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.

Industry body Assocham today said the government should appoint a real estate regulator to help expedite the redressal of consumer grievances. ” There is a need for an efficient and focused regulatory body to overlook functioning of the real estate sector in order to insure the industry development and safeguard of consumer interests in line with international benchmark,”the chamber said.

The real estate regulator would ensure that the consumer grievances against developers, development authorities, real estate agents and financial institutions are addressed without any delay, it said.

The chamber further said that opening of an escrow account for real estate players should be made mandatory to ensure transparency in real estate transactions.

The real estate industry maintains an escrow account for development of a project, purchase of real estate units and honouring property charges.

” This facility needs to be encouraged by asking project developers to open an escrow account.,”it said, adding that such accounts are also maintained for honouring property charges, insurance liabilities and maintenance charges on regular basis.