Possible impacts of Real Estate Bill on buyers

In the current real estate scenario of India, which is highly unregulated and unsystematic, due to which developers and investors often ride the tide, efficient regulations are very much in need. Whether there is delay in getting project approvals, rise in construction costs, delay in project completion, any legal issue with builder, or in most other cases, it is the buyers who become the final victims.

Apart from all these, there is no proper measure to check the real estate prices which have kept increasing without any control making it impossible for the lower and lower middle class families to afford their own house.

To gain stability in the real estate sector for a long term, it is the high-time that real estate regulations must be introduced. However, the new Real Estate Regulatory Bill which was approved by the union cabinet in June 2013, has been recently tabled in the Rajya Sabha, which once passed, may curb most of the irregularities in the system.

The Bill holds many guidelines to be followed by the developers while launching, promoting and developing new residential projects, and this gives more power in buyer’s hand. A quick analysis of the pros and cons of the Bill gives some clarity on what it actually holds for the buyers.

Buyers get what they are promised

The bill ensures that what is promised by the developers is what that is offered to the buyers. The developers and promoters will have to disclose the actual plans and the list of facilities and amenities that will be delivered with the project. There should not be any change at a later stage of project development as per the developer’s will and wish. The bill restricts the developers to only use the actual pictures of the site and construction status for advertising the project.

The developers should only use the right information, layout and plan related to the project on their websites, brochures and any other marketing activities and deviating from this is a punishable offence. If a developer is found guilty, then he will be penalized at 10 per cent of project costs or jail up to three years.

Approvals at hand even before launch

The bill states that the developers can launch their projects only after getting all requisite clearances from the concerned authorities for the projects. The status of the approvals should also be displayed on the developers’ websites. Buyers will not have to anxiously wait for long as to when the developer gets all the approvals and when the project gets completed.

With this rule, it is expected that the concept of pre-launch offers would no longer exist as the launch and promotion can only be done after seeking approvals which involves long time. And by the time of launch, it is likely that the cost of project would be very high.

On the flip side, there is no rule stated for what has to be one to speed up the approval project by the government authorities. They have to follow a certain time frame in order to ensure smooth approval process.

Price on the basis of ‘Carpet area’

As per the bill, the developers have to sell the flats based on the carpet area of the units and not on built up area or super built up area basis. Many buyers are unaware of the actual carpet area of the units they buy and often end up paying more money. But the bill makes it mandatory for the developers to declare the actual carpet area of units in promotion activities too.

Project-specific funds through separate bank account

With the new bill, it is compulsory for the developers to maintain escrow bank accounts for every project and maintain all project related transactions. They should keep aside 70 percent of the fund collected for the project in the account. The fund so saved should be dedicated only for that particular project and it cannot be used for any other project.

Not more than 10% advance before agreement

Without signing a written agreement, a developer will not be entitled to take more than 10 percent money as advance from a buyer. This is likely to control transactions based on black money to some extent but however the buyers should encourage giving money to developers on trust basis.

Refund with interest if project is delayed

The regulatory bill restricts the builders to complete the project construction as scheduled prior, and deliver the flats on time. If the possession date is delayed, then the developer will have to refund the entire money to the buyers along with interest.

Builder will be responsible for structural defects

Once the possession of the flat is handed over to a buyer and after which the buyer may rectify any structural defect or deficiency in the development of building, then it is the developer’s responsibility to correct them, without any additional charges. The bill states that the buyer ha to inform the developer about such defects within one year from the date of purchase.