval of two-third of consumers is mandatory before making any changes in plans and structural designs of the project. Though the revised version is a step in the right direction, there are gaps that need to be filled. The Bill currently excludes projects smaller than 1,000 square metres, or 12 apartments from its purview. This provision can easily be circumvented as any developer exceeding 1,000 square metre threshold may simply divide the plot into two and propose two distinct projects, thereby escaping the regulatory ambit. Also, exclusion of government agencies from the purview of the Bill, whose slow approval processes largely contributes to delay in project completion. State housing boards are often at fault.

In addition, prohibiting other judicial bodies from exercising jurisdiction or taking cognisance of offences under the Bill could also defeat its objective of empowering consumers. It might lead to a situation where limited number of adjudicatory officers are handling large amount of matters, thus delaying decisions. We have seen this phenomenon across sectors, such as consumer redressal or debt recovery and so on.

Other suggestions which the government has overlooked include registration of all real estate agents (and not just those facilitating the sale of a project); setting up of trust account for each project (based on best practices from Dubai, the US and Canada); and mandatory reference to the CCI in matters having bearing on competition issues.

No doubt the Bill would bring greater transparency and better governance in the real estate sector but it still requires some reworking. The select committee should ensure that the government heeds the relevant suggestions provided by vigilant stakeholders. This would aid in adding all the features to the hat of real estate regulation and give it a complete refurbished look, thereby achieving the utilitarian objectives of this most-awaited state intervention in the real estate industry.

The writer is secretary-general of CUTS. Jitin Asudani of CUTS contributed to this article.