Will the Real Estate Bill Bring Cheer to Homebuyers?

Mon, 14 Mar Pre-Open

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The Rajya Sabha on 10th March 2016 passed the Real Estate Regulation and Development Bill. The Lok Sabha had already passed it. The much maligned realty sector will finally be regulated. This is indeed a positive development. The sector is crucial to the growth of the economy. Its vices have been left unchecked for far too long.

So what does the bill aim to do?

It clears the way for state level regulatory authorities and appellate tribunals. The state level authorities will regulate both residential and commercial transactions. It will ensure the timely completion of projects. Complaints will have to be disposed of within 60 days. Developers and agents can now be imprisoned for up to 3 years and one year respectively, if they break the rules. There are many other aspects of the bill that we like.

• Pricing will have to be done on the basis of carpet are only. And the term 'carpet area' will be clearly defined.
• All projects will have to be registered with the regulator. No pre-launch will be allowed without all approvals being granted. Developers will have to disclose all important project details so that buyers can make an informed decision.
• Sellers can no longer discriminate among buyers on the basis of community, gender, caste, etc.
• Advertising of projects will also be regulated. This will ensure that developers cannot mislead prospective buyers with tall claims.
• Perhaps the biggest issue that the bill has covered is the money developers have to deposit in an escrow account to cover cost of construction and land. This has been fixed at a minimum of 70% of funds collected from buyers. This will bring in much needed transparency to the sector.

We laud this bill. The first step to regulate the sector has been taken. Homebuyers will certainly benefit from the increased transparence and regulation. But we don't think it will make real estate cheaper. The bill isn't clear about the mechanism for regulation. Presumably, this has been left to the regulator. This has left considerable scope for manipulation.

Also, the bill has not brought government bureaucrats under its ambit. We believe this is a major drawback. Regulation will be ineffective if this isn't addressed.

Most importantly, the bill will force developers to change their business model. No one knows how it will play out. It's hard to imagine developers cutting prices because of the new regulations. But we can hope for the best.

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