The Real Estate (Regulation & Development) Bill, 2011: A step towards greater transparency in the Real Estate Sector?
India is one of the emerging markets for real estate in India. In terms of employment, the real estate sector is second only to Agriculture. The Economic Survey of 2010-11 states that the GDP from the real estate sector along with business services witnessed a growth of 7.5 per cent (at constant prices) in the year 2009-10. In terms of share, it accounted for 9.3 per cent of the GDP in the year 2009-10.’ The real estate sector is undoubtedly a major driver of the nation’s growth and an important contributor to the nation’s GDP.
Nevertheless, this sector suffers from a number of challenges which hamper its healthy growth and development, and consequently the economy of the nation. The primary concern today in the Indian real estate sector is its extremely opaque nature, and absolute lack of transparency. Lack of proper regulation has resulted in the sector transforming into a hub for black money and corruption. There is an urgent need for the opening and regulation in a way which instils transparency and operational clarity into the real estate sector.
It is with this objective that the Central Government has come up with The Real Estate (Regulation & Development) Bill, 2011 and has recently tabled it in Parliament. The Bill is an attempt to regulate and ensure planned development in the real estate sector by efficient and transparent sale of immovable properties. This is sought to be done, inter alia, by the establishment of a Real Estate Regulatory Authority (RERA) and an Appellate Tribunal, namely the Real Estate Appellate Tribunal (REAT) for speedy resolution of disputes.
However, there are certain defects in the Bill which unless addressed, are likely to cause the Bill to fail in achieving its purpose. As shall be discussed in the following paragraphs, the Bill needs to attend to certain vital issues in order to avoid becoming just another regulatory body resulting in addition to the existing sea of red tape.
Real Estate Transparency Index for Asia Pacific 2012:
India still lags behind in comparison to other Countries in the Asia Pacific.
||China Tier I
||China Tier II
||India Tier I
||India Tier II
||India Tier III
||China Tier III
Source: Global Real Estate Transparency Index, 2012
Objective of the Bill:
As mentioned earlier, the primary motive behind the drafting of this bill has been to introduce transparency and effective regulation in the real estate sector. The objectives of the Bill are:
· Regulation and planned development in the real estate sector;
· To ensure sale of immovable properties in an efficient and transparent manner;
· To protect the interest of consumers in the real estate sector; &
· To establish an Appellate Tribunal to adjudicate disputes and hear appeals from the decisions or orders of the Authority and for incidental/connected therewith. The key aspect of this Bill, as incorporated under Section 17, is the establishment of a Real Estate Regulatory Authority (hereinafter ‘the Authority’). This Authority shall be a body corporate with powers, subject to the provisions of the Act, to acquire, hold and dispose of property, to enter into contracts, and may sue or be sued. The Authority would have the following functions, inter-alia, as per Section 29 of the Bill.
Section 29 of the bill, inter alia, talks about the various functions of the Authority such as advising the appropriate governments in matters relating to the real estate sector, publishing and maintaining a website of records of all real estate projects, fixing the standard charges to be levied on allottees by the promoter or the association of allottees, ensuring compliance of the obligations cast upon the promoters and the allottees under the Act and to make inquiries regarding the same.
Thus the Act provides for many functions of the Authority to promote transparency and clarity in the Indian real estate sector. It further ensures ease of access to information by providing for the creation of an online database so that any person may have access to all relevant information at the click of a button. Section 3 of the Bill mandates the promoter to obtain certificate from the Real Estate Regulatory Authority, for carrying out the development of any immovable property, making/altering construction, or conversion of any existing underdeveloped property. However registration is not required under in cases where the area proposed to be developed is less than 4000 sq. meters (or an area notified by the Central Govt. in consultation with the State Government), the promoter has received due permissions prior to the commencement of Act, or renovation/repair does not involve re-allotment & marketing of immovable property. Thus, all promoters would have to first get a certificate of approval from the Authority, only then would they be able to carry out any development work on any immovable property. However, it is important to note that registration would not be required for the development of an area less than 4000 sq. meters.
The Bill provides for punishment for non-registration, the same attracting heavy fines of up to 10% of the project amount or even imprisonment up to 3 years. It is pertinent to note that the Authority is empowered to revoke the registration of a promoter suo-moto or upon the recommendation of competent authorities on the grounds laid down in the Bill. It is thus clear, that harsh punitive measures and heavy fines have been resorted to ensure compliance of its provisions. The Authority also has the power to revoke registration of promoters’ suo-moto, i.e. on its own motion on grounds laid down in the Bill.
The Draft Bill provides for the establishment of a Real Estate Appellate Tribunal under Section 35. This Tribunal would be the appellate body for disputes arising within the real estate sector and for appeals against decisions of the Real Estate Regulatory Authority. Further appeal would lie to the Supreme Court on the various grounds mentioned under the Bill. Thus the Bill aims at creating a hierarchy of courts on the lines of other regulatory bodies such as TDSAT, or the CCI, thereby creating a system of specialised courts to resolve disputes in the real estate sector.
A final notable feature of the Real Estate Bill is the Central Advisory Council, which is to consist of, among others, representatives from the Government as well as the real estate industry. The function of the Central Advisory Council shall be to advise the Central Government on all matters pertaining to the real estate sector.
An analysis on the effectiveness of the Real Estate (Regulation & Development) Bill, 2011:
Although a much needed piece of legislation, there are several aspects of the bill which seem to lack the application of common prudence. Some of the provisions which may have a backfire effect and render the Bill unenforceable and redundant are the following:
Under Section 2 (c) of the bill, “open spaces” are included under the definition of "apartment". In effect, this means that once the bill is passed, builders will be legally entitled to sell the open spaces (such as parking spaces, terraces and private gardens) for independent and private use. At present, as per the interpretation of law by the Supreme Court, the sale of open spaces by a builder is illegal, as the land and other open spaces would belong to the society. However, the new law will help builders overcome this well-reasoned judgment till another interpretation is provided by the courts and profiteer by selling the open spaces.
Another problematic provision of the proposed Bill is Section 3, which provides that a builder must compulsorily be registered with the real estate regulatory authority for plots measuring 4000 sq. metres or more. Most of the buildings are constructed on smaller plots. Hence a large number of developers, operating in tier II and tier III cities, will not come under the ambit of this Bill, which means that a majority of the buyers will still remain vulnerable. Unless the area of 4000 sq. meters is brought down to a more reasonable 1000 sq. metres or preferably set in terms of the number of residential units rather than the area of development, the Bill shall fail to regulate a majority of builders and developers in small towns across the country.
Section 18 of the bill provides for establishment of a Real Estate Regulatory Authority, comprising of one chairperson and two members. The law does not mandate the appointment of any judicial officer on the authority. Thus, both the composition of the authority and its strength of three members will be inadequate to cope with the construction and development projects being carried out throughout its jurisdiction. Similarly, it is unlikely that the real estate appellate tribunal comprising nine members, to be constituted under Section 35, will be able to set up Benches throughout the country to deal with disputes. Accessibility to the redressal mechanism will become more difficult and costly, thus affecting the consumer.
Section 46 provides that the order of the tribunal can be enforced like the decree of a civil court, thus making the proceeding, lengthy, cumbersome and costly. Unlike as in the consumer forum, the Authority or the Appellate Tribunal under the new bill will not have the power to adopt penal proceedings /criminal prosecution for non- compliance. Such proceedings would have to be initiated by the Authority or Tribunal by filing a complaint before a criminal court, and in all probability the flat purchaser would not have any idea about what is happening in such proceedings. The consumer would continue to be subject of fraud and harassment at the hands of developers.
Section 47 provides that the decision of the appellate authority would have to be challenged before the Supreme Court. The quality of adjudication by the authority with no judicial member would be questionable and the rates of appeal to the Supreme Court would be high making the process cumbersome, unaffordable and inaccessible to the common man. In contrast, a three-tier redressal system, such as provided under the Consumer Protection Act would be much more effective and economical.
Another provision in the Bill, which defeats the purpose of this piece of legislation, is Section 60. Probably the most anti-consumer provision in the Bill, Section 60 states that no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. The Bill in its present form shall thus take away the alternative, efficacious remedy which is available to a flat purchaser under the Consumer Protection Act.
The Real Estate (Regulation & Development) Bill, in its present form seems to have been drafted with the primary motive of singling out and punishing the developer in cases of projects getting delayed, but in the process fails to question other stakeholders, including government authorities at the centre, state and municipal levels, who give statutory permissions and approvals, financial institutions etc. The implementation of the bill/regulation cannot be too harsh when a developer is dependent on other agencies to deliver a project. All stakeholders should come under the ambit of this regulation. The bill in its present form will choke the real estate business as it does not address the issue of delay caused by the sanctioning authority for which developers are unfairly held responsible. The victimisation of developers would also force out small developers from the market and discourage new entrants, which could result in real estate price going up due to increasing demands.
In spite of the drawbacks, there are several welcome provisions which are commendable. As per the Bill, no builder will be allowed to issue or publish an advertisement or prospectus or start booking of flats in a project without obtaining registration from the authority. This welcome step would avoid current situations where developers launch projects before they receive approvals and clear land titles, which consequently end up in litigation and consequently results in delay of construction. The developers will also have to declare that the land is free from any other encumbrances. In addition to increasing transparency and saving delay in delivery, this process will be a positive from the home finance point of view as lenders would have more comfort in lending to borrowers buying a property with a clear title.
Traditionally, real estate developers have utilized funds collected from home buyers on alternate uses like land acquisition and funding of other projects, thus affecting the pace of construction, completion and delivery of houses. As per the draft Bill developers would have to deposit 70% of the amount realized from customers with a scheduled bank within fifteen days of collection, which would be exclusively used for the proposed project only. This provision would secure the flat owners money and ensure that it is used for proper use.
Amongst the amendments suggested by the Ministry in the proposed Bill, one of the most significant is the one making it compulsory for developers to reserve a minimum of 20% of developed land or 20% of Floor Space Index in all land development/housing projects for lower-income groups and economically weaker sections.
Another positive step towards greater transparency is the inclusion of brokers within the purview of the regulatory framework, as a majority of buying and selling in real estate is through brokers. Keeping the brokers out of the purview would leave a large part of the market unregulated.
Currently, the real estate and housing sector is largely unregulated and opaque. The real estate industry, despite its mammoth size does not have a regulator to regulate and balance the interests of the developers on one hand and the consumers on the other hand. Consumers, builders and developers are often unable to procure complete information, or enforce accountability against each other in the absence of effective regulation, resulting in the consumer being left in the dark in most cases.
The Real Estate (Regulation & Development) Bill aims at restoring confidence of all in the real estate sector by instituting transparency and accountability in real estate and housing transactions.
Under existing scheme of things the level of transparency about the nature of project, size, cost and the likely time to complete the project is close to zero. Allegations about exorbitant amount being charged, delay in completing the project or abandoning the project are often made against builders and developers. The consumers have to sign on the dotted line, while the builder reserves the right to change the terms of the agreement with ease. While the average consumer suffers silently, those who challenge have to take recourse to Consumer Courts.
The Real Estate (Regulation and Development) Bill 2011 is an attempt to make builders accountable by establishing an authority to regulate, control and promote development, sale, transfer and management of properties, bring transparency, safeguard public interest and to facilitate speeding up the construction and maintenance of properties. The draft Bill calls for stringent disclosure norms and mandatory registration for every new housing project. The legislation aims at a major overhaul of the real estate sector while curbing unfair practices.
However there are some provisions in the Bill which raises concerns for the industry. Several provisions in the bill, as mentioned before, can have an opposite effect as that which is intended.
By focussing only on large developers, the Bill has overlooked the medium and small scale developers who also indulge in various malpractices. Thus this Bill leaves all these consumers vulnerable and unprotected. On the other hand, the Bill victimises the realtors by overlooking their concerns. Heavy fines and punitive measures have been adopted against real estate developers without questioning other stakeholders such as government authorities at the centre, state and municipal levels, such as ULBs (Urban Local Bodies) who give statutory permissions and approvals.
It is important that the Bill addresses the issue of delay caused by the sanctioning authorities, instead of holding the developer responsible in each and every case of delay, to avoid becoming an anti-real estate Bill, which will unfortunately end up choking the sector. It is thus important and highly advised that both the concerns of the industry and the consumers are taken into account before passing this bill.
Though the objective of the bill is most certainly a commendable one, there are several areas in the draft Bill which must be revisited in order to achieve a healthy and transparent environment for the development of the real estate sector in India.
# Economic Survey, 2010-11, Services Sector (Chapter 10), Available at http://indiabudget.nic.in/es2010-11/echap-10.pdf
# 3 The Real Estate (Regulation & Development) Bill, 2011
# Proviso to Section 3
# 50 if any promoter wilfully fails to comply with or contravenes the provisions of section 3, he shall be punishable with imprisonment for a term which may extend to three years, or a penalty which may extend to ten per cent of the estimated cost of the real estate project, or with both.
# 7(1) The Authority may, on receipt of a complaint in this behalf or suo-moto or on the recommendation of the Competent Authority, revoke the registration granted under section 4, after being satisfied that—(a) the promoter makes wilful default in doing anything required of him by or under this Act or the rules or the regulations made thereunder; (b)the promoter violates any of the terms or conditions of the agreement entered into with the Competent Authority: Provided that the Authority shall revoke the registration under this clause only on a recommendation received from the Competent Revocation of registration. (c) the promoter is involved in any kind of unfair practice or irregularities.
# 35. The Central Government shall, by notification in the Official Gazette, establish an Appellate Tribunal to be known as the Real Estate Appellate Tribunal.
# Section 48(1) The Central Government may, by notification, establish with effect from such date as it may specify in such notification, a Council to be known as the Central Advisory Council.
# 2(c) The Real Estate (Regulation & Development) Bill, 2011
# 3 The Real Estate (Regulation & Development) Bill, 2011
# 18 The Authority shall consist of a Chairperson and not less than two whole time Members to be appointed by the Appropriate Government.
# 35. The Central Government shall, by notification in the Official Gazette, establish an Appellate Tribunal to be known as the Real Estate Appellate Tribunal
# 46 (1) Every order made by the Appellate Tribunal under the Act shall be executable by the Appellate Tribunal as a decree of civil court, and for this purpose, the Appellate Tribunal shall have all the powers of a civil court.
# 47 (1) Notwithstanding anything contained in the Code of Civil Procedure, 1908 or in any other law for the time being force, an appeal shall lie against any order, (not being an interlocutory order) of the Appellate Tribunal to the Supreme Court on one or more of the grounds specified in Section 100 of that Code.
# 60. No civil court shall have jurisdiction in respect of any matter which the Authority or the Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.