Real estate bill: Transparency to boost consumer confidence
The real estate (Regulation & Development) bill will improve buyer confidence and boost demand for residential real estate. The Bill will incorporate mandatory disclosure clauses, which would provide greater clarity on the project standards and timelines for completion, says CRISIL Research.
June 07, 2013 / 21:02 IST
CRISIL Research's impact note on real estate bill
This impact note is based on information currently available on approval of The Real Estate (Regulation & Development) Bill, 2013 by the Union Cabinet on June 4, 2013. This Bill seeks to create a regulator for the real estate sector to protect interests of buyers by providing a uniform regulatory environment. The Bill, which shall oversee only the residential real estate sector, will be presented during the monsoon session of the Parliament, in August 2013. The Bill necessitates establishment of one or more real estate regulatory authorities in every state/UT, to oversee real estate transactions.Key pointers on the policy:- Mandatory registration of projects with plot areas of 4,000 sq m or more. All clearance documents to be submitted to the regulator before the construction activity commences.
- Registration of real estate agents with clear responsibilities and functions
- Strict legislation against releasing misleading ads
- Projects to be launched only after securing all statutory clearances
- Sale of flats only on a 'carpet area' basis and mandatory disclosures to be made on facilities/amenities provided on the regulatory authority's website
- Separate escrow accounts for all the projects
- Builders to refund payments with interest to buyers, in case of delays
- Establishment of the Real Estate Appellate Tribunal to ensure faster resolution of disputes
Overall impact: The Real Estate (Regulation & Development) Bill will improve buyer confidence and boost demand for residential real estate. The Bill will incorporate mandatory disclosure clauses, which would provide greater clarity on the project standards and timelines for completion. For developers, while this bill implies stricter regulatory control, it will also translate into better demand, as buyer confidence improves. In terms of supply, delays in handover of projects are likely to decline as clauses mentioned in the Bill mandate strong commitment from developers to complete projects as per schedule.Mandatory registration of projects with a regulator
The Bill proposes that all residential projects with plot areas of 4,000 sq m or more need to be registered with a regulator, which will be possible after the developer submits all necessary clearances. This clause is expected to impact developers in all major cities, except in case of Mumbai, where the Bill will have limited impact due to smaller plot areas. Developers also need to disclose details on the carpet areas of all flats, layout plans, plans of development works, and the architect and structural engineers.The Bill also mandates registration of real estate agents with the authority, to ensure that agents only facilitate sale of registered properties.Misleading advertisements to attract punitive action
The Bill seeks to safeguard buyers against misleading advertisements, pertaining to the quality of services or amenities provided and approvals/affiliations that the developer has not secured. Buyers, affected by such misleading advertisements, will get a full refund of the money deposited, along with interest in case they intend to withdraw from the project.Buyers to be safeguarded against pre-launch schemes
Pre-launch schemes are offers where the developers 'soft' launch their projects to a select group of buyers, typically priced at a 5-15 per cent discount to the launch prices. However, these investments carry a substantial risk, as projects at that stage may not have received all required approvals. The Bill seeks to protect interests of buyers by incorporating a clause that projects can be launched only after the developer secures all statutory clearances from relevant authorities. Authorities, on the other hand, will have to approve or reject projects within 15 days from the date on which the developer submits documents.Concept of 'super built-up area' on the way out
The Bill directs developers to sell their properties only on a 'carpet area' basis, thus doing away with the ambiguous concept of 'super built-up area'. Carpet area is the actual net usable floor area of a residential unit and does not include the area covered by walls, whereas the super built-up area is the built-up area (carpet area + wall breadth) in addition to the proportionate area of common areas, such as the lobby, lift shaft, stairs, etc. Thus, buyers will get clarity on the actual livable area that they will get, on receiving possession of the flat.Stricter adherence to completion timelines
The Bill mandates that "70 per cent or such lesser percentage, as notified by the appropriate state government" of the money raised for a project should be deposited in a separate account. By ensuring that developers do not divert funds meant for a particular project to their other projects, the Bill seeks to curb delays in project completion, due to shortage of funds. The Bill also protects buyers against project delays by requiring that developers refund the amount paid along with interest in the event of a delay. Both these factors are expected to ensure timely completion and handover of projects to the buyers.Disclaimer: CRISIL Limited has taken due care and caution in preparing this Report. Information has been obtained by CRISIL from sources, which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL Limited has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this Report. The Centre for Economic Research, CRISIL (CCER) operates independently of and does not have access to information obtained by CRISIL's Ratings Division, which may in its regular operations obtain information of a confidential nature that is not available to C-CER. No part of this Report may be published / reproduced in any form without CRISIL's prior written approval.
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