To not get defrauded of your money you saved up for a house, to own a house free of title disputes or to get a clean deal are simple rights that any homebuyer would like to exercise. Unfortunately, in the largely unregulated Indian real estate market, ridden with fraudulent deals and fly-by-night operators, these are ambitions that are difficult to fulfil for most.
Fortunately though, in 2011, the government seemed to have woken up to the decades-long crisis—two draft Bills and other smaller regulations and judgements came up during the year to nudge the industry towards transparency and more accountability. If not a complete solution, it’s at least a step forward. But obviously, it has several miles to cover still. So here’s what you can look forward to as of now.
In what can change the face of the industry, if implemented, the draft Real Estate (Regulation and Development) Bill, 2011, proposes to create a regulatory authority, which will eventually pave the way for a fairer and more transparent industry. Four changes you can look forward to:
Dispute-free property: The draft Bill has provisions that reduce the risk of a title dispute. The regulator will ensure that property developers will have to comply with registration norms such as clear land titles; the developer will not be able to sell or book any apartment without prior registration of the project with the authority. In case a developer wilfully fails to take the necessary registration certificate prior to the launch of its project, he may be imprisoned by law for up to three years, or need to pay a penalty of as much as 10% of the estimated cost of the real estate project, or both. The proposed regulatory authority will be responsible for giving certificates of registration for projects or land that is at least 4,000 sq. m in size. A project of this size would be smaller than the inner circle of Connaught Place, a commercial area in New Delhi or the area covered by Gateway of India in Mumbai.
Safeguarding your money: The developers would not be allowed to divert advances received from homebuyers of a specific project to another project. In addition, they will be barred from taking any deposits or advances before entering into an agreement of sale.
Addressing grievances and entitlement to compensation: In the new regulator, you will finally have an authority to complain to. While action will be taken against the developers/promoters who defraud you, you would be entitled to adequate compensation. According to the draft Bill, if the promoter fails to complete or is unable to give possession of a plot or building, he will be liable to return the amount received by him with interest and may also have to pay a penalty imposed by the authority within the time frame specified in the builder-buyer agreement. The draft Bill doesn’t specify the time frame. A real estate appellate tribunal to resolve disputes between developers and customers will also be set up. This tribunal will adjudicate disputes between promoters and homebuyers, promoter and the authority and the government and authority, which otherwise go to courts already burdened with cases on property dispute.
No misleading advertisements: The Bill says that developers will be barred from publishing any advertisement or prospectus or invite homebuyers to book flats in projects without obtaining a copy of the certificate of registration.
Crossing secondary market hurdles
Frauds are most common in the secondary market, where properties are on resale.
Loan registry: One way to ensure the property you are buying doesn’t have a title dispute is to make sure there is only one loan running on it and that is yours. Incidents of several loans being taken for one property, which means the property is sold to different people at a point of time, are not uncommon. To tackle this problem, the finance ministry has created a loan registry, which is administrated by the National Housing Bank. This is an electronic database of all properties against which a loan has been taken. Eventually, the registry will include earlier mortgage agreements, too.
The general public can’t use the registry as of now. “In order to search for a particular property, the customer will have to provide the property details to the authorized bank or housing finance company. The bank will then search for the property on the website www.cersai.org.in. The bank will charge you the administrative fee for processing your loan but not for the search. We are working on providing a direct access to homebuyers to search and pay online,” says R.V. Verma, chairman and managing director, NHB.
No power of attorney (PoA): When a PoA is used for a property transaction, the property is not registered in the name of the new owner, thereby leaving a gaping hole for possibilities of fraud. Usually, such transactions also involve unaccounted money since legally the property hasn’t been sold or bought. The Supreme Court put an end to this in October by making the registered sale deed the only valid document for property transactions.
‘Benami’ properties: A benami property is one for which one person pays the money, while the registration is done in another person’s name. This is usually done to evade taxes. In August, the government introduced the Benami Transactions (Prohibition) Bill, 2011, which will replace the old Act of 1988. The new Bill empowers the government to confiscate any property that is declared benami. Says Ashutosh Limaye, head (real estate intelligence service), Jones Lang LaSalle India, a property consultant firm, “This means that a lot more cases involving benami properties can now be proved in court. This Bill will result in more such properties being confiscated, either to be auctioned off or put to use by the government after the judgement.”
Clarity on land acquisition
The land controversy that affected over 100,000 homebuyers across 30-35 new projects in Greater Noida and agitation by farmers across West Bengal and Orissa was a wake up call for the government. It presented a draft National Land Acquisition and Rehabilitation and Resettlement Bill, 2011, in August.
Higher compensation for landowners: According to the draft Bill, the value of a land being acquired will be either the value mentioned in its previous sale deed or the average price of half the sale deeds registered for similar land in the same village or its vicinity during the preceding three years. The higher value will be given at the time of acquisition. The draft Bill also says, “In case of urban areas, the award amount would be not less than twice that of the market value determined whereas in rural areas it would be not less than six times the original market value.”
Costly deals for homebuyers: While the Bill proposes to bring clarity on the subject of compensation and the process of acquisition, it increases the cost of acquisition for developers, who in turn will pass on the cost to the homebuyers. “The Bill if implemented will increase the cost of acquisition. This will result in a hike in prices of properties,” says R.R. Singh, director, National Real Estate Development Council, a pan-India industry body.
However, where these regulations will take the industry is still to be seen. As of now, Mint Money sees these as a positive step from the larger lens of the industry inching towards regulation, but also finds large loopholes in the proposed legislations. “There are so many regulations governing the real estate sector at present. Though these bills address the concerns of homebuyers, farmers and other stakeholders these are not in sync with the national urban policies, national housing policies of the government, the infrastructure planning of a city and the judiciary. What we need is a collective policy on real estate,” says Anurag Mathur, managing director, Cushman and Wakefield India, an international property consultant.
Also, the government has been planning to table similar real estate Bills since 2006. Till date, the Bills have appeared only as drafts. Only time will tell whether in the year ahead, these will become law.
Also See | Real laggard (PDF)
PDF by Yogesh Kumar/Mint