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IASbaba’s Daily Current Affairs – 11th March, 2016
NATIONAL
TOPIC: General studies 2
- Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
- Important aspects of governance, transparency and accountability
The Real Estate Bill
- In order to regulate the real estate sector, the Rajya Sabha has cleared the Real Estate Regulatory Bill. Real estate contributes nine per cent to the national GDP and the Bill’s passage was seen as crucial to ensuring better regulatory oversight and orderly growth in the industry.
- The Bill puts a mandate for the developers to deposit, in a separate account, 70 per cent of the project’s cost – inclusive of land and construction cost. This is in opposition to the deposit of 50 per cent of the construction cost recommended by the Parliamentary Select Committee
Global Real Estate Transparency Index compiled by property advisory JLL in 2014—
- India falls in the ‘semi-transparent’ category; India’s tier-I property markets ranked 40th in the list, while the tier-II cities are at 42nd position
- The UK and the US topped the list in the ‘highly transparent’ categories.
The 70% figure:
- Will ensure that builders do not squander away this amount for any other purpose, apart from construction
- Developers can pump in a major part of the sales proceeds into lucrative deals for purchase of more land, instead of focusing on completion of the respective project
- In case of metropolitan cities, the land cost makes for a large chunk of the total project cost and according to the bill, developers can withdraw the money stipulated to this, leaving behind a meager amount in a separate account for taking care of the construction
- The bill allows for a one year extension to the builders for completion of the project
What is good about the bill?
- Will lead to regularisation of the real estate industry, bringing relief to consumers and other stakeholders
- Enhanced credit flows will enrich the industry
- Developers may get rid of exorbitant borrowing costs owing to the infrastructure status, that may be granted by Ministry of Finance after enactment of this bill
- Ensure efficiency in all property related transactions and improve accountability of developers
Key highlights:
Laws—
- Setting up of Housing Regulatory Authority and Appellate Tribunal(s) within each state and within six months’ time, rules will have to be made by the state governments for its functioning. At every level, it has to be ensured that cases are cleared within 60 days
- This legislation will apply to all projects that have yet not received a completion certificate and have an area of more than 500 sq. m or have over eight flats
- It will be mandatory for the projects to be registered and the regulator’s website should have all the necessary public disclosure of details related to each project; in addition, a quarterly progress report will have to be made public on the website
- If a developer does not receive a response on his application within one month, the project will automatically get registered
- Mandatory for every real estate agent to be formally registered
- A committee having the Chief Justice of High Court, the law secretary and the housing secretary will be selected by the members and chairmen of appellate tribunals as well as regulatory authorities
- Projects beyond the coverage of urban areas will also come under the regulator’s purview
- In case a project completion is delayed for genuine reasons, an extension of maximum one year can be granted by the authority
- If the builder fails to observe orders given by the appellate tribunal, they may face imprisonment of up to three years and/or attract monetary fines. In case of buyers and estate agents, the imprisonment will last for one year or/and a monetary fine
- The matters mentioned in the legislation, cannot be taken up by the Civil Courts. But the aggrieved parties may still approach various (644 in total) consumer courts. In case of dissatisfaction from the ruling passed by the tribunal, the party can approach the High Court within 60 days
The Pact—
- A model pact between consumers and developers will have to be provided
- If a developer engages in fraudulent activities, it can lead to revocation of the registration and in case like these, the project’s account may be frozen and the money can be utilised for its completion
- If builders are unnecessarily delaying the possession, they will be liable to pay interest equivalent to what they levy on buyers who default
- In order to make changes to the original plans, permission of two- thirds of the buyers is mandatory, irrespective of sanctions received by the planning body
- It is obligatory for the developers to get their projects insured
- Passage of property to home buyers within three months is compulsory
- Till five years after completion, any structural defects are the developer’s liability
- After three months of majority units being allotted, the buyers will have to form an association within three months, which will take care of the common facilities and areas
- Steps will be taken to implement Single window project clearance, project grading and digitisation of land records
IASbaba’s Views:
- Industry figures available for the last seven years show that of the 25 lakh residential projects launched in eight cities in the country, 88 per cent have been delayed. Thus, the demand of the Bill to be a pro-consumer measure is an important characteristic. For instance, the builders will be granted a one-year additional extension to finish their projects but at the same time, some punitive measures need to be introduced so that this one-year extension is not sought needlessly.
- The Bill formulated should work upon weeding out malpractices and unscrupulous builders from the industry. These measures will help in bringing transparency and lead to projects getting completed on time since the punitive measures include imprisonment of builders.
Connecting the Dots:
- Is the inclusion of the land cost as a part of 70% rule— a real-time possibility for the future of the Real Estate business in the country? Discuss
NATIONAL
TOPIC: General studies 2
- Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
- Important aspects of governance, transparency and accountability
New regime in oil and gas exploration
- The Union Cabinet, chaired by the Prime Minister, has approved the Hydrocarbon Exploration and Licensing Policy (HELP).
Main facets of the policy:
Four main facets of this policy are:
- Uniform license for exploration and production of all forms of hydrocarbon:
- This will allow energy companies to produce whatever form of hydrocarbon is available from a licensed block—coal bed methane, shale gas/oil, tight gas and gas hydrates etc without seeking separate permission for producing each of the fuels.
- An open acreage policy:
- Under this companies can bid to explore certain blocks and then the hydrocarbons regulator will subsequently examine their geological findings.
- This means that companies can start to look at blocks that have not already been put out for bidding by the government.
- Easy to administer revenue sharing model:
- The government has prospectively replaced the existing profit-sharing arrangement in hydrocarbon exploration with a revenue-sharing formula.
- The revenue-sharing formula may help prevent future disputes over pricing and cost recovery of the kind the government has been embroiled in with Reliance Industries Ltd (RIL).
- Marketing and pricing freedom for the crude oil and natural gas produced:
How will the new policy help?
- The policy will enhance domestic oil & gas production, bring substantial investment in the sector and generate sizable employment.
- The policy is also aimed at enhancing transparency and reducing administrative discretion.
The policy eases doing business in India:
- Present fiscal system of production sharing based on Investment Multiple and cost recovery /production linked payment will be replaced by a easy to administer revenue sharing model.
- The earlier contracts were based on the concept of profit sharing where profits are shared between Government and the contractor after recovery of cost.
- Under the profit sharing methodology, it became necessary for the Government to scrutinize cost details of private participants and this led to many delays and disputes.
- Under the new regime, the Government will not be concerned with the cost incurred and will receive a share of the gross revenue from the sale of oil, gas etc.
- This is in tune with Government’s policy of “Ease of Doing Business”.
In tune with policy “Minimum Government –Maximum Governance”:
- Recognising the higher risks and costs involved in exploration and production from offshore areas, lower royalty rates for such areas have been provided as compared to NELP royalty rates to encourage exploration and production.
- A graded system of royalty rates have been introduced, in which royalty rates decreases from shallow water to deepwater and ultra-deep water.
- At the same time, royalty rate for on land areas have been kept intact so that revenues to the state governments are not affected.
- On the lines of NELP, cess and import duty will not be applicable on blocks awarded under the new policy.
- This policy also provides for marketing freedom for crude oil and natural gas produced from these blocks.
- This is in tune with Government’s policy of “Minimum Government –Maximum Governance”.
Connecting the dots:
- Critically examine the problems associated with oil and natural gas sector in India along with measures taken by the government to overcome them.
- Critically evaluate the provisions of the proposed new Hydrocarbon Exploration and Licensing Policy (HELP).
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