The proposed real estate law cleans up parts of the corruption chain. And it leaves several parts untouched.
Hidden charges, delivery delays, broken promises, vanishing builders…Such frustrating, black episodes while making what is, arguably, the purchase of a lifetime for most people would have been history had an obvious piece of legislation come through. Instead, a real estate law has been in the making for about a decade as an idea and for the last three years as a draft.
The Model Real Estate (Regulation of Development) Act is, strangely enough, being made for a sector that touches the life of every Indian. Despite being a subject of scorn and a source of torment, real estate has so far been governed by a patchwork of regulations that promote arbitrariness in doing business and leave plenty of wriggle room for offenders.
It’s why Deepak Parekh, chairman of HDFC, India’s largest housing finance company, asserts it is “absolutely essential” to have a real estate regulator. “The absence of a regulator is the root cause of corruption, anxiety and malpractice,” he says.
“It will be the regulator’s job to ensure builders follow rules, deliver the quality and take them to task if they fail to deliver.” It’s why there is so much riding on this law. It could make builders accountable to buyers. It could pressure the government to become accountable to builders. The operative word here is ‘could’.
The Bill is in its third iteration and even the minister in charge isn’t willing to commit to a date. “The scope of the Bill is under deliberation and no timeframe for its firming up can be assigned at this stage,” Kumari Selja, the union minister of housing, informed the Rajya Sabha on March 9. Given the bureaucratic journey of a law, this one will take at least a couple of years. And given what is at stake for the rich and the powerful, it is likely to be longer.
A senior housing-ministry official who is working on the Bill says the ongoing deliberations centre around two issues. The first is whether and how to enact a law to govern something that is the domain of states, land is a ‘state subject’, and laws vary from state to state.
“The re-drafted bill will mean the Centre taking up its role as regulator,” he says. “There is a need for a single legislation,” adds PA Ananthanarayanan, chief executive officer of Universal Dwellings, a start-up realty firm. The third draft is being proposed as a Central law, which means the same set of rules apply to all of India.
The second issue relates to its contents, which attack only one link of the real estate corruption chain: builderbuyer. It is silent on the other two links: government-builder and buyer-govern ment. “There is no accountability on the part of bureaucrats to dispose off applications,” says Navin M Raheja, chairman and managing director of Delhi-based Raheja Developers.
“And this Bill won’t change that.” The ministry official says there was “no political pressure”. A leading builder, speaking on conditions of anonymity, laughs it off. “Policymakers are close to developers. Many of the people involved in the sector are making laws,” he says. “So, they would resist any change that takes away their powers.”
REGULATORY AUTHORITY
The bill can be broadly divided into three parts. The first is the creation of a regulatory authority: the Real Estate Regulatory Authority. Before a builder begins selling a project, it will have to register it with the authority. Since the authority will clear a project only if the builder has all approvals and a clear land title, this will ensure a buyer is not gypped on this count.
At present, it is common for builders to sell a project while waiting for approvals. In other words, to the 50-60 clearances they already have to negotiate, builders will need one more overarching stamp of approval. Builders shudder at this thought. “The sector is already shackled with so much red tape,” says Sunil Mantri, president of the Maharashtra Chamber of Housing Industry. “Please don’t add one more (layer).”
The Bill seeks to address that concern with a concept called ‘deemed approval’. This essentially says the authority will have to decide on a builder’s project application within 30 days. If it doesn’t, the project will, by default, stand approved. This is a naïve reading of the way things work in this sector, says a promoter of a Rs 500 crore real estate company, not wanting to be identified.
“Bureaucrats will find ways to harass developers,” he says. “They will sleep on the file for 29 days. On the last day, they will raise a small objection or cite some missing information.” He points out that deemed approvals don’t work in India, with authorities cancelling many such clearances at a later stage. Instead of creating another layer of regulation, the Confederation of Real Estate Developers’ Associations of India (Credai), an industry body, wants the government to focus on the previous.
BUILDER GROUSE
As yesterday’s story showed, the cycle of corruption and black money starts from clearances issued by various government and municipal authorities. The choice for builders is to pay bribes or endure a wait. “If you are paying money, it doesn’t take two years,” says a large Delhi-based builder. “Builders get it (approvals) in two to four months. But it adds 20-30 % to the project cost.”
The Bill does not attack this link in the corruption chain. The regulator will have no powers over state bodies or municipalities. “A statutory body like a sector regulator has no powers over a constitutional body like local authorities,” says the ministry official. It’s why Parekh of HDFC feels a regulator is needed, but “there should be a single-window clearance for all required approvals”.
THE LONG WAIT
Consumers, though, won’t mind lesser flexibility for builders. It’s they who have borne the brunt of corruption in the sector, putting up with builders who first abuse their privilege of selfregulation and then resist attempts at external regulation. The first part of the Bill, the authority, ensures buyers don’t have to worry about legalities like land title and approvals. The second part is designed to make builders accountable t ..
It has something called a ‘form of agreement’, which is essentially a 10-point listing of the disclosures and commitments a builder has to make to a buyer. Bizarrely, there has been no such standard disclosure requirement or format for builders so far.
The third part of the bill looks at redress. It tries to correct the builder skew in this aspect of the engagement. The regulator will take up disputes between buyers and promoters, which are currently fought in the lowest of the three rungs of civil courts. A Real Estate Appellate Tribunal will also be set up, where appeals against the authority’s decisions can be made. A High Court judge (current or retired) will head the tribunal. Further appeals will be heard in the High Court and the Supreme Court .
Credits – Click here to read more at: