The real estate regulatory bill has seen many seasons and undergone numerous changes from where it started as a model bill. What next? Where is the bill headed? What is the writing on the wall? Is it going to be about achieving the right balance between buyers and developers, or is it now going to be about the new law being an enabler to bring buoyancy back in the real estate sector and ultimately be a major contributor to the coveted 8-9 percent growth rate?

Enforceability
At the outset, one of the major challenges in the enforceability of the real estate bill is the dichotomy of jurisdiction over real estate projects between the central and state governments.

Entry 18 of the state list in the seventh schedule of the constitution empowers state governments to make laws in relation to land, or rights in or over land, land improvement and colonisation of land.

However, entries 6 and 7 of the concurrent list in the seventh schedule of the constitution provide for transfer of property and contracts – in this case between buyers and developers. On these items, the central government will have superintendence to legislate.

The real estate bill, therefore, seeks to limit its scope to regulate transfer of property and contracts between buyers and developers and leave the rest to the state government.

The buyer and the developer
For buyers, the bill seeks to make registration of projects mandatory. This, in turn, makes further registration title clear and bankable, making financing easier. The bill even prohibits a developer from raising funds till the project is registered. After that, the project comes under continuous monitoring and the disclosure regime. 

For the developer, if the authority fails to act on a registration application within 15 days of the date of receipt of application, the project shall be deemed to have been registered. The buyer gains immensely by the mandatory registration, monitoring and transparency that set in upon registration of the project.

The provisions of the bill making timely completion, execution of conveyance, handing over and obligation to remove defects are again a boon for buyers, who are otherwise left running from pillar to post on these issues.

By making registration of estate brokers mandatory, the bill seeks to protect buyers as well as developers from suffering at their hands.  A number of obligations have been cast upon the developer to ensure transparency and protection of buyers’ interests, including:

(i)    To make available the documents and information necessary for inspection to prospective buyers, including title documents.

(ii)    To ensure disclosure of all advertisements and prospectus to make advances only after registration. 

(iii)    To disclose project details on the website maintained by the authority.

(iv)    To compensate any person who suffers a loss by reason of any untrue statement in the advertisement or prospectus.

(v)    To maintain transparency and accountability of funds collected from allottees/buyers.

(vi)    To maintain transparency and accessibility to buyers to certain project documents during project implementation, like site plans, structural designs, progress, fittings, etc.

The mandatory requirement that 70 percent of the amount collected by developers should be kept aside and utilised only for the construction of the project has left developers between the devil and the deep sea. What if the cost of land is more than 30 percent? Where from do the developers fund the cost of land, which is in excess of the said residual 30 percent? Again, what if the cost of construction is less than the mandated 70 percent? How is the balance fund to be utilised?

The much-needed single-window clearances for the multitude of sanctions and approvals required for the project before the commencement of each project is still missing from the bill. Lack of uniformity and complexities of each project make sanctions and approvals one of the biggest hurdles for the developers.

The upside for the developer is increased financing, resulting in increased demand, in turn, resulting in significant improvement in the sentiment and performance of the sector.

Industry perspective
The real estate sector seeks out a regime to make title of real estate assets bankable, reduced red-tape in sanctions and approvals and a transparency-driven, investor-friendly law – both domestic investment as well as foreign direct investment (FDI). For this purpose, the sector looks at the government beyond just the real estate bill.

A recent amendment proposed to the consumer Act seeks to bring ‘unfair contracts’ within the ambit of consumer courts. Real estate buyers would almost certainly be an immediate beneficiary. This would, in turn, make the Indian real estate sector more bankable for overseas investors, apart from benefitting the buyers.

While there is a call for permitting 49 percent FDI in this sector without any riders, the bill falls short of securing the risk on capital of foreign investors as well. Red tape, legal complexities hindering projects and litigation risk still need to be addressed by the bill. With state governments free to have their own laws on other issues governing real estate as a sector, as long as they are not inconsistent with the scope and ambit of the bill, there is likely to be a continued phase of legal uncertainty and litigation till the entire regime is made to be in sync and uniform. With the magic majority of the present government, the sector has been echoing the call for sweeping sector-wide reforms on these lines.

One of the biggest challenges affecting investor confidence in the realty sector is black money. Simultaneous measures to check infiltration of black money into this sector and simplification of stamp duty and tax regime are a major concern for the sector reeling under liquidity crunch and looking out for foreign investors.

With the projected FDI set to double at around $60 billion in the current fiscal, the bill needs to address the sector-wide reforms agenda, beyond the buyer versus developer agenda, particularly with the real estate sector constituting nearly 11 percent of the GDP.

We are left with the inevitable question as a conclusion: Can a real estate law be realistically expected to deliver without counting the investor as a key stakeholder alongside the buyer and the developer and get to the 8-9 percent growth rate in foreseeable future?

The story appeared in November 1-15, 2014 issue