 "Ashoo Gupta")
The Union Cabinet's clearance of the Real Estate (Regulation and Development) Bill, 2015 has come as a shot in the arm for buyers, who have been at the receiving end of innumerable malpractices at the hands of builders. The Bill seeks to promote fair play in property deals, ensure timely execution of the projects and orderly growth of the real estate sector.
While there are several benefits in the Bill from the consumer's point of view, there are also some pressing concerns that would affect both, builders and buyers, which have not been addressed. Let's take a look at the benefits to the buyer first:
Mandatory approvals before launching project: Builders generally lure buyers with huge pre-launch discounts, but rarely inform them about the status of project approvals and the corresponding risk of delay in delivering possession. It is common practice among builders to launch the project and commence selling the flats after obtaining a handful sanctions. In many instances, projects get delayed or stuck later, due to difficulties in procuring further approvals.
The Bill ensures that builders obtain all necessary approvals as well as a certificate of registration from the authority, before advertising or marketing projects and raking in the booking amounts.
Adherence to timelines: Buyers have been distressed on account of delays in delivery of possessionof flats and contradictions of assurances given to them at the time of launching under construction projects. The Bill addresses this problem by including aprovision under which buyers will be entitled to full refund of the monies paid including interest and compensation as may be prescribed.
Separate accounts for each project: The Bill seeks to curb the practice by builders of diverting funds raised from buyers in a pre-launch offer for buying land for other projects. It is now compulsory for builders to deposit 70 per cent of the sale proceeds realised from the buyers in a separate account to be maintained with a scheduled bank within 15 days of such realisation. These amounts can be used only to meet the construction cost of the underlying project. Apart from deal transparency, this provision also seeks to cut down on delays in project deliveries.
Disclosure of relevant project information: Under the provisions of the Bill, builders can no longer deliver fewer amenities than those promised to buyers at the time of promoting the project. They will now have to disclose on their websites even minor details about the project such as layout plan, plan of development works, carpet area of each apartment, number of apartments in the project, amenities offered , land status, status of statutory approvals, proforma agreement, names and addresses of contractors, architect and structural engineer.
Builders can no longer sell on the basis of nebulous super built-up areas and must specify the carpet area of each apartment they intend to sell.
Adherence to sanctioned plans: The provisions of the Bill will not permit the builder to modify the plans, structural designs and specifications of the land, apartment and/or or building without consent of 66 per cent of the buyers. This puts a lid on the practice of making changes in the project plans later on and prevents builders from making misleading claims that are far removed from the actual development at the construction site.
Balancing builder-buyer equation: A key provision in safeguarding the consumers is that of the Model Agreement, which restricts the builder from inserting one-sided clauses. Defaulting builders, for instance, can't get away by paying a pittance as interest to buyers -- the interest rate applicable to payment defaults on the part of buyers applies to them as well.
Builders can no longer unilaterally cancel sale agreements without giving sufficient cause and proper notice to buyers, who are entitled to full refund of their monies along with interest. Further all structural defects that a buyer informs the builder about within the specified timeframe will require to be rectified by the builder solely at its costs.
If a builder continues violating the aforesaid provisions, he is punishable with imprisonment for up to 3 years or penalised up to 10 per cent of the estimated cost of the project, or both. The builder will also require compensating buyers who made advance payment based on false information in the builder’s publicity material.
Consumer Courts: Aggrieved buyers needn't approach the proposed real estate authorities and can move district-level consumer courts across the country instead, thus ensuring speedy adjudication of disputes.
The grey areas
The Bill however misses out on some genuine concerns that could affect both builders and consumers, which the administration would do well to address. For instance, there could be a threshold number of approvals that a builder must procure for commencing work at site. Insistence on getting all approvals could delay commencement of construction by several months, thereby curtailing supply of new built-up property.
Further, calling upon builders to deposit 70 per cent of sale proceeds in a separate account will lock the cash and force the builders to rely on further borrowings, the cost of which will eventually be borne by the buyer.
While the Bill seeks to keep builders on a tight leash, it prescribes for practically no punitive action against sanctioning authorities who are vested with the powers to grant project approvals. Any builder will tell you how difficult it is to get the plethora of clearances from a diverse set of authorities, and the red tape involved in ensuring that the projects see the light of day.
The bottom line is that while the Bill will inject greater transparency and accountability into the real estate sector and protect consumer rights more adequately, lawmakers would do well to streamline the approval process and move towards single window clearance system.
The author is a partner at Shardul Amarchand Mangaldas & Co. Views expressed are personal. ashoo.gupta@amsshardul.com
