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Pros and cons of real estate regulatory bill

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Real Estate Regulatory BillOn 5th June 2013, union cabinet has finally approved the Real Estate Regulatory Bill. Clearance of this bill now brings a transparency in the real estate sector. However, the bill applies only to residential projects and commercial real estate property is not considered under this regulation. Now, there are many guidelines to be followed by builders / developers while constructing, launching and promoting new residential projects, which indicate more power in buyer’s hand. Here, in this article we will analyse pros and cons of this bill:

Pros of Real Estate Regulatory Bill

1.Well-timed delivery of flats to buyers

There is common practice by builders of giving false promises to deliver flat keys within one to two years after registering in under construction project. However, they are not able to deliver flats to buyers as per decided time-line. Now, under real estate regulatory bill, strict regulations will be imposed on the builders / developers of the project to ensure that construction is running on schedule and flats are delivered on time to the buyer. In case there is a long delay in delivery of flats to buyers, then builder will be entitled to a full refund with interest.

2.Giving accurate project details in disclosure

In past, there were instances in which developers have promoted building projects with attractive amenities and infrastructure in new projects at under construction stage, but later on buyers discovered that many things discussed on website / promotion brochures / layout is missing in actual constructed building. Now, with this bill developers need to share project plans in disclosure which will definitely be delivered with a flat. There can’t be any change at a later stage of development by builder. In case builder is found guilty, then he will be penalized at 10 per cent of project costs or jail up to three years.

3.Specifying actual carpet area becomes mandatory

Developers are selling flats on the basis of super built area which includes common passage area, stairs and other areas which is 20-30% more than actual flat area. Buyer is not well-informed about actual area of flat which is known as carpet area. Now, with this bill it’s mandatory for builders to declare the actual carpet area of a flat in promotion activities.

4.All clearances are compulsory before launching a project

Most builders offer flats at huge discounts with pre-launch offer to attract buyers. However, buyers are not informed about all clearances in the project and risk of delay in delivery due to issue of important clearances from government. In this case, builders initially start working on project after getting some clearances and start selling flats but such projects get delayed or stuck at later stages due to some hurdles in getting complete clearance. The bill clearly state that the developers have to get all important clearances before they start selling flats.

5.Maintain separate bank accounts for each project

It’s a common practice among developers to raise funds from buyers in the pre launch offer and then utilizing the fund for buying land for other projects or engagements, but not using it in current project. Now, with this bill it’s mandatory to maintain separate bank accounts for each project and transactions need to be maintained. Diversion of funds from one project to another will not be permitted. Developers / builders have to put aside 70 per cent of the proceeds of a particular project in a separate bank account which will help to fund the project and leads to complete it on schedule time.

6.After sales service due to structural defects

In case there is structural defect or deficiency in the development of building, then this bill allows approaching builder for after sales service. According to the bill, buyer needs to inform about the deficiencies within one year of purchase date. So, developer will be liable to rectify these defects without further charges.

Cons of Real Estate Regulatory Bill

1.Past Real Estate projects excluded from the bill

Real estate regulatory bill is applicable only to new real estate projects. So, most projects which were sold in last 2 to 3 years and are stuck in the process due to clearance or financial crunch are not included in the bill. There are many buyers which fail to get benefit of this bill due to exclusion of past real estate projects.

2.Delay due to approval from government agencies

Lot has been discussed about timely delivery of projects from builders or will be penalized. But there is lack of clarity on delays due to approval from government on clearance. Government bodies should follow strict time frames to clear the approvals of project. So, developer can launch these new projects smoothly and deliver it on schedule time.

3.No mandatory regulation for projects less than 4000 sq mt

Registration with the regulator won’t be mandatory for projects less than 4000 sq mt. So, many small developers across metros like Mumbai, Bangalore, etc will escape from registration and government regulator’s control. In these metro cities, project areas tend to be smaller due to lack of large land parcel.

4.New project launches expected to be delayed

Now, new residential projects will be launched after getting requisite clearance from the government, which ideally takes 2 to 3 years. So, in short term we expect some delays in the launch of new project.

Conclusion

Government seems to have taken the right decision of passing the much required Real Estate Regulatory Bill to control exploitation by developers which offered false amenities to buyers, construction of residential projects on disruptive land, etc. It’s good to see there are standard parameters to analyse real estate sector and positives in this bill for common man. Expecting there will be positive turnaround in real estate sector and help buyers to find dream home at affordable price on time.

About the Author

Hiral Thanawala is a PGDM (Finance) graduate and Certified Financial Planner with an experience of over 5 years in equity market and personal finance domain. The views explained by him are personal. He can be reached at expert@investmentyogi.com

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