The Lok Sabha has passed the Real Estate (Regulation and Development) Bill, 2013.
Last week, the Rajya Sabha had passed the Bill with a few changes. In this context, this article looks at a few features and issues related to the Bill.
How is the real estate sector currently regulated?
Currently, real estate projects are regulated by state governments under their respective town and country planning or apartment ownership Acts. Most approvals for construction of real estate projects are given at the local and state level.
What are some of the key features of the Bill?
The Bill, as introduced, regulated transactions between buyers and promoters (sellers) of only residential real estate projects. Following recommendations of the Committees, the ambit of the Bill has now been expanded to include commercial and industrial projects as well. To regulate these transactions, the Bill establishes state-level regulatory authorities called Real Estate Regulatory Authorities (RERAs). The RERAs will maintain a database of all the registered real estate projects on a website. Real estate projects with land area more than 500 square metres, or having more than 8 apartments must be registered with RERAs. However, flexibility is given to state governments to establish lower limits. Promoters cannot book or offer projects for sale without registering them with RERAs. Real estate agents dealing in these projects must also register with the RERA. Decisions of RERAs can be challenged before state-level appellate tribunals called Real Estate Appellate Tribunals.
What are the duties of the promoters, buyers and agents?
In order to register a project with the RERA, the promoter must provide details of the project including the number of apartments and their carpet area, and a declaration that he has a legal land title for the project. The promoter must make information, such as the site and layout plans for the project, available to the buyer on entering into a written agreement with him/her. In case a buyer incurs a loss because of false advertising and wishes to withdraw from the project, the promoter must return the amount collected, with interest. The Bill also requires that promoters keep 70% of the amount collected from buyers for a project in a separate bank account. This amount must only be used for construction of that project. The state government can alter this amount to less than 70%. The buyer must make required payments as per the agreement with the promoter, or pay interest for any delay in payment. Registered real estate agents must maintain books of account and facilitate the possession of all documents that the buyer is entitled to. They must not make false claims regarding any of the services offered under the project. The Bill also provides for penalties for the promoters, agents, and buyers, for the breach of certain provisions of the Bill. For example, in case the seller fails to register a project, s/he may be penalised up to 10% of the estimated cost of the project. If a buyer fails to follow the orders of the RERA s/he will have to pay a fine of up to 5% of the property.
What are some of the issues to consider?
The scope of this Bill is limited to contracts between buyers and promoters, and transfer of property. Both these items fall within the Concurrent List of the Constitution, which implies that both the Centre and states can make laws on them. Currently, certain states such as West Bengal and Maharashtra, have laws to regulate real estate. So, the central law on real estate will override the provisions of state laws if they are inconsistent with the central law. For example, while this Bill requires that 70% of the amount collected from buyers be kept in a separate account and be used only for construction of that project, the Maharashtra law requires that the entire amount collected from buyers be used only for purposes collected. So, if this Bill is enacted as a law, it will override the provisions of the Maharashtra law.Typically, the project cost of a real estate project includes the cost of land and the cost of construction. The Bill mandates that 70% of the amount collected from buyers of a project be used only for construction of that project. In certain cases, the cost of construction could be less than 70% and the cost of land more than 30% of the total amount collected. This could result in part of the funds collected remaining unutilised, necessitating some financing from other sources. Consequently, this could raise the project cost in some cases.
What are the issues in the real estate sector that are not covered by this Bill?
Several committees and government agencies have outlined major challenges in the real estate sector. In 2012, the Committee on Streamlining Approval Procedures for Real Estate Projects had noted that up to 50 approvals are required for projects, across three levels of government. These approvals may take up to four years to obtain. It had recommended establishing a single-window clearance system for approvals. With regard to improving the approval process, the Bill allows RERAs to make recommendations to state governments. However, the 2014 standing committee had recommended that RERAs should be allowed to give directions to state governments to establish a single-window system for providing clearances for projects. In a 2012 paper on black money, the Finance Ministry had pointed out that the real estate sector, which constitutes about 11% of the GDP of the country, is particularly vulnerable to black money through underreporting of transaction prices while paying taxes. The Bill does not address the issue of the prevalence of black money in the sector. While the creation of a regulatory body will help address some of the issues in the real estate sector, it remains to be seen whether it improves the process of transactions in the sector.
What is the current status of the Bill?
The Bill was introduced in Rajya Sabha in August 2013, and was subsequently examined by the Parliamentary Standing Committee on Urban Development, which submitted its report in February 2014. In April 2015, the government circulated several amendments to the Bill. A Rajya Sabha Select Committee examined the Bill with the proposed amendments and submitted its report in August 2015. As mentioned above, the Bill was passed by Rajya Sabha on Thursday with some amendments. The Bill, as passed by Rajya Sabha, will now be taken up for discussion in Lok Sabha.
(Prachee Mishra is a Senior Analyst at PRS Legislative Research.)
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