Real Estate Regulatory and Development Bill – Step
in right direction, but just 1st hurdle cleared
Union Cabinet of India passes the Real Estate
Regulatory and Development Bill which intends to project consumers of house
space in the country by implementing best practices. The Bill proposes a
regulator in each state / union territory which will address the industry issue
and a tribunal for fasten the process of the disputes.
The bill would next be tabled in both the house of
Parliament and then to standing committee before it becomes an Act. The Bill
has just cleared the first hurdle and may take longer to be implemented at
ground level.
Reasons for delay in project completion are
addressed, but amending the ‘70% customer advance’ clause will lead to low
uniformity
The Bill main intention is consumer protection in
real estate space wherein project delay is major area of concern. The Bill
addresses this concern by two proposed clauses – 1) the developer cannot launch
a project before all approvals in place and 2) 70% & lower Customer
advances, as stipulated by the state regulator, would be utilised only for development
of project which is monetized. The second point here is been diluted from 70%
to 70% & lower and also has given power to decide the share in the hands of
state regulator. This amendment has diluted the effect of the point and would
lead to higher red tapism in the sector.
The current Bill requires a lot of Clarity and
doesn’t address many Loopholes in the proposals
The amended RE Bill has many points which needs
clarifications or which has loopholes. Firstly, it doesn’t state that the state
regulator will have to follow whose law when it comes to the State Bill and
Centre’s Bill are at crossroads. The bill doesn’t provide clear demarcation in
definition of a project and its phases as well as common amenities for assigning
customer advances lock-in.
The bill implemented in the current form affects
marginally to developers; lowering the churn of capital is the only concern
The current form of the Bill is diluted from the
draft published in 2012. No pre-launches officially & registration of real
estate agent would curb investor money in the sector when combined with 1% TDS
clause introduced in Union Budget. But there are means to these issues which
may lower the impact of the intent of the Bill. Hence, there would be some impact
on the churn of capital as usage of customer advances would be restricted.
Also, some cost of the company would increase in getting stipulated approvals
from the state regulatory.
Interpretation of Key Clauses which may
affect Real Estate Companies Clause Intent Current Practice Impact
Clarity / Loophole
Clause:
A Real Estate Regulator in each state
who will implement and address set regulations in that particular state
Intent:
To streamline best practices in the
industry which is reeling under lot of issues pertaining to consumer
Current
Practice
There is no single body who regulates
the industry and its growing issues
Impact:
A lot of developers would have to
streamline their operations to best of industry practices
Clarity/loophole:
Will the state regulator adhere to
state level bill or this bill overwrites it
Clause:
The developer cannot launch the
projects till all the approvals are in place and the project is registered with
the regulator along with project plan
Intent:
To ensure timely completion of projects
by making capital available
Current
Practice:
A lot of developers would pre-launch
the project and utilise the advance from sale towards getting approvals as well
as other means
Impact:
The developer cannot do any pre-launch
before getting project approvals and registering the same with the government authority.
Hence they will have to deploy capital from other source then customer advances
Clarity/loophole:
The Company can always pre-launch and
take advances and show it as short term debt. Later convert the same in
customer advances at the time of launch. All the pre launches are done on
understanding and trust between the parties
Clause:
Compulsory deposit 70% or lower funds
received from allotees in a separate bank account. (The same was changed from
70% in 2012 bill to 70% or Lower in 2013 bill)
Intent:
To ensure timely completion of projects
by making capital available
Current
Practice:
A lot of projects completions are
delayed because the developer utilise the customer advances for other means and
assign approvals delayed as the reason.
Impact:
The developer cannot utilise the
capital generated from one project, unless it is completed, to finance the capital
requirement of other projects. This will lead to lower availability of the liquidity.
Clarity/loophole:
There is missing clarity on the
definition of the project, as the industry phases out a single project. Can the
developer utilise advances of phase 1 towards approvals of phase 2 and not
deliver the common amenities, is not clear.
Clause:
Mandatory registration of real estate
agents with the regulator
Intent:
To infuse professionalism in the
intermediary role To curb money laundering
Current
Practice:
With absence of any regulatory
authority, there is no registration. Also, with no registration the agents
launder the money through their account for a client.
Impact:
This clause along with TDS clause
introduces in Union Budget 2013-14 will lead to curbing the transactions routed
through multiple parties.
May curb investors from using RE as a
medium for money laundering
Clarity/loophole:
The bill states the role of the agent
but fails to address the repercussion of the falsification of information by
him / her Also, there is no differentiation between a role of agent or a
consumer played by the same person.
Charges
for putting out misleading advertisements related to the projects carrying
photographs of actual site.
Removed
in 2013 Bill. Was part of 2012 Bill
Written
Agreement with the buyer needs to be registered before taking more than 10% of
advances
Removed
in 2013 Bill. Was part of 2012 Bill
Source:
Emkay Research, Housing Ministry
