In 2010, the supreme court observed, “MOFA [Maharashtra Ownership Flats Act, 1963], was enacted by the Maharashtra legislature as it was found that builders/developers/promoters were indulging in malpractices in the sale and transfer of flats, and the flat purchasers were being exploited.”

Lawmakers across the world make laws to check malpractices and to regulate the sector when malpractice reaches an alarming level. Real estate being the fastest growing sector with a huge employment potential was allowed a long time to set its house in order and create an atmosphere of fair play, transparency and accountability.

Housing being a state subject, the respective state legislators passed laws like development Acts and apartment Acts, which were to ensure planned development of notified areas and enforcement of duties and liabilities of promoters, apartment owners and associations of apartment owners, but unplanned development and barrage of disputes over the rights of apartment owners and their associations gave an impression that the implementing authorities left much to be desired.

The central government has introduced the ‘real estate (regulation and development) bill’ in parliament to regulate ‘contract’ and ‘transfer of property’.

This bill intends to regulate transactions between buyers and promoters in real estate residential projects which were so far beyond the scope of most of the state legislation and might be able to give the much-needed protection to the buyer.

This bill, if passed, will disallow promoters and their agents from booking or selling projects without being registered with the real estate regulatory authority to ensure accountability and transparency.

The bill necessitates uploading project details, including the site and layout plan, thereby eliminating the chances of a builder altering the plan later.

The most-awaited feature of the legislation would be to maintain 70 percent of the amount collected from buyers for a project in a separate bank account and to be only used for construction of that project, which will cut the chances of project delays and diversion of funds to other projects by promoters. The state government can, however, lower the amount to less than 70 percent.

The regulator will have all the powers of a civil court to dispose complaints or call for information, conduct investigations, and make inquiry into the affairs of promoters and even impose penalty and/or cancel the licence where it considers expedient to do so.

The regulator can also issue directions to promoters and allottees from time to time and such directions shall be binding on all concerned. Consequently,  upon lapse or cancellation of registration of the promoter, the regulator may recommend to the competent authority to have the remaining development work carried out from the proceeds of the enforcement of bank guarantee and recover charges incurred on the said development work from the promoter. This would add much-needed teeth to the authority.

In cases of wilful failure to comply with the orders of the authority, a builder shall be liable to a minimum penalty of '1 lakh per day. The penalty may be extended to 5 percent of the estimated cost of the project if such default continues.

The bill proposes an appellate tribunal for the aggrieved party to ventilate its grievances but wilful failure to comply with the orders of the tribunal shall be punishable with imprisonment for a term which may extend to one year or with a penalty which may extend to 10 percent of the estimated cost of the real estate project, or with both.

Disputes arising between home buyers and builders constitute unfulfilled promises, delayed possession, overcharging, deceptive techniques adopted while booking, lopsided agreements, misuse of dominant position, hidden cost, changed housing scheme, incomplete facilities, profiting from maintenance charges and so on. These practices have dampened the spirit of home buyers and the opinions expressed by courts have possibly prompted the central government to step in and regulate the sector with an effective public policy and a regulator. While law makers will debate on the provisions and effectiveness of the bill, the home buyer community will be hoping for a strong law that can stop malpractices in the sector and bring the erring promoter to book.

The promoter community, on the other hand, seems to be reluctant to the sudden regulations and checks after an extended era of relative ease.

The new law is not an alternative to the apartments Act of different states but compliments them by covering areas that have been left out. The lawmakers would do good to cover even the smaller housing projects and real estate dealers/agents so as to benefit smaller cities and small home buyers.

Framing and prescribing model ‘builder-buyer agreements’ and ‘deeds of apartments’ is essential to minimising manipulation and litigations to a large extent. Transparency in pricing and brokerage – with the actual status of booking and construction updated on a monthly basis on the regulator’s website – will help check artificial inflation and enable timely steps to check project delays. Covering the commercial real estate sector would be the next big step and would encourage small investors to invest in commercial buildings, which is needed to de-congest residential areas.

Discipline and regulation is always perceived to be a burden but it ensures a better time ahead. So the new real estate regulatory bill may signal the beginning of a new dawn, but the final form of the statute would decide the effectiveness of the law.
The role of state governments in implementation of the new act is even more significant and will decide how soon home buyers will benefit from the law. The general opinion is in favour of a strong regulatory law and the government is aware of the public opinion, but has to hear the arguments of all the stakeholders to send a clear message to the market and both, Indian and foreign investors.

The end users who are dreaming of a shelter for themselves also need assurance through this law that their lifetime savings and future family earnings are now inside the protective ring of an effective law.

The story appeared in November 1-15, 2014 issue