The housing and urban poverty alleviation ministry has prepared the Real Estate (Regulation and Development) Bill 2011 which is likely to be taken up during the monsoon session of parliament. In real estate, most consumer problems relate to disputes pertaining to the buyer and the builder. The bill seems to recognise three key problems here:

1     Most disputes are the result of the current scenario in which the builder would have received almost all the payment and absconded or would have defaulted on the construction timeline and delayed the project with impunity.

2     Construction agreements are crude and lopsided; the builder can put conditions and the buyer has no bargaining power. The buyers realise only later that they have been duped, while the builder would have invested their money in some other project.

3     The real estate and housing sector has largely been unregulated and opaque, with consumers often being unable to get complete information, or enforce accountability on builders and developers in the absence of effective regulation.

The bill attempts a level-playing field for both buyers and builders. Hence, in order to provide guidelines to facilitate growth and promote a transparent and competitive real estate sector, it contains provisions against the builders, providing for refund of money with interest and penalty for delay in completing or giving possession of a plot or building, and rectifying any major structural defect or deficiency brought to the notice of the builder within one year from the date of possession, without any further charge.

What is in store
The bill is in pursuance of the powers of parliament to make laws on matters enumerated in the Concurrent List, namely, transfer of property other than agricultural land; registration of deeds and documents, and contracts including partnerships, agency, contracts of carriage, and other special forms of contracts, but not including contracts relating to agricultural land.

It proposes the establishment of a Real Estate Regulatory Authority in each state by the appropriate government (centre for the UTs and state governments in the case of the states), with specified functions, powers and responsibilities to facilitate the orderly and planned growth of the sector. It also provides for mandatory registration of developers/builders, who intend to sell any immovable property, with the Authority as a system of accreditation, except when the area of the land being developed does not exceed 4,000 sq mt. For this, the developer will have to make an application to the authority disclosing details about the project, including land status, approvals and contractual obligations for the registration process. No builder will be allowed to issue or publish an advertisement or prospectus or start booking of flats in a project without obtaining registration from the authority.

Centre-state conflict
Though as per the bill, both the centre and states have the powers to make rules over subjects specified in the bill, I fear a rise in conflicts due to the absence of any resolution mechanism.

The other bone of contention between the centre and states are the provisions of section 62 of the proposed bill which provides that the Authority has powers to make regulations, however, it empowers the central government to issue directions to states on matters specified in the bill. This has not gone too well with certain states. Chhattisgarh, Madhya Pradesh and Maharashtra have objected to the proposed watchdog on the grounds that they plan to draft their own legislation, while Tamil Nadu and West Bengal have not even sent their responses on the draft legislation floated by the centre.

The states opposing the bill say that the centre cannot make a law for the sector as land is a state subject as per Entry 18 of the State List in the constitution even though Land (other than Agricultural Land) has been placed at Entry 6 of the concurrent list. However, to allay the states’ fears, the government has incorporated a provision in the draft bill stating that they could have their own regulatory authority – if they wish, since parliament and the state legislature derive their power to legislate on a subject included in List I and List II of VIIth Schedule from Article 246 (1) and (3) of the constitution, the respective lists merely demarcate the legislative field or heads and are not the source of power to make a law. 

Only one step forward
While the bill aims at restoring confidence of the general public in the real estate sector and ensure transparency, disclosure and accountability in the real estate sector, the centre-state dispute regarding the right to legislate on the issue of land is far from resolved.

Is the builder mafia responsible for the logjam? I am not sure of that but certainly most of those folks like status quo better.