Real Estate Regulation Bill aimed to bring more transparency in Property Sector.

But What is the ground realty, Adv. R. P. Rathod analysis the said Bill and throws light on some of its important aspects, advantages and disadvantages of the proposed Bills.

The Ministry of Housing and Urban Poverty Alleviation has released the final draft of the New Real Estate (Regulation and Development) bill, designed to stop malpractices and bring in transparency into the real estate section. According to the bill, for which feedback is currently being invited, violations will involve imprisonment of up to three years, and penalty of 10 per cent of the estimated cost of the project. The bill is expected to be passed during the winter session of Parliament.

While the consumers seems to be happy as this is a Right Step in the Right direction for consumers. Some developers & Adv. R. P. Rathod believe that several modifications are required to make it more equitable.

But some eminent builders say that, The Real Estate regulatory bill is a step in the right direction, this is likely to bring order and respect to the sector. It will ensure a total stoppage of the fly-by-night operators in the real estate realm. It will also be instrumental in ensuring that only the more organized players remain and operate on a long-term basis.”

However, some experts like points out that while the bill is geared towards protecting the interest of the end user, it should also ensure that building residences is a profitable business for private developers. For instance, there is no mention of protection of developer interest in the case of ad hoc rise in construction prices or rising of capital or other regulatory changes which can lead to either shortfall of capital or delay in the construction process.

The New Real Estate bill should also provide the basic penalties and redress in case of any dispute that arises which will assure the end user of their rights.

The independence of the Tribunal provided for, in the Real Estate Regulatory Bill, does not provide for any other judicial (such as High Court/ Supreme Court) authority to oversee the procedures or provide an escalation process, thus a judgment from the Tribunal cannot be challenged anywhere else.”

Some Developers, meanwhile, have strongly objected to certain provisions of the bill, pointing out that while it will lead to transparency, it is also one-sided. The real estate industry has other components apart from developers, and the bill does not address this fact. The real estate sector comprises four components, apart from developers; it is also impacted by consumers, financial institutions and the government. Thus there should be an overall regulation among all four components. Further each state has different problems and the bill should be tailored accordingly.

Though the regulation is set to protect the consumer, but it is limited to larger issues only. Further anything that is one-sided is bound to face criticism and will not last for too long, and if the government's main objective is to reduce costs for end consumers, then there should also be a simplification of processes. The bill should be implemented only after it has been tested adequately.

Some Developers also point out that projects are sometimes delayed for reasons beyond the builder's control. Section 3 of the Real Estate bill pertains to the time-frame of construction. If not adhered to, the developers can land themselves in jail. When the building or construction projects are delayed, it is not because the developer has delayed the project. There are permissions and clearances that are needed which do not come in time, hence the delay. Simplification of processes and transparency is definitely needed and will come, but based on the Real Estate bill, within a year or so, developers across the country would be blacklisted.”

Further according to the proposed bill, “no promoter shall develop any immovable property or make any construction thereon or alteration thereof or convert any existing undeveloped immovable property or part of it without registering the real estate project and obtaining a certificate of registration from the Real Estate Regulatory Authority established under this Act.” No such registration is required when the area of the land proposed to be developed “does not exceed 4,000 square meters, or an area as notified by the Central Government in consultation with the States and Union Territories from time to time.”

Builders say that this is unfair as most of the large developers would go in for huge projects and the newcomers who would start off with smaller projects do not have to follow these rules. They also feel that since large developers have an image in the industry which they need to preserve, there would be fewer chances of malpractices among them.

At present, the projects that are applicable for registration are the large projects, exceeding 4,000 square meters, if all projects come under the bill; implementation of the same will be a nightmare. The proposed 4,000 square meters, which roughly amounts to an acre, is a huge parcel of land in context of metro cities and hence this clause should be made an exception. However, it could work as a stipulation for outside metro cities where these would form boutique developments.

The proposed human element being involved in the licensing process might also become a breeding ground for corruption & the builders/ developers would pass on this to the end users resulting in escalation of property prices.

Adv. R. P. Rathod points out that Fundamentally, the bill will offer advantages to consumers, and help introduce transparency. Thus from the Consumer point of view it is a welcome move. There will be more transparency in dealings. Once the rules and regulations are formed, there will be a proper framework set. The bill also provides for a real estate appellate tribunal for adjudication of disputes related to the sector. For buyers as industry stakeholders, the biggest advantage that the model real estate act offers is that there will be an arbitratory body available to attend to grievances and redressal.”

However Adv. R. P. Rathod further also adds some negative aspects from the point of view of the Consumers.

He explains that some of the sections of the said proposed Act are contrary to the interest of the Consumers like:

Under Section 2 (c) of the new law, by a legal fiction, opens spaces are included under the definition of “apartment”. Once the bill is passed, builders will be legally entitled to sell the open spaces (like parking space, terrace and private garden) for independent and private use. At present, as per the interpretation of law by the Supreme Court, sale of open spaces by a builder is illegal, as the land and other open spaces would belong to the society. The new law will help builders overcome this well reasoned judgment and profiteer by selling the open spaces.

Further Section 3 of the bill provides that a builder must compulsorily be registered with the real estate regulatory authority for plots measuring 4000 sq. metres or more. Most of the buildings are constructed on smaller plots. Hence this provision will not be applicable to most builders says Adv. R. P. Rathod

He further says that Section 18: of the bill provides for establishment of the real estate regulatory authority comprising of one chairperson and two members. There law does not mandate the appointment of any Judicial officer on the authority. So, given the way our country functions, the appointments may be made to favour persons with the “right connections”. The composition of the authority and its strength of three members will be inadequate to cope with the construction and development projects being carried out throughout the country. Also, it would be difficult for the common man to approach a remote centralized authority.

Similarly, he adds that the real estate appellate tribunal comprising nine members, to be constituted under Section 35, will be unable to set up Benches throughout the country to deal with disputes. Accessibility to the redressal mechanism will become more difficult and costly.

Section 46 provides that the order of the tribunal can be enforced like the decree of a civil court. This proceeding is lengthy, cumbersome and costly. Unlike the consumer fora, the authority or tribunal under the new bill does not have power to adopt penal proceedings/criminal prosecution for non-compliance. Such proceedings would have to be initiated by the authority or tribunal by filing a complaint before a criminal court, and the flat purchaser would not have any idea about what is happening in such proceedings.

Section 47 provides that the decision of the appellate authority would have to be challenged before the Supreme Court. The quality of adjudication by the authority with no judicial member would be questionable. The rates of appeal would be high. The cost involved would also be high. The tribunal would not be easily accessible to the common man. The three-tier redressal system under the Consumer Protection Act would be much more effective and economical.

Adv. R. P. Rathod further points out that the most anti-consumer provision of the new law is Section 60, which states that no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. The new law, thus, takes away the alternative, efficacious remedy which was hitherto available to a flat purchaser under the Consumer Protection Act. 

Even some developers have labeled certain sections of the bill as impractical, but still the act if implemented can potentially boost transparency in the Indian scenario by standardizing practices and streamlining Government procedure systems. The act can help bring about a greater level of trust between buyers and sellers, landowners and developers and also developers and the financial institutions that fund them; it would also be a big step in the direction of recognizing Indian Real Estate as an Industry, but the all the negative aspects as emphasized above have to be considered & addressed before passing the Bill concludes Adv. R. P. Rathod.

-      Adv. R. P. Rathod.