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Insights into Editorial: Why some states could delay real estate regulator Bill

Insights into Editorial: Why some states could delay real estate regulator Bill

22 March 2016

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The Real Estate Regulation Bill is expected to trigger a Centre-state clash as some states, including Maharashtra, Haryana and West Bengal, already have similar rules in place.

Background:

The Real Estate (Regulation and Development) Bill, 2013 was passed in Parliament recently. It seeks to create a set of rights and obligations for developers and buyers.

  • The bill is aimed at protecting home buyers from real estate developers who fail to deliver on time, and regulating India’s murky real estate sector.
  • Developers will now have to set aside 70% of sales proceeds from a project in an escrow account and get mandatory approvals before launching a project. Also, buyers and developers will be paying the same interest rate on defaults.
  • The Bill has also made it mandatory for all residential and commercial projects to register with the regulator.
  • It also provides for imprisonment of up to three years in case of promoters and up to one year in case of real estate agents and buyers for any violation of orders of Appellate Tribunals or monetary penalties or both.
  • The mandatory registration for projects has been brought down to 500 sq m area, or those comprising eight flats.
  • Also, a clear definition of carpet area and a system that would require the consent of two-thirds of the buyers in case there are changes in project plans have been included in the Bill.

Main concerns:

  • The 2013 Real Estate Bill is a model Bill and states can have their own rules based on it. States can continue to apply their laws regulating real estate as long as they are not contradicting the central one.
  • The Real Estate Bill falls under the Concurrent List and state governments are entitled to legislate.
  • Also, while the central rules will eventually overrule the state norms, some states might delay implementation.
  • Many developers have already started bargaining with state governments to not bring under-construction projects in the ambit of the Bill. Many have also requested state governments for a less stringent imprisonment clause.

The Bill also differs from existing laws in many states:

  • While the central Bill mandates establishing a statutory regulatory authority to register projects in a state, West Bengal has delegated this function to a government department.
  • The clause mandating 70% of the funds collected from buyers of a project to be kept in an escrow account is also inconsistent with the new Bill as many states have allowed for greater flexibility in usage of funds.
  • While Maharashtra Housing Regulation and Development Act, 2012 mandates that the entire amount collected from buyers be kept in a separate account, the draft Haryana Real Estate (Regulation and Development) Bill, 2013 mandates at least 70% of the amount collected from buyers be used for the particular project.

Besides, Punjab, West Bengal and Uttar Pradesh have hinted they would prefer to continue with existing state laws on real estate. This will make it difficult to have one set of regulations across India.

Conclusion:

This bill is an important step in cleaning up the real estate market, but the journey should not end with it. State governments play a significant role in real estate and they are often the source of problems. Some estimates suggest that real estate developers have to seek approvals of as many as 40 central and state departments, which lead to delays and an escalation in the cost of houses. It is also true that without real estate reforms at the level of states, it will not be possible to meet the ambition of making housing accessible for all urban dwellers. Hence, it is time for the centre to address these concerns before proceeding further. It is also expected that, once the Bill is notified, states will get more investments in the real estate sector and property prices will come down.