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Business News/ Opinion / With the real estate bill, sector is set for a transformation
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With the real estate bill, sector is set for a transformation

A transparent, regulated and rule-based system as envisaged by the bill will help bring in foreign and domestic investment and jobs

Shyamal Banerjee/MintPremium
Shyamal Banerjee/Mint

Charles Dickens’ immortal words “it was the best of times, it was the worst of times" apply well to real estate in India. The worst of times over the past two years may also, ironically, be the best, because of the radical transformation these years will bring about in the coming months. Never has talk been so intense for smart cities, affordable housing, urban rejuvenation, improving ease of business and, most importantly, for bringing the humble homebuyer centre stage. Add to that the radical technology-led transformation of home buying in the online space, and you know why the staid and opaque industry is set for a happy makeover.

But the biggest catalyst will be the Real Estate (Regulation & Development) Bill, which will hopefully be cleared soon. While it has its share of blemishes, the bill makes the long harassed and harried homebuyer the centre of (good) attention. A recent PropTiger research report found more than 80% of home demand coming from end users; a clear indicator of who lends maximum support to the sector when the chips are down.

The construction industry employs a large proportion of the country’s work force. A transparent, regulated and rule-based system as envisaged by the bill will help bring in foreign and domestic investment and jobs. Already, according to a news report, investments in the real estate sector are set to see a 7-year high, with a large proportion coming from private equity. The real estate bill can help sustain and strengthen this flow.

When the real estate bill materialises, there will be Real Estate Regulatory Authorities (Reras) in every state. Promoters will be expected to register residential projects with them; the threshold for projects to be registered has been brought down too. This is a remarkable reform because when they register, promoters must disclose details of their projects on the Rera website. Homebuyers will be able to know the status of the land, site and layout plan, schedule for completion, and names of agents, contractors and architects and details on approvals from various government agencies.

Promoters will not be able to change a project’s design without buyers’ consent. Builders will be liable for structural defects for up to five years, which is higher than the earlier two. Carpet area will carry a uniform definition preventing one of the most common forms of builder-buyer disputes. Add to that 3D views, 360 degree virtual walk-throughs of homes and digital brochures, and you have a much more informed homebuyer.

When homebuyers have more trust in developers and the regulatory framework, they will enter valuable transactions they otherwise would not. For housing to become more affordable, this is necessary. At present,a quick legal recourse is not available to homebuyers against defaulting developers. When the bill is implemented, homebuyers would find it easier to settle disputes with developers by approaching one of 644 district-level consumer courts in India. A time limit has been prescribed for adjudication of cases by tribunals and for disposal of complaints by regulatory authorities.

The bill also includes a provision for developers to maintain 70% of the money collected from buyers in an escrow account towards cost of construction. But what if the cost of land is more than 30% and cost of construction lower than 70%? In large Indian cities, land is very expensive, and this is often the case. When this happens, funds collected from homebuyers may not be utilised, and developers may be forced to raise funds from other sources. Many developers feel that this will limit their capital management and increase cost of financing; something that’s not good news for homebuyers as well. However, state governments may be allowed to decide if the amount kept in the escrow account can be lesser than 70% of the money collected. Hopefully, state governments will take these decisions judiciously without jeopardising homebuyer interest.

It is important that ease of doing business becomes a more integral part of any real estate reform. It was good news when India jumped a few spots in the overall World Bank’s Ease of Doing Business Ranking recently. However, on parameters relating to registration of property and construction permits, the country continued to fare poorly. As developers become liable for delays, it is important that matters relating to certification, sanctions and approvals are streamlined. This will also help deliver affordable housing much faster, and improve liquidity and returns for investors.

The bill justifiably provides for fines but it is debatable whether certain offences should lead to punishment that’s too harsh like imprisonment up to three years for real estate developers and up to a year for homebuyers and agents. The bill brings in real estate agents within its purview, which is much needed, to regulate the sector better and to build buyer confidence. However, more clarity is needed, especially with respect to licensing of large brokers.

Finally, buildings and projects are a part of a larger living ecosystem. Thrust programmes such as smart cities and urban rejuvenation, land zoning and use laws, tenancy legislations, and transport and infrastructure planning should continue to integrate larger urban issues with real estate micro problems for the most effective transformation to a new future.

Dhruv Agarwala is chief executive officer, PropTiger.com

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Published: 22 Dec 2015, 07:21 PM IST
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