CREDAI’s recommendations on the proposed Model Real Estate (Regulation of Development) Act to the Government
· The current Draft Bill seems to penalize the developer but does not provide any real relief to the end user
· The regulation bill will magnify the unaccounted for and invisible cost factor which finally results in cost escalation for developers to end users
There is an invisible cost in any real estate project, which is nothing but wastage of time for various kinds of legal procedures and other unproductive work such as various legal clearances, approvals, sanctions, etc. Ideally, the processes should not take more than 2-3 months. Unfortunately, in most of the states, these processes take anywhere between 1 year to 4 years depending on the location and the type of legal issues. The cost increases due to the interest burden from the date the investment is made by the promoter on the purchase of land till the date of actual start of construction. Again, during the construction, a number of times, projects get delayed in process of occupancy certificate, drainage and water connections, electricity supply etc.
The key issues and recommendations highlighted by CREDAI are:The protection to the consumers which the proposed Bill is likely to bring has already been covered by various individual Acts which are in place, such as Consumer Protection Act, Transfer of property Act, Specific Relief Act, Criminal Procedure Act, Registration Act, Town & Country Planning laws and various other Acts. More regulation will only lead to operational delays and cost escalations which in turn, will prove expensive for the home buyers eventually. Moreover, the bill might prove to be extremely detrimental for the development of the already overregulated realty sector of the country.
The current Draft Bill seems to penalize the developers but does not provide any real relief to the customers. A model bill should be more of regulating the relationship of various stakeholders as is envisaged in most of the ownership acts prevalent in various states. Also several jurisdictional issues will emerge between the ownership and other acts in several states which are in existence and this regulation bill.
The major areas of concern in the proposed draft:
Compliance by local authorities - The developer has been asked to disclose the time schedule for integrating municipal services such as sewerage, water supply, electricity, etc. A number of times projects get delayed because of non-co-operation or non-performance by the municipal authorities, electric supply authorities, delay in water connection, drainage connections, occupancy certificates etc. The regulator should also have active control over the local authorities to oversee timely delivery of these amenities. Besides some responsibility needs to be assigned upon the local authorities in fulfilling their obligations in this process of development.
Any kind of Bill which would protect the rights of all stakeholders of the Real Estate sector would be welcome. But, the Bill should not be confined to only developers. Accountability should also be insisted upon from the other parties involved such as the Sanctioning Authorities, Service Providers, project financing agencies, the allottees and others involved who make the Real Estate Project a success.
No regulation for errant buyers – The draft bill has no provisions for failure of payment or default on part of the home buyers. The regulator should also provide some safeguard for the developers in such cases or else it may give rise to unfair practices.
Also, certain clauses being unnecessarily harsh on developers, it may discourage healthy participation and activity from them. New players might be hesitant to enter and invest in the market. Moreover, it is noticeable that there are only few cases filed against developers in the consumer courts. Although lakhs of real estate transactions take place every year, on a close scrutiny of these cases, it can be observed that only a few ones are complaints against developers.
Added to that, there are high chances of unfair practices creeping into the process, cutting down the development rate considerably. All these might eventually discourage the developers from venturing into new projects and result in downfall of the sector. The lack of growth in the sector will ultimately affect the economic prosperity of the country.
Project Approval - At the initial stage, if all project plans are to be approved by the regulator, it will take almost 3-6 months in the process which will delay the project at the outset. This will add to the cost of the project which will eventually be borne by the home buyer himself. Further, with tens of thousands of developers it is not only impossible for every developer across the country to be registered prior to undertaking the project but also completely impossible to register every project. Also, registration of each and every project seems unnecessary as a builder when purchasing land invests crores of rupees in buying the land and hires the best of lawyers for obtaining the required procedural clearances of the title and other related papers of the land. A number of times Financial Institutions are also involved in financing the Builders. These Institutions also perform a thorough check on the title of the property. Thus authenticity of the documents is already verified.
CREDAI suggests that instead of licensing for each and every project, there can be a registration process for each of the builders and the Regulatory Authority can come up with certain guidelines which the builders should adhere to and any deviation can lead to cancellation of the Builder’s registration. This will simplify the processes involved as well as safeguard consumer interests.
The registration of projects and developers as proposed in the Model Act is envisaged after sanction of projects. In other words, this Bill comes into play only when a developer reaches a certain stage of life cycle of development of a project. A developer reaches the pre-execution stage of a project through several processes of financing, investments and valuable time. If the Regulation Bill, with the Regulatory Authority having the right to refuse the registration enters at this stage, it seems not only unfair but also unconstitutional. The amount of business risk involved is huge. Thus CREDAI strongly recommends that pre-registration requirement should not be applicable for individual projects. The regulatory appellate authority hence, should only act for the resolution of disputes between various parties involved in this process.
Bank Guarantee - The bank guarantee as suggested in the bill will increase the input cost for the developer who has already invested heavily in the purchase of land, and will be passed on to the buyers thus making it more expensive for them.
Duplication of laws - In certain states, there are existing laws on these issues and hence, the Act being made applicable to such states will not only result in duplication of procedures and operational cost, but also result in delay and thereby escalate the cost of the housing facility for the buyer.
Validity - The draft bill also states that registration under the bill will be valid for a period of 3 years. However, for large projects which are completed in a phase wise manner, this clause seems inappropriate. CREDAI has suggested that the period of validity be extended to at least five years for each phase.
Advertisements - The clause stating registration of advertisements also seems irrational as the property rates change according to market dynamics and the forces of demand and supply. The rates / figures provided in an advertisement may not remain the same at all times. So every time the rates change, registering the advertisements with the regulator will become a lengthy and costly procedure which will add upto the cost of the project thus, affecting the buyers.
Keeping in mind the interests of the consumers as well as the developers, CREDAI has suggested a balanced approach for the overall benefit of all the stakeholders of the real estate industry. CREDAI would urge the government to reconsider the issues and take cohesive measures in this context. CREDAI would be pleased to offer its assistance to the government in formulating favourable policies and is looking forward to the concerned Ministry taking a methodical approach to address this issue.
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