To provide a safety net to buyers and investors, the Union urban development ministry has drafted a proposal in the Real Estate Regulatory and Management Bill that will require developers to submit a performance bank guarantee.

The guarantee will be a certain percentage of the project value and will have to be deposited with authorities like the proposed real estate regulator. If the proposal is accepted, private builders will no longer be able to delay project completion and delivery indefinitely and without consequences.

"We are working out a model under which real estate developers will have to apply for permits for their various projects and the performance-based financial guarantee will depend on the project size. The exact proportion of the guarantee to the project value is currently under discussion," said a senior official in the urban development ministry.

The financial guarantee will be forfeited if the builder fails to complete the project on time and encashed by the regulatory authority to bail out investors and buyers.

Typically, such guarantees are extended by banks and financial institutions and involve an annual interest charge. In case of a forfeiture, the company will have to repay the bank the guarantee amount.

This model would be a part of the Real Estate Regulatory and Management Bill, which the ministry hopes to first implement in Delhi and subsequently urge states to adopt. The Bill aims to create a policy architecture that makes all stakeholders in the real estate business accountable.

The provision will come as a major boon for buyers of private developer properties. Unlike state bodies like the Delhi Development Authority or Noida that allot flats only after they are complete, private developers pre-sell apartments and promise delivery in 24-36 months.

Since home loans factor in the delivery time, delays cost buyers dear in terms of pre-EMI payments. "The Bill will also have measures to return consumers' money if a builder fails to develop projects," said the official.

He said that permits could also be revoked in extreme cases. "Let us say that a builder has developed only 20 per cent of the project by the delivery date. We could then have provisions to cancel the permit. Whether the project can be handed over to another developer is still to be finalised," he said.