Real estate bill to shield customers from delays
Pune: A Mumbai-based customer (name withheld on request) booked a flat worth Rs 1.88 crore with a leading builder in Pune in 2010. He was promised possession of the apartment in 39 months. But the builder did not deliver the flat 65 months after signing the agreement.
In Cut to March 2016, the developer sent a possession letter to the customer. When the buyer asked for compensation for the delay, he was first denied and then “verbally offered Rs 2.5 lakh”, which he refused calling it a “pittance”. He said that had he delayed the payment (which was mostly settled in February 2013 as per the payment terms), he would have had to shell out a significantly higher amount as penalty according to the agreement.
The episode may sounds familiar? That is because cases like this one occur much too often. But the situation may is likely to change soon.
The new real estate regulatory bill provides for equal compensation to both the developer and the buyer in case of delays from either end. It is not yet clear, however, if the provisions of the new bill will have a retrospective effect. Going forward, the bill aims to iron out such anomalies and bring some balance in the transactions between the buyer and the developer. The bill has been passed by both the houses of parliament and now awaits Presidential assent.
Pune-based advocate Dnyanraj Sant, who fights consumer cases, said, “Most of the cases I fight are for delayed possession. Customers have registered the agreement and paid the amount, but have not been given either the possession as promised or compensation when the project went much beyond the promised date.”
Builders say such provisions will increase the cost, citing risk premium, the requirement to give warranty of five years and adherence to deadlines as reasons. In a recent meeting to educate builders and developers about the provisions of the bill, it was stated that cost would increase eight to 12%.
Sant, however, does not agree, with the reasoning. “All small and big builders are supposed to adhere to standard norms of construction and area. If a developer is following the norms, he should not be worry about giving extended warranty.” he argued.
The bill also provides for a heavy penalty on developers who fail to adhere to the norms. The Builders are also required to park 70% of the total funds collected from the buyer in a separate account, which is to be used only for that particular project. They Builders argue that the provision places capital constraints on them. Market players say it will force the builders to tap into more expensive sources of financing that will be passed on to the price.
The provision’s aim of the provision, however, is to prevent the builder from deviating funds to other projects in the hope that projects are delivered on time.
The bill also mandates that developers first register a project with the regulator before going ahead with the sale and start the construction immediately after receiving the commencement certificate. Builders say this will leave them with almost no scope for pre-launch sales. “Considering the timeline provision, builders will have to complete the project as per the pre-decided timeline, irrespective of whether the sales of most units have gone through or not,” Sumeet Bhatia, office head, Pune, of Cushman & Wakefield, said.
Market participants say builders will have to plan their projects in a better fashion hereafter. They will not be able to get away with excuses like unavailability of raw material. Every loose end will have to be tied up and this will come at a cost. “This means project cost will rise and developers will pass it on to the consumers,” said Rohit Gera, managing director, Gera Developments. When asked if the bill fails to provide relief to bulk of the consumers looking for low-cost housing, Gera said, “A single bill cannot be a solution to all the problems ailing the sector. To lower the cost of projects, authorities need to look into other measures, such as freeing up land and improving public infrastructure in fringe areas.”This bill, he added, will give peace of mind to the customer, but the peace of mind will come at a premium, he added.
Social activist Vivek Velankar said, however, that the increase in cost may not affect buyers that much. “Though the prices will go up because of the risk premium that builders are likely to charge, the total amount paid by a consumer pays will not be very much different given the five-year warranty,” he said. At present, the consumer has to spend on repair and maintenance of internal fittings out of his own pocket, even if the house is just a year old. “Now, the builder will have to pay for any repair work,” Velankar added.