The Union Cabinet has approved several changes in the Real Estate (Regulation and Development) Bill, which seeks to set up a regulator for the country's most controversy-ridden sector. The Bill was introduced in Parliament in 2013 by the Manmohan Singh-led government. Several of the changes now approved are useful improvements. To begin with, commercial real estate has been brought within the ambit of the Bill. This is welcome. Malpractices abound in this segment of the real estate market as well. Two, if a builder wants to alter the design or the structure of the project he will need to take the consent of at least two-thirds of the buyers. This seems to have been prompted by recent cases where builders were found guilty by the courts of building extra floors on their own. Not only was this practice unfair to the early round of buyers, who had assumed that they would share the common infrastructure with a certain number of people, but also a safety hazard because taller and bigger buildings require stronger foundations.
Other changes are less positive. For example, builders will need to deposit 50 per cent of the money collected from the buyers in an escrow account, which will be used only for the project. In the earlier Bill, the proportion was 70 per cent; but builders pushed to reduce it to 50 per cent. The idea was to check "serial builders", who use the money raised for one project to buy more land and launch newer projects. In addition, the new draft of the Bill somewhat disempowers the proposed regulator when it comes to exerting control, as it removes the power of the appellate tribunal to punish officers of the companies.
Overall, however, the purpose of the Bill, to restore confidence in the market, might still be served. What could also help in this direction is the rising corporate interest in real estate. In recent times, several large business groups like Tata, Godrej, Mahindra and Bharti have entered the business. Having a regulator is important. But also the various processes involved in real estate must be made transparent and non-discretionary. Many projects get delayed because of the red tape involved. Paying bribes for various clearances has unfortunately become quite common in the sector. All of this adds to the cost of the builder, which he extracts from unsuspecting buyers or he recovers by cutting corners. That reform is the difficult part. Every state has a different set of rules and regulations for real estate. And financial contributions from builders fund a large number of political campaigns. As a result, there appears to be no urgency in any state to reform the sector. Now, with a regulator in place, which will hopefully protect the interests of the investors, it is hoped the builders will put pressure on the states to clean up their act. Unless that happens, real estate reform in the country could remain a halfway house.
