Livemint : April 08, 2015
Bengaluru: The Union government has finally approved the setting up of a regulator to protect homebuyers and improve the credibility of the real estate sector in a move towards ridding India of the tag of being one of the world’s least transparent property markets.
The cabinet on Tuesday approved the amendments to the Real Estate (Regulation and Development) bill, 2013, to create a uniform regulatory mechanism across the country.
The bill seeks to ensure accountability and transparency to enable the real estate sector to access financial markets essential for its long-term growth. In essence, more disclosures have been demanded from developers and there are penalties attached in cases of violations.
“On becoming an Act, the Real Estate (Regulation and Development) legislation is expected to give a boost to the ‘Housing for All by 2022’ mission by enabling increased flow of investments through enhanced transparency, accountability and standardization,” the ministry of housing and urban poverty alleviation said in a statement.
The cabinet has extended the applicability of the bill to commercial real estate as well. In order to ensure that customer advances are used only for project construction, promoters will also be required to deposit 50% of the amount collected from homebuyers in a separate account with a scheduled bank within a period of 15 days.
Ongoing projects that have not received completion certificates have been brought under the purview of the bill, and such projects will need to be registered with the regulator within three months.
Promoters will not be allowed to change plans and structural designs of a project without the consent of two-thirds of consumers.
“It’s a great move, one that will bring in transparency and governance, though it is a little ironical that government agencies, which are significant stakeholders in the real estate ecosystem, haven’t been named as being accountable for severe delays caused to projects, often due to government approvals,” said Anuj Puri, chairman and country head at property advisory JLL India.
This will also curb the practice of setting unrealistic targets by developers and make them more reasonable in terms of project execution and delivery.
According to JLL’s global transparency index, India figures somewhere in the middle, around the 44th position in a survey of 90 countries, said Puri.
While India has been inching up the rankings, China which was behind, has now moved ahead to the 35th position.
Among the other new stipulations approved by the cabinet, states have to make rules within one year and put in place a web-based online system for submitting applications for registration of projects, and the regulator has to decide cases within 60 days.
Real estate developers, both in the residential and commercial sectors, will be required to register their projects with the regulatory authority. Promoters will have to disclose all information regarding ownership, project plan and layout, development schedule, land status, status of statutory approvals, proforma agreements, names and addresses of real estate agents, contractors, architects, structural engineers and so on.
“The bill should bring in more investors, both from individuals and institutions, as it assures protection as well as overall regulation. However, the approach has to be balanced and shouldn’t pose a hurdle instead of helping real estate development,” said Anshuman Magazine, chairman and managing director, CBRE South Asia Pvt. Ltd.
Penal provisions include payment of 10% of project cost for non-registration and payment of another 10% of project cost or three years of imprisonment or both if still not complied with. For wrong disclosure of information or for failing to comply with the disclosure norms and requirements, a penalty equal to 5% of the project cost will be imposed. Regulatory authorities can also cancel registration in case of persistent violations. Real estate agents will also be punished for non-compliance of the orders of the regulatory authority and appellate tribunals to be set under the proposed law.
For fast-track dispute settlement, one or more adjudicating officers will be appointed to settle disputes and impose compensation and interest.
On Tuesday, the cabinet also approved an additional instalment of dearness allowance (DA) to central government employees and dearness relief (DR) to pensioners, with effect from 1 January 2015, at the rate of 6% increase over the existing rate of 107%.
The combined impact on the exchequer on account of DA and DR would be of the order of Rs.6,762.24 crore per annum and Rs.7,889.34 crore in 2015-16 ( i.e. for a period of 14 months from January 2015 to February 2016).
The cabinet committee on economic affairs, chaired by Prime Minister Narendra Modi, approved two significant foreign investments in the pharmaceutical sector. Aurobindo Pharma Ltd won approval for qualified institutional buyers to infuse fresh equity of up to 7%, amounting to about Rs.2,165 crore, into the company. The existing foreign institutional investment shareholding in the company is 27.32%. This will enable the company to expand its operations in the areas of anti-infective, cardiovascular and central nervous system-related ingredients. Regarding Glenmark Pharmaceuticals Ltd, the cabinet has increased the investment limit by foreign institutional investors from 35.07% to 49%. This will result in an inflow of about Rs.2,022 crore.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.