New Delhi : The changes approved by the cabinet in the real estate bill are seen as making the provisions stronger to protect the interests of property buyers while also easing some norms for the developers, experts said Wednesday.
Some of the changes brought to the original Real Estate (Regulation and Development) Bill, 2013, include the inclusion of commercial real estate within the ambit, as opposed to just residential projects and the lowering of the minimum amount against advances to be held in a neutral account.
Another addition is the inclusion of brokers and agents under the proposed legislation’s purview, effectively rendering them punishable in case of non-compliance with the rulings of the watchdog and the dispute settlement tribunal.
“The reduction of minimum balance to be maintained in the escrow account of a project has been reduced from 70 percent to 50 percent. This amount from money collected from buyers must be held in an escrow account within 15 days,” said Anuj Puri, chairman of realty consultancy JLL India.
“This provision will effectively allow developers to continue their practice of diverting funds collected for a project towards land acquisition or other projects, and will work in their favour by also allowing them to grow their land and project portfolio,” he said.
“However, the 50 percent mandate will still place enough restriction on the developers to divert funds elsewhere and ensure better completion records.”
The markets also gave a thumbs up to the proposed changes. The real estate index of the Bombay Stock Exchance (BSE) rose some 2 percent on Wednesday, with 11 scrips that constitute it logging gains and only two in the red.
Realty was also the best performer among the 12 sector-specific index of the bourse.
According to Anshuman Magazine, chairman and managing director of CBRE South Asia, another real estate services company, changes approved by the cabinet at a meeting chaired by Prime Minister Modi were a welcome move and would facilitate further investment into the real estate sector.
“Though the fine print has to be read, I hope the bill is balanced enough not to deter developers from starting new projects and allow new players to come in to increase competition and further improve the quality of product and services,” Magazine said.
The changes proposed also dilute the authority vested by the legislation in that the regulator and agencies to be set up under the proposed new legislation will not be the sole recourse to address the grievances of customers, and would allow petitions before consumer forums.
“It was correctly pointed out that such a stance could lead to pressure on this regulatory body in terms of an increased log of cases, though it would certainly reduce instances of multiplicity of suits,” said Puri.
“This clause has been done away with in the version that the cabinet has cleared. So customers can seek recourse with consumer courts and forums as well.”
The changes also place responsibilities on the stakeholders on projects that are yet to receive their completion certificates, allowing them to be covered under the proposed new law. This new provision will allow a bigger umbrella of coverage for buyers and investors, experts said.
They were also concerned about the proposed new legislation continuing to exempt the government and its agencies that have slow clearing processes, contributing much to overall delays. This was an issue that needed to be tackled, they said. This apart, some definitions also caused concern.
“There are few areas of concerns which the government should look at. One, wilful default must be defined in the bill in order to remove discretion,” said Rohit Raj Modi, president, Confederation of Real Estate Developers’ Associations of India, the apex representative body.
“Urban local bodies and development authorities should be brought under the ambit of regulators, since the process of issuance of certificates is under their control,” said Modi. But there was unanimity on one count: It will facilitate more investments, notably from overseas.
According to data released by the Department of Industrial Policy and Promotion (DIPP), India’s construction development sector received foreign direct investment inflows of $24 billion between April 2000 and December 2014.
Various studies estimate that the country’s realty industry, which is the second largest employer after agriculture, will log a growth of over 30 percent over the next five years to top $180 billion in revenues by 2020.
The note for the cabinet said the real estate and housing sector was largely unregulated and opaque in India with consumers often being unable to procure complete information, or to assign accountability against developers in the absence of effective regulation.