Posted by Sukhvinder Sidhu | February 1, 2016
(An updated re-post)
There is great interest among Indians for buying house for residence or as an investment. Also a fast growth has been witnessed in the real estate sector. But since this sector has remained largely unregulated in India, home buyers here find little recourse when faced with any problem like delayed possession, overcharging, fewer facilities and non-maintenance by builders and developers. While they don’t get any help from the real estate agents afterwards, they definitely keep getting burdened with the loan EMIs.
Some time back we discussed about such common problems that new home buyers can face after their purchase transaction, and that they need to remain very cautious about these beforehand.
There is good news on this front in the form of the Real Estate (Regulation and Development) Bill which is on the verge of being passed in Parliament. The Cabinet gave approval to major amendments to the Bill in December. There are a number of regulations in the Bill aimed at bringing transparency and accountability in property dealings. Though it will not be an easy journey with the realty sector mired in malpractices for a long time, the proposed legislation seems ready to change the rules of the game for the better. It is a big step towards safeguarding the rights of home buyers & real estate investors.
Let’s take a look on how the home buyers and investors can benefit from the new regulations in the coming years, after its passage in the Rajya Sabha and becoming an Act:
Buyers will have access to certified projects
The Bill will be applicable on residential and commercial properties which are more than 500 square metres in size or have 8 or more flats. All such projects, both new ones and those which are currently ongoing, will have to get registered. Failure to do so by a developer will attract a penalty of 10% of the overall project cost, and additional 10% penalty and/or a 3 year imprisonment term in case of continued non-compliance.
A web-based online system for submitting applications for registration of projects will be introduced within one year of the establishment of regulatory authorities.
All financial statements have to be audited within 6 months of financial year closure by a practicing CA.
Better transparency in the deals for buyers
On registration of a project, promoters will have to disclose all the associated information. It will include information regarding ownership, project plan and layout, development schedule, land status, status of statutory approvals, proforma agreements, names and addresses of real estate agents, contractors, architects, and structural engineers.
Developers will have to advertise the carpet area (the space within the walls of a flat) instead of the common area. Carpet area has now been defined as the net usable area. Incorrect or incomplete disclosures by them will attract a penalty of 5% of the project cost.
Even brokers and agents who sell flats and plots will have to get themselves registered, and will be liable to be punished on non-compliance of orders of regulatory authority.
Concerns regarding delay in project completion will be largely addressed
Promoters of all projects, including housing, will have to deposit within 15 days 70% of the funds collected from buyers in an escrow account in a scheduled bank, which will be used only to meet the cost of construction. This will place enough restriction on developers from diverting funds elsewhere and will better ensure that the projects are completed within the stipulated time.
In case of delay in delivery, there is provision of refund of money with interest.
Change in building plans will be restricted
When a building plan is registered, it will be mandatory for the developer to disclose all the details. If wanting to change the design and specifications of the building at a later stage, the developer will need the consent of 2/3 of the buyers.
Commercial real estate also in the ambit of law
This is a part of the amendments to the original Bill, and this will protect the rights of investors of the commercial assets as well.
Fast-track settlement of disputes and compensation
Each state will make rules within one year, and will have its real estate regulator. The regulator will have to decide cases within 60 days. One or more adjudicating officers will be appointed to settle disputes and impose compensation and interest. Appellate tribunals are also proposed to be set up. The imprisonment term of 3 years will be applicable for all contraventions including the case when a developer does not abide by the decision of the appellate tribunal.
The new laws are quite strong and promising to benefit all the genuine stakeholders especially the retail buyers and investors. But it will have to be seen whether the regulators will be empowered enough to effectively enforce these laws and the related rules.
Though there will remain some loopholes, the new regulations will definitely be a step towards improving transparency in the real estate sector and safeguarding buyers’ rights. Now at least the law will be there to back the buyers in their fight for their rights.
(Photo Courtesy: Francisco Anzola)
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