Opinion: Will India's notorious real estate sector change with new regulations?
Being unregulated, many builders misuse the lack of negotiating power of customers and resort to practices like fixed unilateral contracts which have conditions that clearly lacked fairness.
Out of the unregulated sectors in India, real estate had, lately, garnered the maximum notoriety, given their misuse of power and resorting to patently unethical market practices. For the uninitiated, an unregulated sector is the one which does not have a dedicated legislation to govern its functioning and is, primarily, governed by the market practices.
Being unregulated, many builders misused the lack of negotiating power of the customers and resort to practices like fixed unilateral contracts which had conditions that clearly lacked fairness. Lately, the builders have also been missing the deadlines for possession of the property which is forming the major share of real estate litigation in consumer courts. The primary reason for the same was the diverting of the funds collected for one project to start another project simultaneously which adversely affected the progress of both.
The judicial and quasi-judicial forums were conscious about it and a series of judgments against the builders is a testimony to the fact. The Supreme Court, particularly, is coming down heavily on the leading builders who approached the top court citing their inability to refund the sums paid to them by the customers. Even the consumer courts have, time and again, chosen to sever the terms of builder-buyer agreements which are devoid of fairness. We are not to miss out on the order of the Competition Commission of India against DLF, whereby, a staggering penalty of Rs. 630 Crores was levied on the builder for the abuse of dominance in the form of unfair and arbitrary terms in the agreements.
From the perspective of the real estate sector also, the lack of fairness and transparency in transactions has adversely affected the investment in the sector and faith of customers. In sum and substance, this attitude had affected every stakeholder in the sector, be it the customers or the sector itself.
In order to rein in the menace, the government enacted the Real Estate (Regulation and Development) Act, 2016 which, among others, will provide a dedicated and expert sectoral regulator to adjudicate upon the disputes arising out of the real estate transactions. At the same time, it would also reduce the workload of the other judicial and quasi-judicial authorities which were facing an ever-increasing rise in litigations pertaining to default by builders.
The primary objective of the enactment is to streamline the functioning of the sector while providing sets of guidelines for the parties to adhere to in order to minimise the arbitrariness and restore the faith of customers and builders. Some of the aspects which were, hitherto, the subject of the whims and fancies of the builders have been incorporated in the Act as necessary compliances on their part. For example, informing the allottee about any minor addition or alteration and seeking the consent of 2/3rd of allottees about the major ones. Further, the builders are also liable to share the necessary information like the project plan, layout, government approvals and title status etc.
As stated above, till now, there was no dedicated regulatory authority to deal with the disputes pertaining to real estate but, after this Act, the Government has decided to set up a Real Estate Regulatory Authority in every state and Union Territory along with a Real Estate Appellate Tribunal. To prevent the disputes from lingering on, the Government has also set a time limit for them to be adjudicated upon at the earliest.
Further, all new projects are necessarily required to be registered with Real Estate Regulatory Authority if the project size exceeds 500 sq.m. or more than 8 apartments. Even the existing projects are required to be registered if they have not been granted the Occupancy Certificate or Completion Certificate. At the time of registration, the promoters are required to submit all the necessary information pertaining to the project, for example, land status, completion schedule etc. Only after the registration is granted, will the project be allowed to be marketed.
In order to secure the problem of delay in projects, the builders are now required to deposit 70 per cent of the total project cost in a dedicated bank account. Should the project be delayed despite the precautions, the builder would be liable to pay the same interest as the EMI being paid by the customer to the bank.
The systematic workflow would lead to the timely execution of projects along with an increased flow of foreign investment and private participation. In addition, thereto, the builders also stand to benefit from the same as this would lead the unscrupulous elements to exit the market leaving behind only the strong market players having the requisite competence. From the point of view of customers, this would prevent them to be subjected to whims and fancies of the builders and would bring homogeneity in the real estate ecosystem.
(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)