Real Estate Markets Need Clear Regulatory Norms

Real estate developers often misuse a clause that allows them to change the layout and other specifications, if the need arises. When this happens, home buyers in India often end up paying far more than they had intended. However, in a recent judgment, the Supreme Court said that builders could not alter the floor plan without the consent of home buyers.

In a case filed by a home buyer in Pune, who bought an apartment in Ganga Melrose in Sopan Baug, the Supreme Court decided that the builder must compensate the buyer. The apex court asked the developer to pay the buyer Rs 2 lakh within six weeks after receiving the copy of the order. The buyer will be compensated for the emotional and physical torture he underwent. Before the Court decision, the home buyer approached the District Consumer Forum because the builder violated provisions of the Maharashtra Ownership of Flats Act. The District Consumer forum asked the builder to restore the floor and layout plan, and the Supreme Court upheld this decision.

Why is this judgment important?

• The government allows minor deviations from the approved plan, if this is necessary, given the engineering constraints. However, it is not clearly defined what these minor deviations are. In real estate markets, regulatory norms should follow this time-tested rule: clarity, consistency, and consequences. When there is not clarity and consistency in the norms, residential property markets are less likely to be transparent.

• While buying apartments in India, buyers do not know whether the specifications of the flat they purchased would change later. When this is so, many would be hesitant to buy homes. The information asymmetry is likely to hinder the development of real estate markets. For markets to flourish and develop, there must be greater trust and transparency.

• When home buyers are not too sure of the cost of their flat, they would not be able to budget their expenses according to their needs and abilities.

• In many cases, home buyers are not able to receive adequate compensation from unscrupulous builders, though such practices cost them their hard-earned money. 

• However, it is not merely buyers that suffer. As builders genuinely face engineering constraints, they point out that such norms lead to long legal battles with home buyers, costing both buyers and builders a fortune.