Builders unhappy with the provisions of real estate regulatory bill

MUMBAI/BENGALURU: Real estate developers have slammed the government’s proposal that builders must maintain 70% of projects’ sale proceeds in an escrow account with retrospective effect.

Under the Real Estate Regulatory Bill 2015, cleared by the Cabinet on Wednesday, developers are expected to adhere to this condition even for their projects currently under construction.

“They have included under-construction projects also. It is a nightmare. Also escrow money limit has increased from 50% to 70%. This will lock the cash and make builders more leveraged,” said Irfan Razack, chairman of Confederation of Real Estate Developers Association of India.

The builders will be forced to pass on the increase in cost to the consumers, who will have to pay more money for the same property, said Razack.

Experts and home buyers have hailed the bill, though, for offering protection to consumers. Among other amendments, the promoters can be imprisoned for up to three years and real estate agents and buyers for one year, or slapped with monetary penalties, or both, for violation of orders of the appellate tribunals.

More than this provision, however, most developers expressed surprise on the requirement to arrange liquidity for maintaining the escrow accounts for their projects under construction.

“We were prepared for 50% to be maintained in the escrow, and now suddenly we are being asked to maintain 20% more. Big developers will still manage this additional liquidity somehow, but how does a small developer get this going?” asked a developer operating in Mumbai’s suburbs. But experts said the developers need not be too concerned about the new provision.

“In the short term, developers will feel the pinch particularly because of its retrospective effect for maintaining 70% of project proceeds in an escrow account. However, this is a win-win situation given that developers have been anyway focusing on completion of ongoing projects. There’s more traction among consumers today for projects where construction is well underway,” said Chintan Patel, partner deal advisory, real estate and hospitality at KPMG India.

The bill is expected to create a much-needed consumer rights protection umbrella for home buyers, thereby increasing consumer confidence and creating developer brands that will be known for quality and timely delivery of projects, experts said.

It will have far-reaching positive consequences for the sector in terms of its operating procedures while creating a comprehensive consumer redressal mechanism, they said.

However, they expressed surprise that unlike other sector regulatory bills including telecom, ports and electricity, the real estate regulatory bill is silent on the key factor of pricing.

“Apart from delivery of projects, what bothers consumers, who the bill is trying to protect, the most is unbridled price rise and the bill is not even talking about it,” said Chandrashekhar Prabhu, an urban planning and housing expert.

Developers also said that the bill could have included other important stakeholders as well.

 

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