Skip to content

Indian developers hit out at new real estate regulation proposals

The law is designed to bring the property industry under the control of a regulatory authority and create a tribunal to deal with complaints.

The government claims it will make the real estate markets more transparent and protect buyers and investors.

The regulatory authority will also require developers and real estate agents and brokers to be registered and they will be rated according to performance.

Those that violate the new regulations face stiff penalties.

Anyone starting construction or development of land without registration could be jailed for up to three years and face fines related to the cost of the project.

The new regulatory body will have the power to inspect documents.

It will also enforce the new rules including making sure that no deposit is taken without an agreement of sale, no mortgages to be issued without consent and that all developments adhere to plans and specifications.

Developers will have to register a project with the regulator it can be marketed and to this various documents including proof of land ownership and the mandatory licences will need to be provided to the regulator for registration.

Once verified, the entire information about the project will be available on the regulator’s website that will be accessible to everybody.

The regulator will also scrutinise the advertisements and names of brokers.

‘The government is trying to play nanny to the home purchaser.

This draft has been prepared by people with good intent but with no knowledge of the nuances of the business,’ declared Kumar Gera, chief executive of the Confederation of Real Estate Developers’ Associations of India (CREDAI).

But the proposed law will protect home buyers from fraudulent builders, according to Ajit Krishnan, partner for real estate analysts Ernst & Young.

He said that property buyers will know exactly what they are buying.

Importantly, he added, the draft bill prohibits a developer from accepting an advance from a home buyer before the sale agreement is signed.

At present they often force buyers to pay 20 to 30 % of the cost of the property before making a sale agreement.

Gera said that he agreed that some aspects of the draft are welcome. ‘It is a good idea to have a sale agreement in place at the time of the first installment which will help both parties know what is on the table,’ he conceded.

But he said other aspects are completely impractical. In particular his organisation is against the proposal that developers will need to submit a bank guarantee of 5% of the total cost of the project which will be encashed by the regulator if the project is not completed on time or violates the rules.

And it is against the suggestions that if a developer cannot complete a project on time, the allottee can ask for a full refund of the amount he has paid along with interest and the regulator will then take over the incomplete project and appoint another agency to complete tit.

‘The bank guarantee will push up the cost of the project and the provision of taking over incomplete project is completely impractical,’ Gera claimed.

Related