Understanding NDA’s Real Estate (Lack of Regulation or Healthy Development) Bill

Pushparaj Deshpande

urban_deveopmentAn episode from the famous satirical comedy ‘Flop Show’ deftly highlighted the plight of Jaspal Bhatti (the protagonist), who while hammering a nail in his flat, dislodges an entire brick, and cracks his neighbour’s television! Neither the contractor nor the project promoter take any responsibility for the obviously poorly constructed flats, and in a vaudevillian twist, the contractor gets rewarded for nabbing some thieves when the roof of another of his poorly constructed flat collapses on them.

It is ironic that 25 years later, the real estate sector in India continues to be characterised by a complete lack of standardisation of business practices as well as transactions and consequently, adequate consumer protection. These problems are compounded by the existence of nearly 100 archaic laws governing the sector, both at the state and central levels, often conflicting with each other. Given the apodictic lack of oversight, the UPA government pioneered the Real Estate (Regulation & Development) Bill, 2013, something that the NDA Government has rightly put its weight behind.

In fact, the NDA’s version of the Real Estate Bill looks somewhat similar to the UPA’s version. Both bills envision the institutionalisation of the Real Estate Regulatory Authority (RERA) at the state level, and mandate that every real estate developer (and real estate agents dealing in those properties) register a proposed project with RERA, without which no promoters can book or offer projects for sale. The two versions are also similar in that they mandate that once the project has been registered, every promoter is also obligated to upload details of the site and layout plan, as well as a timeline for project completion. Similarly, taking cue from the 2012 Committee on Streamlining Approval Procedures for Real Estate Projects, which highlighted that developers have to get up to 50 approvals across three governments (and this entire process takes up to four years), both the UPA and NDA governments proposed the establishment of a single window clearance system for approvals, so as to ensure ease of doing business.

But this is where the similarities end, and glaring differences crop up. The primary aim of the Real Estate Bill is to institutionalise transparency and accountability in the real estate sector, something that the NDA’s version completely fails in. There are numerous problems in the NDA’s bill, notwithstanding what the pontification by BJP’s spokespersons.

The first major issue is to do with the proposed Authority (RERA). If the Authority is to be successful in its mandate, it is imperative that its regulatory independence be strictly ensured. This is why section 25 (1) of the original bill (UPA version) expressly forbade members of the Authority from accepting any future employment with any real estate organisation whose case s/he has dealt with. However, the NDA’s bill allows RERA’s members to join any real estate company two years after they demit office. It may do the NDA regime well to pay heed to Humphrey Appleby’s exhortation: “gratitude is merely the lively expectation of favours to come”. This particular amendment is likely to create a nexus between the RERA and real estate sharks, and would most certainly constrict the ability of the RERA to function independently.

Crucially, the UPA’s version of the bill had expressly laid down that 70% of the money realised from buyers be deposited in a separate bank account, so that it is utilised only for the intended purpose of the project. As the Standing Committee highlighted, this particular clause was included to curb diversion of funds by unscrupulous developers (which has happened in numerous instances in the past). In fact, it is well recognised that such pervasive diversion of funds has consequently made the real estate sector extremely vulnerable to black money generation, something the Finance Ministry’s 2012 White Paper on Black Money had highlighted. The NDA regime has reduced this limit to 50% of the funds. In effect, the NDA regime has legalised the diversion of upto 50% of the funds acquired for a project. This is completely contrary to what happens in Singapore, or in Canada or even in Dubai, where 100 per cent of the money has to be deposited in a separate account managed by independent escrow agents.

It wouldn’t be an exaggeration to say that the NDA’s amendments to the bill greatly enable fraudulent builders to swindle aspiring home owners.

The earlier version of the bill had laid down that once there was an agreement between a builder and buyer, there could be no alterations in the promised structural design or specifications. However, the NDA’s version gives the developer a carte blanche to make radical changes, even though in doing so, they may violate the contract entered upon with the buyer. BJP spokespersons have vociferously argued that the NDA’s amendments will ensure housing for all; however, they conveniently overlooked the fact that this bill effectively deprives potential buyers of any choice in the selection of their homes.

Similarly, to ensure liability for the construction of poor quality buildings, the earlier bill had made the builder responsible for rectifying any structural flaws (including lack of furnishings) cropping up within two years of the construction (the Standing Committee recommended five years, but this would have been extremely detrimental to the interests of developers, and it was important to maintain a balance). However, this crucial safeguard has also been completely diluted in the NDA version, which again begs the question: how is the bill ‘pro-people’?

There are also other significant problems in the latest bill. For instance, the NDA has re-moved the provision (for no apparent reason) that mandated that the developers provide an updated list of booked apartments and plots to the RERA. This was specifically included to ensure that all transactions in real estate are conducted in a transparent manner, and the list of buyers is genuine (which would have curbed the creation of a false market, and nepotistic flat allotments to some extent).

Similarly, the original bill had mandated that as soon as the construction is complete, the builder must hand over the flat’s sale deed to the buyer. Surprisingly, even such a basic provision that safeguards buyers has been removed. Astonishingly, under the NDA’s bill, the sale deed of a flat will only be handed over to the rightful owner after an association of the flat owners is formed, which is just counterintuitive. This will unnecessarily lead to delays for homeowners. This is already problematic because as the realty research agency Liases Foras pointed out, since 2008, 88 per cent of the 25.51 lakh residential projects launched across eight metropolitan cities in India were inordinately delayed. 25 per cent of the same projects were delayed by over four years from the actual delivery date!

The NDA’s bill isn’t simply anti-buyers, it’s also detrimental to the interests of the developers/ builders. Both the UPA and NDA bills mandated that a project would be deemed to have been registered if the RERA did not revert back within 15 days. This was included to protect the interests of the developer by reducing bureaucratic delays. However, the NDA’s version allows for post facto verification and revocation of registration three months after the project is deemed to have been registered. Honest builders and promoters of projects will be unnecessarily harassed and penalized for lapses or time-delays by the authority (unintentional, and intentional) and this obviously needs to be rectified immediately. This can easily be ensured if the project builder/promoter were to be registered after their application has been vetted by the authority, which must be completed within a fixed time period. This will protect the interest of the builder as well as ensure strict compliance of the intended law.

As already pointed out, the real estate sector is a source of black money, which even the Finance Ministry’s 2012 white paper highlighted. If the Modi regime is really interested in institutionalising transparency and accountability in the real estate sector, why doesn’t it empower the Real Estate Regulatory Authority to probe the source of the funding with which developers finance projects? Ideally, the government should empower RERA to strictly penalise, and act against any developer with suspicious funding. This, more than anything else, will curb the menace of black money in real estate.

As Jawaharlal Nehru once said, “it is the inalienable right of the Indian people…to enjoy the fruits of their toil and have the necessities of life, so that they may have full opportunities of growth”. A home is such a basic necessity, and the NDA government would do well to be sensitive to this lest the people act on what Nehru had said in continuation, “if any government deprives a people of these (inalienable) rights (to enjoy the fruits of their toil and have the necessities of life, so that they may have full opportunities of growth), and oppresses them, the people have a further right to alter it or abolish it”.

(Disclaimer: The views espoused by the author of this article are entirely personal)