Unlike many other industry sectors in India; real estate does not currently have a regulator. The purpose of the regulator is to protect the interest of the consumer; ensure transparency and fair competition. The recourse for a real estate consumer is thus limited to complaining to the Grievance Cell of the Development Company, or to escalate it to nodal real estate organizations such as CREDAI, NAREDCO and National Association of Realtors; or further escalate it to consumer and civil courts. However, data from the National Consumer Cell indicates that Real Estate complaints form a miniscule number. In October 2011 the National Consumer helpline received only 0.69% complaints (out of a total of 10,750 calls) for the Real Estate sector. Most of these complaints pertain to delay in delivery of the apartment/plot; and the delivered product not being as promised at the time of booking in terms of quality, specification and carpet area.
Real Estate is unique from other industries in that
a. The consumer pays for the product in advance. The developer then utilizes the monies received to produce the product and deliver to the consumer. Ownership of the product is transferred after a period of time. This process entails that the consumer takes a certain amount of risk which is accentuated by the lack of transparency.
b.It is one of the few tangible assets which sees capital appreciation even after the product is delivered. This is because of limited supply which leads to scarcity and thus competition and value in acquiring the product. It creates a strong secondary market; and thus real estate is also an investment mode.
There have been increasing demands on the Ministry of Housing & Urban Poverty Alleviation to introduce a regulator for the real estate sector. The Ministry has written a draft version of the Real Estate (Regulatory & Development) Act, 2011; which was revised recently. The bill is envisaged to act as an interface between the end user and the developer. Its aim is a. to ensure sale of properties in an efficient and transparent manner, b. protect the interest of consumers in the real estate sector, and c. establish an Appellate Tribunal to adjudicate disputes and hear appeals from the decisions or orders of the Authority.
The bill is applicable to all projects that are proposed to be built on 4,000 sq.mt or larger land parcels. It is applicable to the whole of India, excluding the state of Jammu and Kashmir. The bill’s regulations will not apply to projects that have applied and secured all necessary approvals 1 year prior to the enactment of the bill.
Prior to commencement of a project, the promoter has to seek a certificate of registration from the Regulator (Authority). The promoter needs to provide an undertaking that all approvals and sanctions necessary from the relevant competent authority for project commencement are in place. He/she needs to provide land title documents, details of any encumbrances on the land, layout plan of the whole project/phase along with development specifications. Details of project development timelines, sale agreement copies, and completion date of the project, Certification from the architect, structural engineer and the owner is also required. The promoter also needs to mention its real estate agents for the project. No project can be advertised prior to receiving this registration.
The Authority has to give its approval or rejection of the application within 30 days. The registration granted by the authority shall be for the period stated by the promoter to complete the project; and it may be renewed up to a period of further 2 year.
The registration of the project may be revoked by the Authority in case the promoter wilfully defaults in doing anything required by him or under the Act’s rules and regulations; or if the promoter violates any of the terms or conditions of the agreement entered into with the Competent Authority; or if the promoter is involved in any kind of unfair practice or irregularities. The Authority cannot revoke the registration without giving the promoter 30 days notice, in writing stating the grounds on which it is proposed to revoke the certificate and the promoter shall have the opportunity to make a representation to the Authority. The authority may also impose on the promoter to add such further binding terms and conditions as it deems fit to impose in the interest of the allottees.
Revocation of the registration will entail, a. promoter being debarred from accessing the website (the same shall be deleted); b. inscribing his/her name in the list of defaulters on all the state’s real estate regulators’ website; and c. recommend to competent authority to facilitate balance of the development work.
Under the act, it is the responsibility of the allottee to make necessary payments in the manner and within the time period specified in the sale agreement; and on handover of the property, pay the proportionate share of the registration charges, municipal taxes, water and electricity charges, ground rent, etc. In the event of delay in payments, the act recommends that the allottee pay interest to the promoter towards delay in payment.
On receiving the registration, the promoter needs to update project details on the Authority’s website. This includes fortnightly update of booking status. A promoter cannot receive money from the allottee prior to signing a written agreement. Further, 70% of the money received from allottees has to be kept in a scheduled bank account and utilized towards the project costs. The project has to be developed and completed by the promoter in accordance with the plans and the structural designs as approved by the competent authorities. After obtaining the occupation certificate or the completion certificate, and handing over the physical possession to the allottees, it shall be the responsibility of the promoter to hand over the originals of the title documents and plans to the resident association.
If the promoter wilfully fails to register the property with the Authority and markets the same (i.e. in contravention to section 3 of the act), in that event the act provisions for a penalty that is punishable with imprisonment for a term up-to a maximum of 3 years or 10% of the estimated cost of the real estate projects. For contravention of any other provision (i.e. other than section 3) of the Act, the penalty may extend to 5% of the estimated cost of the real estate project. If the promoter wilfully fails to comply with the orders or directions of the Authority, he/she will be liable to a minimum penalty of INRs 1 lakh for every day that the default continues; this may extend upto 5% of the estimated cost of the project. The same penalty is increased to imprisonment upto 1 year or 10% of the estimated cost of the project, in case of wilful failure to comply with the order or directive of the Appellate Tribunal.
The bill has evoked a strong response from the Real Estate Community; which feels that while the bill tries to control their activity and puts them through stringent scrutiny, it is silent on the role and obligations of government agencies that are responsible for project clearances. They have sought that the government streamline the approval process for real estate projects. The promoters claim that delay in projects is on many occasions beyond their control. It was further felt that the bill will act as an entry barrier for a new entrant to the industry and will impact the growth of real estate firms. Reasons being cited are the inability to advertise prior to receiving registration, and the 70% funds raised that need to be placed in a bank account and utilized only towards the cost of the project.
On the other hand consumer rights group while lauding the intent of the Act, have criticised it for lacking in specifics. The Act does not state what interest rate will be charged from the developer in case of delays. They seek to have standardization of sale terms, e.g. issue of carpet and super built up area. Consumer groups also seek to include property brokers and agents in the ambit of the bill.
Since land is a state subject, the central government will need to ensure that municipal and local governing bodies support the bill and enact laws to ensure smooth functioning of the regulator.
The bill needs further debate and deliberations before being enacted. The consumers need to be made aware of this bill. A recent Colliers survey of over 80 consumers and an equal number of brokers and developers at the recently concluded HDFC Property Expo, revealed that 0% of the consumers were aware of the bill; and only 30% of the real estate professionals had heard of the bill.