Reasons to smile for buyers under the Real Estate Bill

Buying a house earlier used to be quite a tedious process for the buyers. The new real estate bill has brought about reasons to cheer for them as it has made the buyers more accountable for various things thus ensuring the protection of buyers interests. Here are five of them:

Regulation for Real Estate

Under the new Real Estate Bill, each state and union territory within the country should help set up regulatory bodies with an aim to resolve real estate disputes. All large home and office projects as well as the brokers selling them will have to be registered with these proposed regulatory bodies.

According to data from PropEquity, in cities such as New Delhi, Mumbai and Bangalore there are around 1 million apartments that were due to be completed between 2012-2015 but remain unfinished. With this Bill, the grievances of large number of home buyers who didn’t have much legal recourse will be addressed.

Safeguarding of Buyers’ Money

Traditionally, developers in India used to take money for buyers before the completion of property and use the same for reasons other than the construction such as buying additional land. However, with the dip in sales of homes the developers are experiencing a financial crunch to complete their projects on time, sold years ago to buyers.

Under the new bill, the builders have to keep aside 70% of the money collected in a dedicated bank account with the sole purpose of utilizing the money for the said project. However, the bill has a caveat whereby the states have the authority to bring it down from 70%.

Equality in penalties for delays

The Bill states that “both builders and buyers will have to pay the same rate of interest in case of any delay on each other’s part.” Earlier, upon delay of a project, the buyers had to pay a penalty as much as 18% a year if they were late in paying their installments to the builder while the builders had to pay less than 10% a year for any delays.

Payment to be made as per Carpet Area

As per the new Bill, builders can only sell homes as per carpet areas, which has been defined as the area in which buyers in finally live, and not super built up areas that required them to pay a part for the construction of common areas such as lobby, stairs etc.

 Builders to get approvals

Earlier, certain builders gained notoriety for initiating projects without getting the pre-requisite approvals for projects which in most cases never came at all. As per Crisil, the new Bill “seeks to protect interests of buyers by incorporating a clause that projects can be launched only after the developer secures all statutory clearances from relevant authorities.”

favours for home buyers

The Real Estate Bill which was passed in the Rajya Sabha on Thursday largely seeks to protect the interest of home buyers, at the same time aims to bring more transparency, accountability and efficiency in a sector which has hitherto been fundamentally unregulated and unorganised.

Delays in project delivery by developers, zero accountability on builders and opacity in project details and payment structures has blemished the credibility of the real estate sector for a long time resulting in lack of trust of buyers, which this bill aims to set right.

Moving ‘The Real Estate (Regulation and Development) Bill, 2015′ for consideration and passage, Urban Development Minister M Venkaiah Naidu said, it will not only bring transparency but also help in regulating generation of black money, to which the real estate sector contributes the largest in the country.

Here are things home buyers need to know and how the bill speaks in favour of them –

• Timely completion of projects: the bill ensures the completion and delivery of flats on time as stringent regulations are imposed on developers for any violations of the Appellate Tribunals or monetary penalties or both.
• Carpet area to be defined: The bill defines carpet area as net usable area of an apartment which means now a home buyer will be charged only for the carpet area. This comes as a huge relief to home buyers as developers now-a-days quote on super built up area or sellable area which is nearly 30-40% more than the usable area.
• Punish developers, real estate agents: as per a provision of The Bill, imprisonment of up to three years in case of promoters and up to one year in case of real estate agents and buyers for any violation of orders of Appellate Tribunals or monetary penalties or both can be awarded. Besides, Misleading advertisements will be punishable offence where first-time offenders will be fined 10% of project cost and repeat offenders could face a jail term.
• All clearances before project launch: the Construction of a project can start only after getting statutory clearances. Prior to the launch of the project, developers will have to get all the clearances necessary to go ahead with the development.
• Part of home buyer’s money to be kept till project completion: A minimum of 70% collections from buyers should be deposited in separate escrow account to cover the cost of construction and land. The bill prohibits unaccounted money from being pumped into the sector; 70% of the money has to be deposited in bank accounts through cheques.
• Registration of projects with Regulatory Authority: The Bill provides for registration of all real estate projects with Regulatory Authorities to be set up, which will require developers to disclose project information as well as details of the promoter, project, lay-out plan, land status, status of approvals, and agreements along with details of real estate agents, contractors, architects and structural engineers.
• Developers to provide after sales services: The Bill has increased the period from 2 to 5 years for developers to be accountable for any structural defects arising within 5 years of project construction. Developers cannot change architectural plans without the consent of two-thirds of home buyers.
• Speedy redressal of complaints: Appellate Tribunals will now be required to adjudicate cases in 60 days as against the earlier provision of 90 days.
• Delays to attract interest: Both builders as well as home buyers will have to pay the same interest rate for any delays on their part.
• Insurance on land title: to benefit consumers in cases where the land titles are found to be defective, The Bill provides for an insurance of the land title.

Central Advisory Council

Recently, the central government of India has made a crucial amendment in the CAC (Central Advisory Council) and according to new amendment real estate agents will be the part of Central Advisory Council, which is involve in helping the government to understand the issues related to the Indian real estate sector.

This new amendment has made the property brokers or real estate agents, a key stakeholder with homebuyers and builders in the real estate industry. However; in a separate development government is pertaining the same bill in the Rajya Sabha Select Committee, with an aim to add the functions of the REAA (Real Estate Regulatory Authority), which will be formed under the new proposed Bill and it will also include the protection of interest of allottees, promoters and agents. It is proposed to form a council under the aegis of the amended in the Real Estate Bill, whereas; the Minister of Housing & Urban Poverty Alleviation will be act as the ex-official chairman of the same body. The new group will provide active advice to the central government on different facts such as; protection of consumer interest, implementation of the Act,, recommend policy and foster development as well as growth in the real estate sector.

However; officials are expecting that soon new council will come in existence and it will act as the main mover in for starting the debates on critical facts and figures of the Indian real estate industry. According to the statement of the Sanjay Bhargava, Founder of realty advisory company Bombay Homes, “After including the real estate agents, central government will get the better understanding on many of the issues which are related to the satisfaction and transactions in the real estate sector because agents are the persons who directly interact with customers in comparison of real estate builders or any other official authority”. Apart from that real estate agents are happy with new amendment because now onwards they can highlight the key issues on which government can work. However; many different broker bodies are suggesting to set-up the registration format and minimum criteria for property brokers where they need to have minimum educational qualification, if they want to raise their voice and concern for the real estate sector.

However; the Real Estate (Regulation and Development) Bill, 2013 is seeking to establish the RERAs (Real Estate Regulatory Authorities), at the state level so that every state can regulate the development of real estate sector in country. The main aim of RERAs is to make sure that there is consumer protection and standardization in the business practice of real estate sector of the country.

moody’s investors service

According to Moody’s Investors Service, in past two to three years the capability of the Indian real estate developers to execute commercial and residential projects in market has been challenged because of late approvals and stretched liquidity. And such delays have slowed the flow of payments from buyers and investors as well as it has also reduced investor demand for new projects because of low returns and locked up capital. The more they added that India’s premium and largest property developers will face new challenges in next 12 to 18 months over the environment operation including; flat sales, stagnant prices and weak cash flows.

Recently, Moody’s releases a report on the Indian property market with title “Cash Flows to Remain Weak Amid Flat Sales and High Costs”. According to Vikas Halan, VP and Senior Credit Officer at Moody Investors Service, “A the same time, apart from many difficulties, we are expecting solid economic growth for the year 2014-2015  and it will provide some support to the sales in real estate sector, which will enhance the confidence and investment activity of the investors and buyers”. The more he added that if the cuts of interest rates by the Reserve Bank of India will be passed by banks, so it will filter down the property market by reducing the cost of borrowing for buyers as well as real estate developers and it will support the demand. But declines in savings rates and high residential property prices will act as the major factor, especially in the cities like Mumbai and Delhi where property market exhibits a notable degree of variation when it comes to affordability and cost of property.

It is expected that some of the major real estate developers such as; Lodha Developers Private Limited (Ba3 negative), Unitech Limited (unrated), DLF Limited (unrated), India-bulls Real Estate Limited (B1 stable), and Oberoi Realty Limited (unrated) will face challenges in the operating environment and they will experience more pressure on cash flow, sales and high inventory volume because they are operating in the city like Delhi and Mumbai, where prices of properties are the highest. However; in contrast developers such as; Prestige Estate Projects Limited (unrated), Brigade Enterprises Limited (unrated), and Sobha Developers Limited (unrated), which are Bengaluru based will face better and stable demand for housing sales.

Currently, instead of reducing the prices, real estate developers are modifying product and offering some lucrative schemes. On the other side the confidence of consumers are getting boost due to Real Estate Bill (Regulations and Development), which is planning to set-up new  regulatory authority and guidelines for residential and commercial development. However; still developers are facing stricter terms over the receipt of capital and use of advance cash. But according to Moody’s the new bill will promote the transparency, accountability and discipline in the real estate market which is positive indication for homebuyers.

The Ministry of Housing and Urban Poverty Alleviation will hold consultations with stakeholders on the Real Estate (Regulation and Development) Bill on September 19.

The consultations will be held with representatives of the Ministries of Environment and Forests and Climate Change, Consumer Affairs, Civil Aviation, and Culture, a statement from the Ministry said.

Before seeking to move this Bill for consideration in the Rajya Sabha in the winter session of Parliament, the Ministry will deliberate on issues such as protection of consumer interests, single window system for approval of real estate projects, perspectives of developers on delays in approvals and corrective measures required, the statement added. A meeting of all stakeholders has been convened in the national capital on Friday to seek their views on a key bill that seeks to pave the way for construction of a large number of affordable houses.

The Real Estate (Regulation and Development) Bill, 2013 is likely to be taken up for consideration in the Winter Session of the Parliament.

“We have convened a meeting of all stakeholders to seek their views and suggestions on the bill,” a senior official of the Housing and Urban Poverty Alleviation Ministry said. Housing and Urban Poverty Alleviation Minister  on Wednesday discussed various aspects of the bill with his officials. The Narendra Modi government has promised houses for all by 2022.

Naidu emphasised that the bill, while seeking to promote housing activities, should aim at harmonising the concerns of consumers and real estate developers, rather than introducing strangulation in the name of regulation.

The minister said the bill should promote transparency in disclosures by developers with regard to all relevant information about real estate projects by registering them with the proposed regulator.

Besides Naidu and ministry officials, representatives of the Ministries of Environment and Forests and Climate Change, Consumer Affairs, Civil Aviation and Culture would attend the meeting.

Issues like protection of consumers’ interests and single window system for approval of real estate projects will also come up for discussion. Officials of Consumer Welfare Association, Federation of Apartment Owners Associations, Professional Associations like legal firms and management consultants, National Real Estate Development Council, and Council of Real Estate Developers Associations of India will also attend.

After this exercise, Naidu will hold a meeting with ministers concerned before firming up the official amendments to be moved, if required. There is a suggestion from the real estate sector to rename the Bill as Real Estate (Regulation and Promotion) Bill.