Real estate bill causes distress to developers

The Union Cabinet’s nod to the Real Estate Regulatory Bill has made buyers feel happy and secure; on the flipside, some of its provisions have left the developers panicking.

Views of MHUPA

Ajay Maken, minister of housing & urban poverty alleviation, said that the bill provides for a uniform regulatory environment to protect consumer interests and ensure orderly growth of the real estate sector. He added that the proposed regulation is likely to prevent frauds and delays in real estate projects.

One of the clauses in the Bill seeks to bring all the agents and consultants under the ambit of law. Maken said that the Bill is expected to eliminate fraud property agents and prevent black money transactions in the real estate sector. However, there are no provisions set for the purchase or resale of old houses in the Bill. Though the provisions were tailored for apartments and plots of 1,000 sq metres or 12 dwelling units and above, the respective states may reduce the dimension.

The Bill assures protection to middle class interests. Around 22 states, including Gujarat and Madhya Pradesh, have supported the Bill, while, few states like Chhattisgarh have opposed the Bill, said the Minister.

Developers’ say on the Bill

Real estate developers are worried about the tough provisions such as getting all clearances required prior to launching and selling units in their projects. They are concerned about the huge cost expenditure and delays that is likely to happen with this provision.

According to RK Arora, the CMD of Supertech, the bill, if implemented, would affect the supply of housing units in the market. Brotin Banerjee of Tata Housing said that the bill should be more balanced and should include clauses to protect developers too.

In general, to develop a project, its developer has to take over 40 clearances, which is indeed very time-consuming process. Adding to this, as per Section 3 of the Real Estate Regulatory Bill, a developer is not allowed to develop any residential property without prior registration of the project with the Real Estate Regulatory Authority.

Taking all the statutory approvals required for a project and registering it with the regulator is a tedious process that would pave way to delay in initiating a project. The developers are of the opinion that the government should come up with additional provisions to make the relevant authorities give approvals within a specified timeframe. Also, keeping aside 70 percent of the amount collected from investors and buyers in a separate bank account, as mentioned in the bill, would probably lead to cash crunch situation for developers.

Assotech MD Sanjeev Srivastava said that the bill is one-sided as it empowers the regulator to regulate the developers without ensuring that government bodies and authorities also fulfil their responsibilities on time. Sriram Khattar of DLF said that the bill will provide good governance and bring in transparency in the sector. But if it is adding another layer of bureaucracy in an industry which is already burdened by multiple approvals from different agencies, then it increases the project completion cycle and also adds costs to the project.

Views of national-level associations

According to Credai President C Sekhar Reddy, the Confederation of Real Estate Developers Associations of India (Credai) has “certain strong reservations” on some of the clauses of the Bill. Credai would continue working on the Bill with the ministry and the states, so that the members (developers) are not unnecessarily victimised and License Raj system does not return, he added. Getamber Anand, CREDAI President Elect, who is also the CMD of ATS Infrastructure, said that many provisions of the Bill could be misused as they can unnecessarily delay projects. Cancellation of registration, as provided in the Bill, can be misused and jeopardize projects, which are well under implementation and they may also harm the end-users.

National Real Estate Development Council (NAREDCO) President Naveen Raheja said that the new law will protect the interest of all stakeholders and also help check unscrupulous players in the sector. It would help in establishing a regulatory authority for enforcing fair practice and accountability norms and fast track dispute resolution mechanism in real estate transactions.

Perspective of IPCs in India

Ramesh Nair, MD of Jones Lang LaSalle said that it is a good pro-consumer bill as it takes care of all the basic issues that buyers have. But the bill would most probably affect the supply. Also if implemented along with the land acquisition bill, it will have greater impact. Anuj Puri of Jones Lang LaSalle India opines that the bill works both ways. On one hand, it aims to hold the developers accountable while on the other, it looks to ensure that the allottees do not default in making payments. Thus, by providing penalties for both the promoters and the allottees, the bill seeks to ensure that non-compliance is minimal.

Sanjay Dutt, executive MD of Cushman & Wakefield said that, in the short to medium term, after the bill is enforced, there may be a significant fall in the number of new project launches, as getting all the approvals in place is a long process. But the government should follow up with the much-needed administrative reforms to speed up the approval process, said Dutt.

Naushad Panjwani, Knight Frank India treats this as a welcome move that both the consumer and the realtors were in need of. However while consumers have a lot to gain from this, the realtors will have mixed feelings, said Naushad. Many progressive developers and trade chambers are happy with the bill but it appears to be slightly harsh for realtors.

What market-watchers think?

A real estate lawyer said that the new bill is just a change of nomenclature. In state laws, many provisions already exist, but unfortunately, they are not being followed. Some of the market experts believe that the new law is a good step towards protecting the home buyers.

Instead of introducing systems like single window system for clearances, the government is set to add another registration process, which will increase the project delays.

Adding to this, the bill is going to have a cost push effect by which the property prices are likely to witness a hike of 20-40 percent, but not merely based on the act alone, said market experts.

For this bill to be initiated, it has to go through several time-consuming parliamentary processes. Some of the market watchers said that, with the elections approaching next year, the government is looking at the bill for better electoral benefits. However, the bill needs to be more balanced considering the challenges faced by the developers as well as end-users.

The draft Real Estate (Regulation and Development) Bill, 2013, has been tabled in the Rajya Sabha on 14th August. Once it gets nod from the Rajya Sabha, each state will have to set up a real estate regulator within a year. The bill is limited only to residential segment and addresses some of the major issues including incomplete or fraudulent land acquisition cases and pending project approvals, etc. All residential projects coming up over land measuring 1,000 sq ft or more or those which comprise more than 12 apartments would be covered by the new law.

The bill was kept on hold since 4 years, and now the UPA government seems to be determined to get it approved during this monsoon. Many have been claiming that the UPA government’s move is a clear endeavour to woo its middle class voters in the upcoming elections.

Related Real Estate News:

ECB route for affordable housing

Real estate in smaller cities to get a boost

Amendments in Finance Bill 2013: Probable impacts on real estate