» Business » How the Real Estate Bill will ease home-buying experience

How the Real Estate Bill will ease home-buying experience

By Kishorkumar Balpalli
April 29, 2016 09:09 IST
Get Rediff News in your Inbox:

The Bill comes at a time when prospective home buyers are avoiding under-construction projects, almost everywhere in the country, thereby drying up sources of interest-free funds for debt-ridden developer firms

The long-awaited Real Estate (Regulation and Development) Bill (2016) was passed in the Lok Sabha on March 15, paving the way to set up a regulatory mechanism for the real estate sector, and to secure the rights of homebuyers.

It earlier got the Rajya Sabha’s nod and has now been sent to the President for necessary approval, following which, it will become a law. The Bill was pending since 2013 and has undergone several amendments. It is expected to usher in accountability and transparency in the real estate sector, increase customer confidence, and benefit the industry as a whole.

Salient points

Following are some of the key features of the Bill.

  • The Real Estate Bill would regulate transactions between the buyers and promoters/developers of real estate projects. It aims to set up a Real Estate Regulatory Authority (RERA) in each state and union territory to monitor the sector and oversee property transactions.
  • The Bill will cover both residential and commercial real estate projects.
  • It will make registration compulsory for both real estate agents and projects with the authority. The Bill states that all builders must disclose details of registered projects, including information about the promoter, building plan, municipal approval, land status, architects, contractors, structural engineer, and agreements as well as details of the real estate agents.

All information must be uploaded to the RERA website in respective states. Real estate agents also have to register with RERA. Even projects under construction have to be registered with the authority.

  • The Bill seeks to get fast track dispute redressal through appellate tribunals and adjudicating officers in every state. It bars civil courts from taking up matters that falls under the tribunal’s jurisdiction.

    Consumer courts, however, have been allowed to hear real estate cases. India has 664 consumer courts. A greater number of grievance redressal avenues would mean lower cost of litigation for appellants. It will also reduce the number of cases in conventional courts that are already overburdened with pending matters.

  • If the promoter or developer doesn’t register the property, then he/she has to pay 10 per cent project cost as a penalty. They are liable to imprisonment of up to three years and/or an additional 10 per cent fine of the project cost in case of evading RERA orders or summons.

    For violating other provisions of the proposed act, the builder would have to pay up to 5 per cent of the project cost. Fine for the agents is Rs 10,000 per day for the entire period of violating any provision.

  • Builders can’t advertise or sell their homes till they have all project approvals in place.
  • The Bill, when it becomes an Act, would bolster customer confidence because it will bring transparency to the sector. The slowing down of home sales is having its effect on the economic revival.

The Bill aims to restore buyer confidence on builders. Home sales reportedly declined 4 per cent in 2015, with about 700,000 units of unsold inventories.

The Real Estate Bill sets a firm foot on the sector and would be its foundation in the coming years. With the changing skylines in Indian cities, the Bill covers various issues like developing and redeveloping, thus ironing out many problem areas.

Why a regulator?

With no regulator for the real estate sector and the reluctance of the average Indian middle class buyer to involve in long legal battles, many builders for many years, took hapless customers for a ride. Projects were inordinately delayed and arbitrary changes to plans were commonplace. Deviation from the original building plan and poor construction quality was also common.

There was also manipulation in the ratio between the super built (common areas like staircase, corridor, lift etc.) and the carpet (net usable square feet inside the house) area. The new Bill mandates area to be calculated in terms of only the carpet area.

Moreover, developers used to get away with delayed handing over of possession. This was often done clandestinely by inserting clauses in thick agreement papers, replete with legal terms that buyers never cared to read or understand. Besides, money collected from one project was channelled to another, or towards speculative land deals, jacking up property prices, and finally making homes unaffordable.

Given the circumstances, the need was felt to regulate the sector. Experts say that setting up the regulator is a step in the right direction.


Here’s how the Bill is expected to impact the sector.

At the micro level

Many homebuyers have complained of a raw deal, particularly regarding the lack of transparency in the sector. The Bill - after becoming an act - mwould empower them. They would become more confident which will help the sector to grow in the long-term.

Timely completion and delivery: Delay in project completion, as already said, is one of the major issues that plague the real estate sector.

In residential property markets, three to four year delays, is a largely accepted norm. In some cases, the delay often stretches to more than seven years. Over-leveraging by developers is the main cause in such cases.

Promoters/developers, under the new Bill, would now have to deposit 70 per cent of the collection from buyers in a special account which is only to be used for that particular project. If the promoter has already incurred the land cost, he/she may withdraw the amount to that extent.

Level playing field: Rights of both the buyer and the developer, as of now, emanate from the sale agreement. In most cases, these agreements are heavily biased towards the developer. For instance, interest on delayed payments on part of the buyer, is often as high as 18 per cent.

However, compensation to buyers, in case of delayed handing over of possession is awfully and lacks uniformity across contracts.

Going forward, both buyers and developers would have to pay the identical rate of interest, regarding any delay on their respective part.

This means developers must handover possession on time and conform to the quality standard pledged before the regulatory authority during registration.

Better quality: Some developers, to avoid issues of construction defects and promote fair trade practices, provide a 1-3 year warranty on structural damages. The Bill extends the period to five years from the date of handover.

Majority decision to prevail: A developer can’t carry out additions or alterations to the sanctioned plan of the building, including the common areas, sans the approval of at least two-thirds of the customers. This provision in the Bill would ensure that the buyers get exactly what they have paid for, and also have a say in the revision of the plan.

But the provision to obtain the consent of two-thirds of the owners could lead to delays. They may raise unnecessary objections that could even lead to legal proceedings.

This could be a problem where the two-thirds decision doesn’t affect the premises or apartments already sold and the common or open areas.

Problems may also arise where the plan allows to construct more buildings, in compliance with the building rules or the construction bylaws and the relevant laws of the municipal corporation.

At the macro level

The provisions in the Bill would undeniably make home buying much easier. The biggest scoring point is that it’s legally enforceable. But on a bigger scale, the Bill may have repercussions on the entire real estate sector.

In India, the real estate sector is largely unregulated and non-transparent. Most of the stakeholders operate in their own comfort zone. This is especially true among developers.

The absence of a regulator was the main reason behind the situation. But now with a regulator in place, the sector would be more efficient and property prices would become more rational. Most importantly, the regulator would ensure malpractices are weeded out in a timely manner.

What now?

The Bill comes at a time when prospective home buyers are avoiding under-construction projects, almost everywhere in the country, thereby drying up sources of interest-free funds for debt-ridden developer firms.

The Bill would also ensure that speculators, land grabbers and fly-by-night operators are sieved out. This will lead to fewer but genuine competitive firms bidding for the limited supply of land.

It would also check land prices. There’s likely to be a steady increase in the number of homes because of timely completion of projects.

All these are likely to bring down apartment prices and fuel demand. It’ll be good for the economy as a whole because the real estate sector has both backward (steel, cement, and other building materials) and forward (interior decoration, electrical accessories, furniture etc) linkages with other industries.

However, it will take some time for the act to come into effect and for the regulator to become a reality. Each state will then study the law and take time to constitute the tribunal. Builders of under-construction projects would try to impress the state to not bring ongoing projects under the Bill's ambit. But it can be safely said that the realty market is headed for better days.   

Photograph: Danish Siddiqui/Reuters

Kishorkumar Balpalli has over a decade's experience in financial services and is the founder & CEO of

Get Rediff News in your Inbox:
Kishorkumar Balpalli

Moneywiz Live!