Real Estate Bill 2016
With the implementation of the new real estate regulatory bill, realty sales are expected to rise by 10% and the new home launches are expected to decrease by 20%. Foreign direct investment into the real estate sector is also expected to increase by 20%. The bill is likely to boost realty sales and safeguard the interest of the buyers.
The Real Estate (Regulation and Development) Act 2016 passed on 25th March 2016 has brought in cheer for the real estate sector. Dhoot Group, a prominent name in the realty sector highlights that it has brought the much-needed transparency and accountability in the real estate industry.
The act has safeguarded the interest of the buyers as it restricts the developers to sell their homes before getting all the project approvals. It increases the cost of capital for the developers as they will have to look for equity rather than structured debt to finance the land.
Dhoot Group developers further stated that such an act was much needed in a sector known for deceitful and fraudulent dealings. However, the prices of houses will not fluctuate as the rise in cost of capital will not be passed on to the buyers by the developers in the present scenario of unfavorable market conditions. It is expected that the banks will start funding for land purchases as well. The individual or group investors, who usually invest in residential properties with an intention to withdraw even before the project is completed, can now participate as lenders and not as investors.
The Real Estate (Regulation and Development) Bill has been passed by the Rajya Sabha as well as the Lok Sabha it is set to become an act in a few months. Once passed it will change the way Real Estate was being dealt with, in the past.
The new act is a blessing as it will bring and safety for the home buyers in the city with the regulator being mandated to ensure this.This is also a blessing in disguise for the developers as it will bring credibility to them and people including NRIs will be willing to invest their funds in this sector.
Under the provisions of new bill any project over 500 sq mt area or 8 flats must be registered with regulatory authority with full disclosure – details of promoters, project, layout plan, plan of development works, land status, status of statutory approvals, etc. as well as the details of their past and ongoing projects. New projects can be launched only after the developer secures all statutory clearances from relevant authorities and the promoter must upload details of the project on the website of the RERA.
The bill bars the promoter from altering plans, structural designs and specifications of the plot, apartment or building without the consent of two-third allottees after disclosure.
The bill also seeks to establish fast track dispute resolution mechanisms for settlement of disputes through adjudicating officers and Appellate Tribunal. Consumer courts are allowed to hear real estate matters. There are 644 consumer courts in the country. The more avenues for grievance redressal would mean lower litigation costs for the buyers. Appellate Tribunals will now be required to adjudicate cases in 60 days.Any developer who violates the order of the appellate tribunal can be jailed for three years or fined or both.
Currently, if a project is delayed, then the developer does not suffer in any way. Now, the law ensures that any delay in project completion will make the developer liable to pay the same interest as the EMI being paid by the consumer to the bank back to the consumer.
The bill specifies that in case there is substitution of developer or builder, the new promoter will assume all the liabilities and the change won’t trigger any extension of the deadline. The buyer will have the right to get all details of the project including government approvals and floor plan besides quarterly progress. The bill mentions the regulator won’t extend the deadline for completion of project beyond one year in normal circumstances.
The recently passed Real Estate (Regulation & Development) Bill, 2016, in the Rajya Sabha and the Lok Sabha, is set to ease the home-buying process. The bill has undergone several amendments and will be effective in bringing transparency and accountability in the real estate sector, thus increasing consumer confidence and benefiting the sector as a whole.
The bill aims to make the sector transparent, give home buyers the advantage and, in turn, lift the market.
The bill sets a firm foothold in the real estate sector and would be a foundation for this sector for many years to come. With the changing skylines in many cities, it takes within its ambit many factors, including development and redevelopment, thus paving the way for a smooth road ahead. It will impact the sector, positively at two levels—first at the micro level of homebuyers, and second at a macro level of the entire real estate sector.
Timely completion and delivery:
Project delays are one of the major issues currently plaguing the real estate sector. In the residential property sector, a delay of three to four years is the accepted norm; in certain cases, it is more than seven to eight years. Over-leveraging by developers is the primary reason for such delays.
Developers will now have to deposit 70% of the collections from home buyers in a dedicated account to be used only for that particular project. It has been clarified that if the land cost has already been incurred by the promoter, he can withdraw the amount to that extent.
Level playing field:
At present, rights of both the developer and the home buyer emanate from the agreement for sale. But these agreements are heavily loaded in favour of the developer. For example, interest on late payments for consumers is as high as 18%, but the compensation to them by developers in case of a project delay, is abysmally low and varies across contracts. Henceforth, both developers and consumers will have to pay the same rate of interest for delays on their respective parts.
Developers will now have to deliver on time, adhering to the level of quality stated in the information provided to the regulatory authority during registration.
Better quality buildings:
To counter issues related to building defects and promote good practices in the sector, some developers provide a warranty for structural damages for 1-3 years. Extending this period, the bill states that the liability of the developers for structural defects will now be five years from the date of handing over possession.
Majority to hold sway:
Developers cannot make alterations or additions in the sanctioned plans and specifications of the building or the common areas without the consent of at least two-thirds of buyers. Such provisions in the bill will ensure that home buyers are getting the exact apartment for which they have paid and have a say in layout revision. However, this provision of obtaining consent of two-thirds of buyers may cause delay. Buyers may raise unnecessary objections and it may result in legal proceedings.
This may be a problem in cases where it is not affecting the premises or flats already sold and the open or common areas, as also in cases where the total layout allows construction of more buildings in compliance of the building rules or building bye-laws or Development Control Regulations.
Provisions in the bill will without doubt make the process of home-buying much easier, but on a larger scale, they will also have repercussions on the entire real estate sector.
The real estate market is largely non-transparent. Most stakeholders operate in their own silos. This is true especially among developers. The absence of a regulator is to a great extent responsible for this plight. With a regulator in place, the sector will be more efficient, prices will be more rationalised and most importantly, the regulator will ensure that malpractices are weeded out well in time.