Realty Bill to push up property prices by 40-50%: Brigade

The Cabinet on Tuesday finally approved the Real Estate Regulatory Bill after reviewing it for the second time. It mandates developers to keep 70% of the buyers’ funds in a separate bank account (escrow account) to ensure that money is used for that project itself and is not diverted for execution of older projects or debt reduction. Launch of new projects can be announced only after getting all relevant clearances and pre-sale launch without regulatory approvals is also restricted now.

MR Jaishankar, CMD of Bangalore based realty company Brigade Enterprise favours these moves, but feels they will push liquidity needs of developers up and translate into a cost addition of nearly 3-4 percent. To stop misuse of buyer’s money periodical inspections by authorities is a must. If another institution is set-up to regulate funds, developers will have to shell out additional fees, which will again add to the cost and will consume more time, he adds. This bill in the present format has been drafted only from the perspective of developer- customer relationship, but it should have a wider purview and should also cover development and acquisition aspects, Dhawal Mehta of Wadia Ghandy & Co said. Developers will have to sell property based on the carpet area. But, according to the Income Tax Act, a built-up area for any realty project includes thicknesses of walls of that building but, carpet area does not include wall’s thicknesses. Given this confusion on the definition of carpet area, measurements should have been given based on the built-up area than carpet area, adds Jaishankar. One of the key negative of this bill like any other bill is that it will have a cost push effect."Realty prices will rise by another 40-50 percent going ahead, but not because of this act alone. Also, if a space is sold on super built-up area or carpet area basis, even if the total value remains the same, on a square foot basis the cost will go up," he explains. Though there are constraints in acquiring land, getting regulatory approvals and starting a new project, Jaishankar doesn’t see real estate supply drying up in next one or two years. But, with restrictions on pre-launch sales and pre-launch bookings now, marketing of projects may slide. Projects which don’t have all the required regulatory approvals will have to wait before approaching customer, but this is positive step, he adds. No extra cover for realty consumers The new act aims to bring uniformity in the entire Indian real estate sector, but the Maharashtra Ownership Flats Act (MOFA), existing in the state for the past 40 years already covers many aspects of the Real Estate Bill. One now needs to see if these provisions get incorporated in the bill as well, Mehta adds. However, he feels real estate consumers even now are protected. The focus needs to be on effective enforcement mechanism of consumer rights. Passage of this particular bill won’t add to any further consumer protection. Even if another authority is appointed to regulate the sector, it will add more bureaucracies in the development process – getting approvals, monitoring the project and adjudication of disputes, which will again delay the whole process, he adds.