Model law raises concerns

Model law raises concerns
The Hindu Business Line, November 22, 2009, Page 15

Developers see implementation hurdles and cost overruns.

S. Shanker

The Model Real Estate (Regulation of Development) Act has the developers concerned as they believe it poses issues in implementation and cost overruns. The Ministry of Housing and Urban Poverty Alleviation has publicised this model law to provide guidelines for the establishment of a regulatory authority and appellate tribunal at the State level to streamline real-estate transactions. The authority will regulate, control and promote planned, healthy development and construction, sale, transfer and management of colonies, residential buildings, apartments and other similar properties.

Also, project details will be made available on a specific Web site for public information and transparency. It holds the developers accountable for timely delivery of projects and promotion of projects only after all statutory approvals are obtained.

Reacting to the proposal, Mr Niranjan Hiranandani, Chairman, Hiranandani Constructions, said Mumbai builders were as such reeling under the burden of obtaining 52 clearances/sanctions and there was little reason to bring in a licensing procedure in an already over-regulated sector.

Consumer protection

Mr Santosh Rungta, President, Confederation of Real Estate Developers of India, felt if consumer protection was what the Bill wanted to bring in, it was already covered by various laws such as Consumer Protection Act, Transfer of Property Act, Specific Relief Act, Criminal Procedure Act, Registration Act, besides the Town and Country Planning laws. More regulation would only lead to operational delays and cost escalations which, in turn, would be ultimately loaded on property price.

The clause mandating that developers should furnish the time line for integrating municipal services such as sewerage, water supply and electricity was difficult, given the delays by service providers in extending the services. The regulator should, instead, be given active control over the local authorities to oversee timely delivery of these amenities, he said, adding that local authorities should be made more accountable for delivery of services.

Mr Rungta said if all projects require the regulator’s approvals, it could take three-six months, which would increase project cost. Instead of registration of every project, the Government could think in terms of a registration process for builders and frame guidelines for them. In case of violation of the guidelines, the regulator could cancel the registration.

The law envisages registration after project sanctioning, even when the projects have passed through several processes of financing and investment.

The proposal to let the regulatory authority reserve the right to refuse registration at this juncture appears unfair as the business risk is enormous, he said.

The need for a bank guarantee of 5 per cent would increase project costs. The registration validity for three years is ill-conceived as some large projects are slotted for completion in phases. The registration should be valid at least for five years, he said.

Mr Rungta said property rates were governed by demand-supply dynamics. Hence, the rates quoted in any advertisement might not be the same at all times. So every time the rates change, registering the advertisements with the regulator would become a lengthy procedure.

Mr Ashutosh Limaye, Associate Director, Strategic Consulting, Jones Lang LaSalle Meghraj, said some clauses had significant inconsistencies. Under the definition of ‘promoters’, the draft includes developers and service providers but both are separate, as are the liability issues.

Hoping that all real-estate brokers will register themselves is, therefore, unrealistic.