Realty bill – pros and cons…

The good news: India’s cabinet has cleared a much-delayed real estate regulation Bill that is expected to help consumers move towards an accountable, transparent and fair deals in a sector notorious for delays, shortchanging, overpricing and worse.

 The bad news: It still leaves room open for unforeseen problems of the kind we have witnessed this year in the floods that have ravaged Chennai.

As parliament gears to consider the Bill, perhaps it may be wise for lawmakers to see how approvals wrongly granted before a project takes off create huge long-term problems, for buyers and cities as a whole. It is better to be forewarned and forearmed.

There is no doubt the Bill passed for parliamentary consideration is a step in the right direction in an industry where builders are known to take the money from unsuspecting (usually middle class) buyers and then making them pay in so many ways – in time lost due to delays, higher interest payments on home loans, missed quality specifications and other aspects that violate the letter or spirit of purchase agreements.

The Real Estate (Regulation and Development) Bill, 2015 will create state-level regulatory authorities to whom buyers can complain. The authorities will be empowered to punish or prosecute developers. The winter session of parliament, which is already in a logjam over political tussles, seems to have slim chances of considering it. The Bill, first introduced in Rajya Sabha in 2013, has crossed a select committee and the new version is a reworked one.

In a separate legislation the housing and poverty alleviation ministry has prepared a Model Tenancy Bill, expected to be placed before the cabinet, that is aimed at an authority to register tenancy agreements with a special court to consider disputes.

Both these laws, if they come to existence, can encourage foreign direct investment (FDI) into a sector in which all said and done, a huge demand exists despite a current slump, though exorbitantly handsome profits may be a thing of the past for builders.

But here’s the fly in the ointment. Recent floods in Chennai and studies in various cities, especially Chennai and Bangalore, show that pressures on space have led to approvals for real estate projects in defiance of environmental objectives. Marshlands and lake beds have given way to apartment blocks. While these homes may be perfectly well-built and legal, how about roads, sewerage and drainage that are critical? As it turns out, even public health emergencies can result from shortsighted approvals. Perhaps the environment ministry and the housing ministry need to work together on this.

Last August, the environment and forest ministry finally approved a notification to define an ecologically-sensitive zone around Delhi’s Okhla bird sanctuary, giving a sense of relief to at least 90,000 home buyers in nearby Noida after the National Green Tribunal ordered that projects in a 10-km radius cannot be given completion certificates.

More than 70,000 buyers were affected by two NGT orders that stopped construction, while another 20,000 home buyers could not take possession of completed homes.

The NGT was basing its views on wildlife regulations put in place more than a decade ago and a subsequent Supreme Court order, but flat buyers in many projects froze on their tracks. They would have never guessed the regulatory threats faced by their would-be homes. Can authorities move to make sure such unforeseen risks are not faced by consumers?

Under the new realty Bill, an escrow account (a common parking place for funds) will be used to make sure that builders do not rob consumer Peter to pay Paul — or liberally use funds for speculation. While this will aid consumers, single-window clearances for projects, digitisation of records and grading of developers may help create a culture of quality in the sector.

Buyers delaying payments and builders delaying hand-over of properties did not share same penalties thus far. Now, they will be made equal. Consumer courts will now be able to hear real estate disputes. Builders, apart from disclosing various details on architecture and engineering, cannot change designs or plans without approval from consumers.

But controversial environmental approvals may be a looming issue in future, unless steps are clearly made – because the real estate industry is often treated in isolation from larger urban issues including traffic, cleanliness and provisions for water and clean air.

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