By: Anuj Puri, Chairman & Country Head, JLL India
New recommendations on the Real Estate Regulatory Bill were made by the ministry and sent to PMO for approval, and the cabinet has now approved it. Next, it will be tabled in the Parliament for passing the bill and making it an Act. In essence, reduction of minimum balance to be maintained in the escrow account of a project has been reduced from 70% to 50%. This amount from the monies collected from the buyers must be placed in an escrow account within 15 days.
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/or project portfolio. However, the 50% mandate will still place enough restriction on developers to divert funds elsewhere and ensure better completion records.
For the buyers, the concerns regarding funds diversion will be higher now. The end result is that the bill will be slightly less protectionist towards buyers. Other revisions include bringing in commercial projects under the purview of the bill, which will provide protection to investors of commercial assets, as well.
The Bill now covers commercial real estate, as well; also, brokers and agents have been now been included under its purview as well, and are effectively rendered punishable in case of non-compliance with the authority’s and tribunal ruling. All under-construction projects have to be compulsorily registered within three months of setting up of the regulator, and developer cannot make changes to original plans or the structural design unless he gets the consent of 2/3rds of the customers. The states have to set up the regulatory bodies within one year of the Bill’s enactment while also setting up a web-based online registration facility within a further period of one year from setting up of the bodies.
Failure to register a project will cause the developer to attract a penalty of 10% of the overall project cost, and an additional penalty of 10% penalty and/or a three-year prison term in case of continued non-compliance. Incorrect or incomplete disclosures will attract a penalty of 5% of the project cost. Project cancellation has been stated as possibility in case of continued non-compliance.
One issue pointed out in the bill by stakeholders was that it aimed to place itself as the sole course of action for redressal of grievances by customers, with no recourse to other 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. This clause has been done away with in the version that the cabinet has cleared, so customers can now seek recourse with consumer courts and forums as well. All projects which have not received their completion certificates will also be now covered under the bill, so it now allows bigger umbrella coverage for buyers and investors.
The Bill will provide a renewed boost to transparency levels in the Indian Real Estate sector. India which lies in the middle in a survey of 90 countries for the JLL Transparency Index will make further progress up the rankings. This will instil more confidence among global investors, thus providing better access to structured capital for this sector. However, though, the new amended Bill reads very positively for inducing transparency and better governance, the continued non-inclusion of government agencies whose slow approval processes are a major contributors to project delays, remains an issue and needs to be addressed.
