Recently Real Estate (Regulation &Development) Bill, 2016 was passed near unanimously by the Rajya Sabha with almost all the parties welcoming the Government’s decision requiring developers to deposit 70% of the collections from the buyers in a separate account to meet construction costs including that of land. The bill has come at a right time and it will be a much desired catalyst for the real estate sector benefitting both the consumers and project developers.
Brief Highlights of the Bill
It seeks to establish Real Estate Regulatory Authorities (RERAs) in every state within one year of the Act coming into force.
Functions of a RERA include:
Ensuring that residential projects are registered, and their details uploaded on the RERA website.
Ensuring that buyers, sellers, and agents comply with obligations under the Act.
Advising the government on matters related to the development of real estate.
It proposes to establish a escrow account in which 70% of the amount collected from buyers for a project must be maintained in a separately in a bank and must only be used for construction of that project
If the promoter fails to register the property with RERA, he may be penalised up to 10% of the estimated cost of the project. Failure to register despite orders issued by the RERA will lead to imprisonment for up to three years, and/or an additional fine of 10% of the estimated cost of the project.
Dispute resolution mechanism is one of the best parts in the bill. It seeks to establish Real Estate Appellate Tribunals, in states and union territories to hear appeals against decisions of RERAs. With the establishment of tribunal speedy disposal of justice can be ensured.
However there are some concerns:
Some states have already enacted laws to regulate real estate projects. The Bill differs from these state laws on several grounds. However the override the provisions of these state laws in case of any inconsistencies.
The Bill mandates that 70% of the amount collected from buyers of a project be used only for construction of that project. In certain cases, the cost of construction could be less than 70% and the cost of land more than 30% of the total amount collected. This implies that part of the funds collected could remain unutilized, necessitating some financing from other sources. This could raise the project costs.
The real estate sector has some other issues such as a lengthy process for project approvals, lack of clear land titles, and prevalence of black money. Some of these fall under the State List.
The Real estate bill is poised to be a game changer in the sector promoting transparency and accountability for consumers. With new bill in place government’s idea to get all the stake holders on board is completed. With effective PPP model in place Government can make use of this bill for schemes like Housing for all by 2022 etc, with clear road map for foreign investors the bill is also expected to boost FDI investments in the sector which has huge potential for growth.
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