The Indian parliament is gearing up to pass the much talked about real estate regulatory bill in the winter session. The industry is keenly watching out for this one as the first draft was found to be faulty and rather lopsided , excluding the government bodies from it.

The bill seeks to grant approvals to projects on certain parameters and also expedite all the approval processes mandatory for projects to take off. It is expected to help improve transparency in the sector by rating developers on their financial strength in terms of turnover, liquidity and profitability, scale of operations, intellectual expertise based on the qualification and experience of the management team, and past performance. According to Ashutosh Limaye, associate director (Strategic Consulting), Jones Lang LaSalle Meghraj, “The stock market has SEBI to provide guidelines, define conduct and processes, provide a redressal system for both buyers and sellers and install necessary consistency and standardisation. The proposed real estate regulatory body intends to do the same for the Indian property market, which currently presents a rather under-organized picture.”

Deepak Parekh, chairman of HDFC, had expressed the urgent need for a real estate regulatory body, which should play the role of a monitor for promoting and overseeing real estate reforms, ensuring transparency in sales and protecting buyers from a fraudulent case, if any. Parekh recommended that the state housing boards should also be brought within the ambit so that there is complete transparency in its working mechanism, the checks and balances are well achieved from every quarter.

The developers have welcomed the move too, but not in its current draft form. Kumar Gera, chairman of CREDAI, India, says, “The intention is good but a lot of thought needs to go into formulating the role of the body, otherwise the effect can be counter-productive . Two main intentions are stated in the preamble : protection of consumers’ interest and speeding up the clearances to facilitate the smooth development of real estate. There are enough provisions to achieve the first objective , but I haven’t seen anything regarding the second. It needs inclusion of processes. In the present form it is likely to create more processes and hence obstacles. The Urban Land Ceiling act was also formulated with a noble intention, but the outcome was disastrous.”

A draft bill on the much-awaited real estate regulator that will protect the interest of home buyers by healthy real estate sector has drawn the ire of developers. “The government is trying to play nanny to the home purchaser,” said Kumar Gera, chief of the Confederation of Real Estate Developers’ Associations of India (CREDAI).

According to the draft, a builder will have to register a project with the regulator before he can market the properties. For this, the builder will have to submit a documentary proof of land ownership and the mandatory licences to the regulator for registration. Once verified, the entire information about the project will be available on the regulator’s Website that will be accessible to everybody. The regulator will also scrutinise the advertisements and names of brokers.

This process will ensure the legitimacy and the viability of the project, ending the current practice of realty firms launching projects without land ownership or mandatory approvals that leads to buyers getting stuck with inappropriate or illegal projects. “The proposed law will protect home buyers from fraudulent builders,” said Ajit Krishnan, partner for real estate at Ernst & Young.

However, developers don’t agree. “This draft has been prepared by people with good intent but with no knowledge of the nuances of the business,” said Mr Gera, who is also the chairman of Pune-based Gera Developers. If the proposed regulator gets all the proposed powers, a property buyer would know exactly what he is buying. Importantly, the draft bill prohibits a builder from accepting an advance from a home buyer before the sale agreement is signed. At present , builders force buyers to pay 20-30 % of the cost of the property before making a sale agreement

A draft bill on the much-awaited real estate regulator that will protect the interest of home buyers by ensuring a transparent and healthy Indian real estate sector has drawn the ire of developers. “The government is trying to play nanny to the home purchaser,” said Kumar Gera, chief of the Confederation of Real Estate Developers’ Associations of India (CREDAI). According to the draft, a builder will have to register a project with the regulator before he can market the properties. For this, the builder will have to submit a documentary proof of land ownership and the mandatory licences to the regulator for registration.

Once verified, the entire information about the project will be available on the regulator’s Website that will be accessible to everybody. The regulator will also scrutinise the advertisements and names of brokers. This process will ensure the legitimacy and the viability of the project, ending the current practice of realty firms launching projects without land ownership or mandatory approvals that leads to buyers getting stuck with inappropriate or illegal projects. “The proposed law will protect home buyers from fraudulent builders,” said Ajit Krishnan, partner for real estate at Ernst & Young.

However, developers don’t agree. “This draft has been prepared by people with good intent but with no knowledge of the nuances of the business,” said Mr Gera, who is also the chairman of Pune-based Gera Developers. If the proposed regulator gets all the proposed powers, a property buyer would know exactly what he is buying. Importantly, the draft bill prohibits a builder from accepting an advance from a home buyer before the sale agreement is signed. At present , builders force buyers to pay 20-30 % of the cost of the property before making a sale agreement.

Many times, a flat allotted by this process is completely different from what the buyer had initially understood from the developer or his broker. “It’s a good idea to have a sale agreement in place at the time of the first instalment, which will help both parties know what is on the table,” Mr Gera said. To make the builder accountable, the draft suggests that he will have to submit a bank guarantee of 5% of the total cost of the project, which will be encashed by the regulator if the builder does not complete the project on time or violate a condition that has been agreed upon in the agreement.

In case a builder is unable complete a project on time, the allottee can ask for a full refund of the amount he has paid along with an interest. The regulator will then take over the incomplete project and appoint another agency to complete the project by encashing bank guarantee and recovering the balance amount from the builder and/or allottees. The bank guarantee will push up the cost of the project and the provision of taking over incomplete project is ‘completely impractical’ , Mr Gera said.

The draft bill also addresses the concern of the home buyer on the cancellation of an allotment. If a builder unilaterally cancels the allotment, he will have to refund the entire amount along with interest . At present, developers generally forfeit a disproportionately-large percentage of the total amount paid by the buyer if the sale deed is cancelled on the buyer failing to make timely payment. Significantly, the draft bill also mandates the builder to keep a separate bank account for each project. “This will prevent promoters from speculating with the cash collected from customers. However , at the same time, it will also not allow a promoter to take away part of his profit till the project is completed ,” Mr Krishnan said.