Taking All On Board: Why The Narendra Modi Govt Is Reshaping Real Estate Bill?

Congress Vice-President Rahul Gandhi termed the new Real Estate Bill 'a pro-builder and anti-buyer' one and alleged that the government had watered down the Bill framed by the previous United Progressive Allaince (UPA) government. This, he said, was done to favour the real estate industry at the cost of home buyers. The Prime Minister Narendra Modi-led government at the Centre will be leaving no stone unturned to send out a clear message of the Bill being pro-people when it pushes to pass the long-pending legislation in the Winter Session of Parliament.

The Winter Session that begins on November 24 will end on December 23.According to media reports, the prime minister has formed an informal Group of Ministers (GoM) , comprising Urban Development Minister M Venkaiah Naidu, Finance Minister Arun Jaitley and Law Minister D V Sadananda Gowda, to go through the legislation and suggest changes that would make it home buyer-friendly and feasible for industry interests. The group has been asked to examine the issues raised by the Opposition, say reports.

The Bill, which aims to bring transparency in the real estate sector, will bring in more investments. It also has the potential to moderate costs and make homes more affordable.

A look at what the Real Estate (Development and Regulation) Bill is, how is it different from the UPA version and what issues does it face:

What does the Bill envisage?

The Bill aims to set up a regulatory framework that will govern contracts between buyers and sellers. From one-sided contract terms to cost escalations, from arbitrary changes to the plan to delays running into years, home buyers have been facing many troubles.

The Bill envisages a regulator, the Real Estate Regulatory Authority (RERA) , for each state within one year of the Act coming into force. The regulator will settle disputes and impose penalties.

All residential and commercial projects will have to be registered with the regulator. It will also cover ongoing projects that have not received completion certificates. Developers won't be able to advertise or launch projects without prior registration with the authority.

Before launching any project, developers will have to disclose layout plans and submit clearances with the regulator. They will also have to name contractors, engineers, architects, etc, associated with the project.

The Bill seeks to enforce the contract between the developer and buyer and act as a fast-track mechanism to settle disputes.

Developers will have to keep 50 per cent of buyers' investment into in a separate bank account. This amount will be used in project construction.

The Bill prohibits a developer from changing the plan in a project, unless two-thirds of the allottees have agreed for such a change.

In case a promoter fails to register a property, he may have to pay up to 10 per cent of the estimated cost of the project as a penalty. Failure to register despite orders issued by the RERA will lead to imprisonment for up to three years, and/or an additional fine of 10 per cent of the estimated cost of the project. The promoter will have to pay up to five per cent of the estimated cost of the project, if he violates any other provisions of the Act.

Real estate brokers will have to pay a fine of Rs 10,000 for violating any provisions of the Act, for each day the violation continues.

Two-third of buyers' have to give approval, if a developer wants to alter building plans, structural designs and specifications of the project.

The versions

The UPA version stated that 70 per cent of buyers' money should be kept aside in a separate bank account by developers. The NDA reduced it to 50 per cent.

The UPA version had a clear definition of the “carpet area”. In the NDA version, the term is replaced with “rentable area”. Carpet area is the area enclosed within the walls of a flat. 

In UPA's Bill, developers were not allowed to make any changes in the plan of the project once it got clearance from the regulator. In the NDA version, they can make “minor altercations”.

The NDA Bill has a clause which may help developers in case of project delays. They will not face penalties for delays due to “issue of completion certificate, approvals”, etc.

The Standing Committee suggestions

The Standing Committee on Urban Development, headed by Chairperson Sharad Yadav (chief of the Janata Dal United) , gave its report on the Bill on February 17, 2014. Major recommendations by the committee include:

The current Bill seeks to regulate only residential real estate. The Bill should also regulate commercial and industrial real estate.

The exclusion of projects smaller than 1,000 square meters or 12 apartments from the purview of the RERA could lead to the exclusion of a large number of small residential projects. This limit should be lowered to 100 sq mt and three apartments.

All real estate brokers should be required to register with the RERA, and not just those facilitating the sale of a project covered by the Bill. 

A new provision should be inserted to allow the RERA to give directions to state governments to establish a single-window clearance system for projects. A time limit should be specified for state and local authorities to issue completion certificates.

The Bill defines carpet area as 'net usable floor area' of an apartment, excluding the area covered by its walls. The term 'net usable floor area' should be defined in the Bill. 

The Bill specifies that a promoter must rectify any structural defect which is brought to his notice within two years of allotment. This term should be increased to five years.