In the case of defaults or delays, the same rate of interest will be levied for promoters as well as buyers. The Bill also seeks to establish fast track dispute resolution mechanism
The Upper House or the Rajya Sabha has finally passed the Real Estate Regulator (Regulation and Development) Bill, 10 years after it was tabled in the Parliament. The Bill has been drafted to protect the interest of consumers and proposes several measures for the same.
With the passage of the Bill, home buyers will finally get what they are paying for — which essentially means builders will now have to quote prices based on carpet area and not super built-up. Additionally, builders will also have to pay penalties if the project deviates 10 percent from the plan. The Bill will also prevent builders from changing the layouts — building plans cannot be changed (now) without consent from 66 percent of buyers.
In the case of defaults or delays, the same rate of interest will be levied for promoters as well as buyers. The Bill also seeks to establish fast track dispute resolution mechanism.
Hailing the passage of the Bill, Rajeev Talwar, Group ED, DLF, said: "It will lead to an efficient industry in the long-term." He also said there needs to be some single-window clearance mechanism. State authorities and housing boards should be brought under the ambit of the Bill and apartment sales should start only after a building shell is complete, he added.
He does not expect prices to increase, going ahead.
Meanwhile, the Confederation of Real Estate Developers' Associations of India (CREDAI), which is the apex body for private real estate developers in India, too welcomed the passage of the Real Estate Bill, and said it will benefit consumers.
Rohit Raj Modi, vice-president, CREDAI, said the finance ministry should grant infra status to housing projects. He also said: "We need more long-term funding options for the housing sector. A large part of financial closure for housing projects is dependent on pre-sales." He, however, added there will be some price adjustments in new projects.
Below is the verbatim transcript of the interview.
Kritika: The bill has been passed at the Rajya Sabha and the upper house have passed the real estate regulator bill. Your initial prima facie comments on this, concerns if any?
Talwar: First of all congratulations, this should be a big step and we respect the wisdom of the parliament as well as the government and we welcome the bill. Of course there are some very stringent provisions which we thought perhaps should not be there. It is a civil industry and therefore provisions of imprisonment should not be there. The threshold for properties has been lowered as the minister said in the Rajya Sabha to 500 square yards which is a very welcome signal. Also what the speaker before we spoke that yes, state authorities and state housing boards should be brought under the ambit of the bill that will happen over a period of time and I am certain.
Secondly there should be somebody made accountable. As the minister spoke about transparency and accountability someone should be made accountable for the time taken for approvals and as some of the honourable members of parliament mentioned that yes, there should be some single window clearance which seems impossible at the moment to identify.
Nayantara: All you developers are very soon going to have to pass on a lot of information to the regulatory authorities because from what I understand this actually has a retrospective effect where it says where you have not got a completion certificate. So, for all your ongoing projects a company like DLF once you have the authority in place is going to have to pass on a lot of paperwork. What I want to ask you is how are you going to assure your consumers watching you now that bureaucracy is not going to get in the way of handing over projects on time?
Talwar: I don't think we should blame anyone as a single authority or single agency which causes delay. The best way out which according to me personally should be the way forward in India is to say that no sale of apartments is allowed till the shell is complete. Because let the buyer see what he is going to buy, let the buyer see what is the product which is going to be finished within a period of three to four years and that is the best guarantee for any buyer and to safeguard his interest and this is something which happens world over.
We should not be selling just on plans and just on paper. We should not be selling on architect's plan. We should be selling a product which is very much visible and that would take some time because the financing system would have to be worked through with the banks which happens for every industry. So, there is no reason why it can't be done in the housing industry whether it is a single building project or whether it is a multiple building project. Banks do finance big factories and banks do finance small factories.
So, I don't think there is any reason to differentiate amongst them but let the consumer be protected totally and that will come from a practical implementation of the idea that yes, let the sales start after the shell is ready because then the investment by the builder would be there, all the approvals will be in place and there would be no reason for anyone to run away from any project.
Nayantara: While it is a red letter day and we all are celebrating this should buyers brace themselves for a price hike because you guys are going to lose fungibility of money given the escrow account. You also have to quote on the carpet area but you will want to make money on all the other amenities and the clubhouses you will be offering?
Talwar: The Budget has done something to provide infrastructure status for affordable housing. This will gradually have to come in because facilities do make a difference and those are already built in into the pricing levels. So, I don't think there should be any increase in prices.
We have seen a decrease in prices to the extent of 35-40 percent over the last 6-7 years but the real reform which should be expected this is, as you rightly said, one more watchdog. There are plenty of watchdogs and this is one more and I hope it functions well. After all it is going to be populated by the same people who were the earlier watchdogs and they should have worked but the real reform which will come in will only be when banking finance gets in and the consumer is shown the product that he is going to buy. In all likelihood that should happen as fast as possible because that is where the reform process starts putting one more watchdog is not the reform that was expected.
Yes, it will certainly provide some protection to buyers and I hope that happens. After all in the last eventuality we are all buyers of property when we want to secure ourselves financially and emotionally. But for the industry to reform there will have to be a reforms package which as you mentioned yourselves will be initiated by the ministry for urban development in Government of India and finally done by the Finance Ministry.
Nayantara: The other thing that I wanted to ask you about that this bill has said to create a level playing field, builders will have to charge the same amount as penalty, interest to penalty that they will be offering in case of project delays. We all know that this is in favour of builders right now, how they would pay only Rs 5-10 a square foot but they demand 18 percent in case a buyer is late by even 15 days. So, are you all now going to get back to your lawyers, re-write your buyer agreements?
Talwar: You are much too well informed that 18 percent which has been flogged almost to death by arguments is a deterrent charge. If people do not delay payments there is no question of charging any interest and if there is a delay it is universal to all the buyers, it is not on a selective basis.
So, while there has been some debate over this and of course this figure is being bandied about it is genuinely not true that all the buyers are charged 18 percent of interest irrespective of whether they pay on time or not. So, to that extent this argument has a fallacy but yes, if it is so said that pay and charge the same amount, why not. Whatever seems fair in the eyes of the public and in the eyes of the parliament should be followed.
Nayantara: I wish all the builders were already doing it?
Talwar: It should be followed. I don't think there is any reason to not follow such simplification of laws.
Nayantara: Given your experience in government as well as at DLF you just heard about how the parliament has decided to go ahead with including commercial real estate. The next challenge really is going to be for states to adopt all of these laws. How apprehensive are all of you that they are going to stick to what is the model act and not deviate too much out of that. While Narendra Modi's government might talk about minimum government, maximum governance how real is the fear that states may not follow that same principle?
Talwar: I don't understand this really because I feel it will be the easiest for states to adopt an act initially and that is what they do. Then probably it will be discussed in the state legislatures and if any local tweaking has to be done it will have to be done perhaps in the area of maybe to increase some provisions, decrease some although it is usually in increasing provisions that one has experience, it is not like the state bureaucracies to decrease some provisions but all the same as far as minimum government and maximum governance goes hopefully if things evolve well then it would lead to many more clearances and much more scrutiny which is the real time scrutiny and perhaps irrespective of individuals it can be technology based and clearances can also be technology based. So, it may lead to a much more efficient industry in the long run. In the short run maybe we will see a lot of human interventions and thereby some slowing down but one has to just wait and see how readily states are to adopt such model acts and how quickly they can tweak it to local conditions.