In an effort to provide a uniform regulatory framework and to address the concerns plaguing the real estate sector, the government had in 2007 proposed the Real Estate (Regulation and Development) Bill. The first draft of the Bill was issued in September 2009 followed by a revised bill in 2011 which aimed at curbing malpractices by notorious developers in the real estate sector. Despite constant demands by the stakeholders, the Bill still awaits to see the light of the day. The government now proposes to table the Bill in the upcoming monsoon session of the Parliament.
AReal Estate Regulatory Authority, (“Authority”) is proposed to be set up in each state, which shall act as a nodal agency for redressal of grievances of buyers. It shall: be responsible for the growth and promotion of a transparent, efficient and competitive real estate sector; coordinate all efforts of the State and/or Central Government regarding the development of the real estate sector; maintain a website of records of all real estate projects: keep records of defaulting promoters, cancellation of a proposed project on the website and make recommendations to the Central and State Government, or any other authority with regard to the protection of interest of the allottees.
The Bill mandates that no promoter shall commence the development of any immovable property or construction thereon without obtaining a certificate of registration from the Authority, (“Certificate of Registration”).Such Certificate of Registration shall not be required to be obtained where the area of land to be developed does not exceed 4,000 square meters, or such other area as may be notified by the central government in consultation with the State Government and Union Territories which may be different in different states.
This above exemption is seen to help land development for individual use. The government by providing flexibility on the area of land to be excluded in different states has taken into account smaller developers in Tier I and Tier II cities.
The Bill prohibits promoters from taking any advance or deposit without first entering into a written sale agreement. It will be mandatory for the promoter to execute allotment/buyers’ agreements ina prescribed format. This is a welcome step in curbing abuse of dominant position by developers as was condemned by the Competition Commission of India in the recent DLF case.
The promoter shall be required to deposit 70% of the amounts received from the allottees from time to time into an escrow account to be maintained in a scheduled bank and the said proceeds shall be utilized towards meeting the cost of the real estate project.
This would ensure proper debt servicing to the lenders and investors to the real estate project. However since such receivables are charged in favour of the lenders/investors and distributed in terms of the waterfall mechanism and escrow arrangement between the borrower and/or developer and the lenders/trustees, the utilization of such proceeds should always be subject to and in terms of the financing documents entered between the borrower and/or the developer and the lenders/investors.
The housing ministry is reconsidering to revisit the above clause and lower the percentage of proceeds required to be deposited with the scheduled bank, pursuant to representations received from the industry.
The promoter shall along with the application form amongst other documents be required to furnish a declaration with respect to the title of the land proposed to be developed, details of encumbrances if any on such immovable property, tenure of the project, undertaking that the project shall be completed as per the terms of registration, undertaking to deposit 70% of the amounts realized into an escrow account as mentioned above.
A promoter under the Bill, inter alia, is defined to mean a person constructing a building, apartment or developing a colony and includes state level corporate housing societies and a development authority or other public body constructing buildings or apartments on land either owned by them or placed at their disposal by the government.
To curb misrepresentation by builders to a large extent and preventing erring builders from enticing innocent homebuyers with false and exaggerated advertising, the Bill mandates that before issuing an advertisement/invitations to the public to buy or book such projects or accepting advances, the promoter is required to obtain a Certificate of Registration with the Authority and file a copy of the advertisement with the Authority . The advertisement issued shall mention prominently the Website address wherein all details of the project have been published.
The promoter shall obtain a completion certificate and furnish the same to the allottees or the association of allotees and the Authority and execute a registered deed of conveyance in favour of the allottee thereby transferring the title in the immovable property along with the undivided proportionate title in the common areas to the allotees. The agreement to sale and registered sale deed shall be entered simultaneously with handing over of the possession of the immovable property and other title documents pertaining thereto.
The promoter is required to compensate the allotee in case an advance is made by the allottee on the basis of an advertisement and such person incurs losses by reason of any misrepresentation contained therein. The promoter shall be required to rectify any major structural defect or deficiency brought to the notice of the promoter by the allotee within a period of one year from the date of handing over possession else pay compensation to the allottee in the manner ascertained by the Authority. If the promoter fails to complete the project or give possession in terms of the sale agreement due to any reason and within the time stipulated therein, he shall be liable on demand to return the amounts received from the allottee together with interest chargeable from the date of receipt of the amount from the allottee till the date the amounts together with interest are returned and penal interest as determined by the Authority.
If any promoter fails to register the real estate project and transfer the immovable property in terms of section 3 of the Bill, he shall be punishable with imprisonment which may extend to three years or a penalty which may extend to ten percent of the estimated cost of the real estate project or both. For contravention of any other provision of the Bill, the penalty may extend to 5% of the estimated cost of the project.
The said penalties are as such not applicable to local authorities who also contribute to delay in projects. Hence local authorities and allottees should also be brought within the purview of this section.
In the authors’ humble opinion if following improvements are incorporated in the Bill it may become a much more efficient and effective piece of legistation:
The Bill with improvements as suggested would certainly bring, may serve as a good antidote to the alarming nexus between developers and unscrupulous real estate agents who connive against bonafide buyers, who put their life’s earnings and savings into buying an affordable house. While the Bill has the potential to bring respite to consumers aggrieved by fraud, delays and misrepresentation of builders and developers, it should be further strengthened by including other stringent provisions for eliminating malpractices in the sector. It is hoped that the enactment of the Bill by the Parliament shall infuse greater accountability towards consumers, bring transparency and fairness in transactions and shall foster growth and investor confidence in the hitherto regulated real estate sector.
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