Real Estate Law Gets Thumbs-up From Buyers, Mixed Response From Developers

The much-anticipated Real Estate (Regulation and Development) Bill, which became a law on March 10, brought cheers to millions of home buyers across the country.

Union Minister for Urban Development M Venkaiah Naidu said the Bill would help people, including the urban poor, meet their genuine aspiration of owning houses, by giving a fillip to the affordable housing initiative under which the government aims to build two crore houses by 2022.

“Effective regulatory mechanism will lead to orderly growth of the sector and give a fresh impetus to our vision of 'Housing for All by 2022',” Prime Minister Narendra Modi tweeted after the Bill was passed.

Once the Bill becomes a law after Presidential assent, it will apply to both residential and commercial properties. It will be mandatory for all projects bigger than 500 square metres and brokers to be registered with the real estate regulator, which will govern contracts between buyers and sellers, oversee transactions, and settle disputes.

The legislation, designed to bring transparency and accountability into the real estate sector, which accounts for about nine per cent of India's gross domestic product, is also expected to revive buyers' confidence.

While the law comes as good news for home buyers, industry players have mixed reaction to the development.

Industry reaction

Although the Bill has become a law, developers are sceptical about the ongoing projects being brought under the legislation's purview.

Credai President Getamber Anand says this will stop the projects where work is underway, to ensure compliance with the new law. “This is not only time-consuming but also poses insurmountable difficulties in determining the nature and scope of regulation for ongoing projects,” he says.

Prestige Estate Chairman-cum-Managing Director Irfan Razak was quoted by the Economic Times as expressing similar views. He said some clarification was needed in terms of under-construction projects, as these could not meet the obligation of the regulator. There would be a lot of chaos in the system and it would not be good for business, he added.

“Even though some clauses are heavily stacked against the builders, we believe this law has the potential to transform our industry,” DLF chief executive officer Rajeev Talwar was quoted as saying by Reuters.

Sobha Ltd Vice-Chairman & Managing Director J C Sharma said, “We welcome the passage of the Real Estate Regulatory Bill by the Rajya Sabha. This is a big step in the right direction and will help protect consumer interest. It will also help identify good real estate companies that conduct business by the book.”

“However, the Bill made no mention of time-bound approvals by various central, state and local agencies which are critical to the growth of the sector. We believe the decision to have up to 70 per cent of the funds collected from consumers kept into an escrow account might not be the best way to make use of the collected funds, especially at a time when liquidity in the sector is not very good and the poor availability of bank finance is hitting the consumer as well,” Sharma added.

Godrej Properties Managing Director Pirojsha Godrej said although the regulation would be in the interest of all concerned, it could create significant transition issues in the short term. The government should ensure this transition is handled well and that the regulator doesn't become another layer of bureaucracy, he added.

Meanwhile, the Bill got a thumbs-up from other sector honchos, such as Mahindra Lifespace Managing Director Anita Arjundas. He said, “We welcome the passage of the real estate Bill, which seeks to restore buyers' confidence with a thrust on transparency and accountability. Speedy action on single-window approvals will enable more efficient use of capital and also support timely delivery.”

Ascent Group's CEO Shivakashi Gogia said, “It's an effective Bill and will bring the much-needed transparency and accountability into the sector and create a consumer-right protection shelter for home buyers, thereby increasing their confidence and timely delivery of projects.”

JLL Chairman & Country Head Anuj Puri said the Bill was an unequivocal victory for the Indian real estate sector. Its enactment as a law would almost single-handedly revamp the way this sector worked across the spectrum, from developers to end-users and investors, to lending institutions and government agencies involved in the buying and selling of property. “It is by far the most decisive step the sector has taken towards transparency and reaching towards the kind of standardised processes, procedures and accountability guidelines that the industry requires to move ahead.”