How the new Real Estate Bill will help home buyers

 After chit funds, real estate was probably the last remaining frontier for cowboy entrepreneurs.  

For decades, unscrupulous developers could get away with blue murder, thanks to an acute housing shortage, lack of organised resistance among buyers, avaricious political patronage and the absence of any governance frameworks and redressal mechanisms.

In recent times, judicial oversight and some high-profile orders from the Competition Commission have gradually started sending strong signals about dealing with recalcitrant builder behaviour.  

And now, finally, comes the Real Estate (Regulation and Development) Bill.

This was in the works since 2007, introduced in Parliament in 2013 by the United Progressive Alliance government, and now cleared by the Cabinet on April 7, 2015.

It is worth noting that while land is a state subject, regulating contracts and transfer of property are on the concurrent list.

The Bill puts in place a sector-governance framework across four broad areas:

(i) Creation of an independent regulatory authority: This follows similar constructs in electricity, telecom, airports, insurance, capital markets, and (hopefully!) the proposed regulators for coal, rail, ports and highways.

India finally seems to be getting its regulatory framework in place, albeit in fits and starts.

Real estate regulatory authorities (RERAs) will be established in every state and be paired with real estate appellate tribunals (REATs) to consider appeals against orders of RERAs. All commercial and residential projects now need to be compulsorily registered with RERA.  

(ii) Prevention of diversion of funds: This has been the bane of real estate development, where cash-strapped developers ran a chit fund like ponzi where advances from newly-announced projects were used to fund past projects.

The Bill now provides for a compulsory deposit of 50 per cent of the total amount realised from buyers into a monitorable account in a scheduled bank - to be used only for the construction of the designated project. (Critics argue that the dilution from the earlier proposed 70 per cent down to 50 per cent still allows developers to divert substantial funds.)  

(iii) Mandating consumer protection measures: These safeguards were long overdue and had seen high-decibel advocacy by real-estate gurus such as Deepak Parekh. They relate to:

Specifications in a project not being altered at the free will of the promoters unless the consent of at least two-thirds of the buyers of the project has been obtained;  

Preventing the promoter from accepting advance payments or application fees of more than 10 per cent of the cost without entering into a written agreement with the buyer