Will this act make real estate sector more credible?

Thu, 9 Apr Pre-Open

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We have often expressed our skepticism about players in the real estate. Lack of enough regulation, professionalism, transparency and accountability are some of the key issues with Indian property markets. The same have had an adverse impact on the home buying activity and investments in the sector. Not to mention the rising speculative activity and black money transactions thriving on this sector.

But soon the real estate sector may witness an act of cleaning. With Union Government planning to set up a regulator for the real estate sector, it is likely to be a lot more transparent and credible.

As stated in an article in Livemint, the Cabinet has approved amendments to Real Estate (Regulation and Development) bill to create uniform regulatory mechanism.So let us see what difference this regulation can bring to real estate sector and home buyers.

The new bill will seek more disclosures from the developers. And these disclosures will not be just about promoters, but about the crucial details of the project as well. Further, the bill will make registration of all projects and real estate agents mandatory. And the ones who do not toe the line will be made to bear the penalty.

It is a common practice with housing developers to collect advances from customers on a promised construction date, and then to use it for other purposes. This not just leads to a delay in house possession, but also leads to opportunity loss on the amount offered as advance. At the same time, it is almost like free money for the developers for which they are hardly ever held accountable. As per the new act, the developer is supposed to put 50% of the collections from customers in a separate account which will be used only for the concerned project. Unnecessary changes in the plans will not be allowed unless approved by two thirds of the customers. The act also sets a deadline of 3 months for ongoing projects that have not received a completion certificate. Better transparency, accountability and standardization are likely to allow better access to finance in the real estate segment and provide a congenial environment for more home buying. The act will be applicable to commercial properties as well.

All this sounds good indeed. However, as far as project delays are concerned, the regulatory authorities are equally responsible for the same. Hence, we hope that equal thrust will be placed to ensure efficiencies in project execution at the end of all the involved parties. Also, while the bill has been approved, the Government should also make sure that it followed, else it will end up just providing a false sense of security to investors and home buyers.