Self-regulation by brokers a must3 min read . Updated: 18 Oct 2010, 10:01 PM IST
Self-regulation by brokers a must
Self-regulation by brokers a must
In order to facilitate growth and promote a healthy, transparent, efficient and competitive real estate sector, state and Central government agencies along with industry bodies, including developer and customer associations, have realized the need to establish an effective regulatory mechanism that will help address and curb malpractices, and safeguard consumer interests. As a tool to drive this initiative, the ministry of housing and urban poverty alleviation constituted an expert committee that has drafted a regulation Bill laying down the necessary provisions to set up a regulatory body, defining its powers and functions, responsibilities of the developers and penalties for violations.
The draft Bill was first released for public consultation in July 2009, attracting several queries and mixed views from industry stakeholders. After that a revised Bill was circulated in May, which is believed to be a closer reflection of the final shape and form that the regulatory mechanism will take.
Regulator as reform tool
In most developed countries, the real estate market is regulated through legislation, voluntary schemes and self-regulation across all key activities such as town planning, building control, building development and regulation of property transaction activities. In India, the regulatory body envisioned under the proposed Model Real Estate (Regulation of Development) Act will take on the role of a facilitator, regulator and promoter within the real estate sector. It will regulate building activity by allowing customers to file complaints about building defects within one-two years; regulate transactions through the levy of penalty on developers for violating rules or not meeting their responsibilities defined as part of the prescribed legislation; and provide necessary support for settling disputes.
As an extension of its capabilities, the regulator will also play an advisory role to the state governments and the local bodies, helping streamline procedures with the aim of expediting this process, ensuring transparent and efficient registration of properties, and promoting sustainable and environment-friendly construction.
One of the key objectives and the basis of establishing the regulatory framework is protection of the stakeholders’ interests. More often than not, consumers are at the receiving end of market irregularities arising as a consequence of property transaction governed typically by perception rather than sound business principles. Given the number of disputes that arise due to existing practices, consumers will now have a recourse mechanism, which is believed to expedite the redressal of consumer grievances with the help of the regulator.
Having said this, the complaint handling mechanism outlined in the draft Bill is not as robust as it ought to be. It does not address who will resolve disputes and how the process would work, among other issues. These details need to be ironed out so that the regulator could look at an ombudsman who would be responsible for adjudicating all dispute cases, much on the lines of the Securities and Exchange Board of India’s regulations on ombudsman and the Banking Ombudsman Scheme by the Reserve Bank of India.
Additionally, brokers who drive most real estate deals have been kept outside the purview of the proposed regulatory framework. Given the large number of brokers that exist in the country, the housing ministry is of the firm view that it would be difficult for the authority to effectively regulate them. Therefore, the onus is on the developers, who need to ensure that credible brokers are engaged and their details are provided on the regulator’s website. Developers will also be liable to publicly disclose all relevant project-related information along with a written sales agreement to the buyer before any financial advance is given to them.
Enforcement of regulation
The Indian realty market certainly needs a regulatory framework. However, the market is highly disorganized and, therefore, the role of the regulator will have to be defined with a lot more focus on specific issues and local requirements across states. The aim of such a reform would be to ensure that developers and brokers provide a basic level of service, while improving their standards, and practising self-regulation.
Also, it is essential that consumers realize that legislation will not translate into instant reforms, but will be a phased process of evolution, which needs to finally emerge into a robust and well-respected regulatory framework.
Sachin Sandhir is managing director and country head, Royal Institution of Chartered Surveyors, India