Home buyers stand to benefit from the approval of the Real Estate
Bill
With the Real Estate (Regulation and Development) Bill cleared by both houses of Parliament; it is only a matter of time before the regulatory mechanism is set u
With the Real Estate (Regulation and Development) Bill cleared by both houses of Parliament; it is only a matter of time before the regulatory mechanism is set u
Many
malpractices within the sector, responsible for lack of consumer confidence and
plummeting sales, are likely to get curbed with this Bill.
No profiting from information asymmetry: Earlier, developers took undue advantage of the fact that less
information was available to the buyer than to them. Take one instance.
The builder
would tell a customer that land acquisition had been completed for his project.
But not reveal
that only 80 per cent had been completed, and he was embroiled in litigation
over a patch of 20 per cent. Unfortunately, the apartment he sold to the buyer
could have been slotted in the project plan on that very patch.
So even if the
rest of the project got delivered on time, this customer’s possession got
delayed.
Statutory
permissions have been another major cause of delay.
At the time of
selling, the developer would confidently tell buyers all permissions would come
through in a few months. Later, the project would get delayed in the absence of
some.
Now, registered
projects must disclose a lot of accurate information -- status of land
acquisition, statutory approvals, layout plan, etc -- to the regulator, which
will put it up on its website.
No playing around with buyers’ money: A common practice among developers was to raise money from buyers
for one project but not use it to complete that one.
They would use
the money to buy land which would enable them to launch another project and
raise more money from a new set of buyers.
This inevitably
led to delays in delivery and hassles for buyers.
The latter
would have to bear the burden of monthly instalments and rent simultaneously,
and in case of a delay beyond three years, lose the tax benefit on their home
loan.
With the Bill
making it mandatory that 70 per cent of money raised from sales in a project
will have to be put in an escrow account (states have the freedom to reduce
this figure to 50 per cent), developers will find it difficult to divert money
from one project to another.
“This clause
will prevent shortage of funds and ensure timely delivery,” says Ashutosh
Limaye, head of research at JLL India.
No discrepancy in penalties: In the past, if
the buyer delayed payments, he had to pay a high rate of interest.
But, if the
developer delayed on delivery, he paid a pittance. “Even this money would at
times not be paid but be adjusted against final payment from the buyer,” says
Pradeep Mishra, research head, indiazhousing.com.
Suppose a
person purchased a 2-BHK flat of 1,100 sq ft for Rs 50 lakh. If he delayed
payment, the interest would be as high as 18-24 per cent per year.
At 18 per cent,
this translated into Rs 75,000 per month.
If the
developer delayed payment, he would pay Rs 5-10 per sq ft per month. On an
apartment of 1,100 sq ft, this would translate into barely Rs 5,500 per month.
This practice
will end because the Bill specifies that penalties for both parties will
be at par.
No changes in project plan at late stage: Developers would sell a project to buyers by painting an attractive
picture but later change the building plans and specifications. For instance,
the builder might have sold an apartment block with the proposition that it
offers a view of the sea.
Later, a new
set of apartments would come up, blocking this view.
Similarly, new
apartment blocks would come up in what was earmarked as a green area. Another
practice was to come up with an affordable housing component in what had been
promoted as a luxury project.
Such
shenanigans will have to end, with the Bill making it mandatory for the
developer to get the permission of two-third of buyers to make changes to
project plan.
“Developers
will have to be very careful at the time of planning, as it will become
difficult to change at a later stage.
They will also
have to stick to their commitments to buyers,” says Sanjay Dutt, managing
director, India, Cushman & Wakefield.
On the flip
side, the need to get two-third consensus could also mean delays.
No delay in handing over charge to RWA: Developers would at times try to delay handing over charge of the
project because they stood to benefit from this.
“If the FSI
(floor space index) norm was increased in that area, the developer would be the
beneficiary, as he could construct and sell more,” says Limaye.
Delaying the
hand over would also allow errant developers to charge high rates for services
and maintenance. The Bill makes it compulsory to form a resident welfare
association after three months of handing over of a majority of units in the
project.
Experts are
hailing the Bill as a landmark event.
“It will bring
transparency and accountability, offer protection to customers and give them
the confidence to invest in real estate,” says Anshuman Magazine, chairman and
managing director, CBRE South Asia. Nonetheless, buyers should not lower their
guard right away.
SOME ADDITIONAL BENEFITS
- Pay cost of apartment
based on carpet area, easier to measure
- Pay lower interest
charges on delayed payment to developer
- No need to bear burden
of EMI and rent simultaneously
- Earn rent from your
apartment and use it to part-pay EMI
- Pay lower maintenance charges if resident welfare association formed on time
Source : Business Standard.
