The Housing and Urban Poverty Alleviation Ministry has prepared the Real Estate (Regulation and Development) Bill 2011 which shall be placed during the monsoon session of parliament.

In real estate, most consumer disputes hover around the disputes pertaining to the buyer and builder. The bill seems to recognise three key problems:

1) Most disputes are the result of the present dispensation where the builder would have received almost all the payment and absconded or would have defaulted on her construction timeline and delayed the project with impunity.

2) Construction agreements are crude and lopsided with the terms having builder-backed conditions and the buyer having no bargaining power. The latter realises only at a later stage that she’s been duped off her hard earned money, while the builder has invested it in some other project to earn interest there.

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

New Ideas

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.

The bill is in pursuance of the powers of parliament to make laws on matters enumerated in the Concurrent List (Entry 6 & 7) 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 Real Estate Regulatory 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.

Seeds of 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 Regulatory Authority have 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 the parliament and the state legislature derive their power to legislate on a subject included in List I and List II of VII th 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 present dispute between the centre-state regarding the right to legislate on the issue of land is far from resolved.

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