New real estate law to make homebuying easier, but loopholes remain
The real estate sector has struggled for many years to win the trust of homebuyers. Between navigating built-up area, carpet area, missing amenities promised at booking of homes, diversion of money received towards one project to more lucrative ones; their mistrust is not misplaced. Data compiled and reported by independent publications indicate that an estimated 1,700 cases related to housing were received by the National Consumer Disputes Redressal Commission (NCDRC) in 2014–15. However, as the Real Estate (Regulation and Development) Bill 2016 (RERA) became an act on the May 1, 2016, homebuyers will have better safeguard against builders who take homebuyers for a ride.
Home buying to become easier
This is a much needed initiative by the government towards safeguarding the interests of the buyers and bringing more transparency to the sector, the legislation has to be enabled which means States have to act to give it life. The establishment of State-level RERAs and Real Estate Appellate Tribunals are crucial for the successful implementation of this Act. RERA surely requires formation of regulator and establishment of detailed guidelines which they will use to govern/regulate developers. It does seem that it would make homebuying a far more easy process. One of the most significant benefits of the passage of this bill will be the phasing out of the delay in possession of property.
To cover construction and land costs, the Act ensures that 70 per cent of the money taken from buyers has to be kept aside in a separate bank account and this money can only be used for construction activities. This will ensure that the sellers don’t invest the money received from one project into another project. In addition to this, developers are mandated to a full disclosure of all information like project layout, approval, land status, contractors, schedule and completion of project with customers as well as the RERA. The sector also will benefit with single-window clearances for projects, digitisation of records and grading of developers.
One of the steps that will bring maximum transparency is standardisation in the sector through introduction of definitions such as apartment, carpet area, real estate project, prospectus, real estate agents, etc. This will equip home buyers with information that they will understand.
The devil is in the details
With such transformative provisions in place, it is hard to overlook the loopholes in the well-intentioned endeavour. There is considerable level of ambivalence when it comes to who will come under the purview of the bill in terms of properties that have already been sold and not handed over. On paper, it seems that the bill will benefit consumers in case of procurement of new property. However, there exists ambiguity in terms of relieving the current buyers who may not fall under the ambit of the bill. Will they not be able to reap rich dividends of such a transformative ruling?
The second drawback that rears its ugly head pertains to the approvals that are sought by developers. Should a case arise, wherein the approval to the developer is withdrawn for some unforeseen reason, who bears the brunt? In the absence of the approval, the developer will be unable to construct or sell, directly impacting the consumer. What is the fate of the consumers who have made partial payments for the property? Has any step been outlined to make sure the consumer escapes this predicament unscathed?
Developers also seem to be on the back foot when it comes to securing timely approvals. Would this bill lead to additional red tape and obstruct time-bound projects? Delay will translate into increase in cost. Though on the face of it, this bill may seem to streamline an otherwise unorganised sector, the proof of the pudding will lie in its implementation. The details outlined by each state level regulatory authority towards breathing a fresh lease of life into this Act will prove to be crucial.
Prima facie this bill seems to be a boon for consumers and the sector alike. But an in-depth analysis does reveal some loopholes that need to be plugged, in order to make for a more effective solution. What is necessary today is a balanced view of things. A myopic view of the potential effects of the bill needs to be dispelled. It is only by putting things into perspective that we will be able to see the larger picture.
The author is CEO, India Mortgage Guarantee Corporation