Real Estate Bill, 2015: High hopes as realty Bill nears reality
Project delays are a common characteristic of the real estate market. Several well-known developers in Delhi-National Capital Region (NCR) and other parts of the country have seen their projects delayed for as long as seven years. If that is not enough, there are several cases where developers imposed random charges on the customers at the time of offering possession under different heads such as labour welfare charge, authority meter charge, one-year advance charge for club usage among others.
While these are some of the issues that have resulted in trust deficit in the market leading to a decline in demand, the Real Estate (Regulation and Development) Bill, 2015 that was passed by Rajya Sabha will look to address some of the concerns, if the proposals within the Bill see strict implementation at the ground-level.
The ambiguity surrounding who a homebuyer should approach in case of any dispute with the developer or in case of a delay in delivery is set to end now with the approval of the Bill in the Upper House of Parliament.
The Bill paves the way for setting up of Real Estate Regulatory Authority (RERA) and Appellate Tribunals in states.
While the regulatory authority and the appellate tribunals will be entrusted with the job of regulating transactions relating to both residential and commercial projects such as ensuring timely completion and hand-over of project, the Bill also provides that in case of a dispute, both the Appellate Tribunal and the regulatory authority will have to dispose of the case within 60 days.
Although it remains silent on providing recourse to customers stuck in projects under construction, the Bill does look to enthuse confidence among future homebuyers as they now have the assurance that the regulatory authority will have powers to push the developer or even penalise in case of any delay or deviation from the agreement. In an important move, the Bill proposes that the developer will have to pay interest for any default or delays at the same rate that homebuyers are charged.
Among other measures that look to provide protection to the homebuyers is the provision for developers to maintain 70 per cent of the money collected from buyers in an escrow account towards land cost and cost of construction. This will ensure that the money paid by the buyers is utilised in the same project.
It further provides clarity on the carpet area which has been a major concern. As a practice, at present, developers sell apartments on the basis of super built-up area but this will come to a halt now. The Bill clearly defines carpet area in the law.
Will this help revive the sector?
While the Bill has raised hopes and is expected to lift homebuyer confidence, question marks remain over its ability to revive the sector that is currently plagued with high unsold inventory, low demand, delayed delivery and high prices.
Experts say that the fact that the sector was unregulated till now and will now have a regulator will provide a lot of confidence to homebuyers, investors and increase transparency.
“If implemented in the right spirit, it could facilitate greater volumes of domestic as well as overseas investment flows into the country. Homebuyer confidence in the property market is also likely to revive, invigorating India’s property market,” said Anshuman Magazine, CMD, CBRE South Asia.
There are others who also feel that the passage of the Bill comes across as a much needed wave of hope as the sector lacks clarity and is riddled with legal disputes between consumers and developers.
“Delayed possession of properties has been a major cause of trust deficit in the space and has kept potential consumers away for a long time in case of long-term projects. However, state-level RERAs are now expected to ensure timely completion and hand-over. Homebuyers will be able to know the status of the land, site and layout plan, schedule of completion, and details on approvals from various government agencies and thereby bringing hope of revival,” said Dhruv Agarwala, CEO, PropTiger, a real estate advisory firm.
As demand in the market weakened over the last couple of years and the cash flows dried, developers were stressed for finances and they saw a sharp decline in the quality of their balance sheets, making it even tougher for them to get funding and complete their projects. A breather on account of funding from investors may play an important role in the revival of the sector.
Some say that the government’s recent decision relating to affordable housing and Real Estate Investment Trusts (REITs), along with the entry of regulator will work towards the revival of the sector. Industry insiders are of the view that exemption of dividend distribution tax (DDT) on the dividend declared by the portfolio company to REIT and InvIT was one of the most awaited decisions. Even though the Securities and Exchange Board of India had notified the regulatory framework for registration and regulation of Real Estate Investment Trusts in India in September 2014, REITs had not taken-off over the last 18 months as tax concerns prevailed.
“With this amendment, all the required fiscal support for REIT and InvIT to make it a reality has been provided. This will assist the developer and fund managers to raise funds through REIT / InvIT and create liquidity,” said, Hemal Mehta, partner, Deloitte Haskins & Sells.
While the Bill is expected to boost investor and buyer sentiment, there is a sense that it missed out on addressing some of the concerns of the developers and if that would have been done, it would have led to stronger revival of the sector.
“Interests of the developer community too needs to be addressed with the requirement for regulatory authorities promoting a single-window system of clearances for projects, along with the digitisation of land records,” said Magazine.