by
Mr. Anuj Puri, JLL India
New recommendations on the Indian Real Estate
Regulatory Bill (RERB) were made by the ministry and sent to Prime Minister's Office (PMO) for approval, and the
cabinet has now approved it. Next, it will be tabled in the Parliament for
passing the bill and making it an Act.
Escrow account
In essence, reduction of minimum balance
to be maintained in the escrow account of a project has been reduced from 70%
to 50%. This amount from the monies collected from the buyers must be placed in
an escrow account within 15 days.
· This provision will effectively allow developers
to continue their practice of diverting funds collected for a project towards
land acquisition or other projects, and will work in their favour by also
allowing them to grow their land and/or project portfolio.
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| Anuj Puri, JLL India |
However, the 50%
mandate will still place enough restriction on developers to divert funds
elsewhere and ensure better completion records.
· For the property buyers, the concerns regarding funds
diversion will be higher now. The end result is that the bill will be slightly
less protectionist towards buyers.
Other revisions include bringing in
commercial projects under the purview of the bill, which will provide
protection to investors of commercial assets, as well.
Brokers and Agents..!
· The Bill now covers commercial real estate, as
well; also, brokers and agents have been now been included under its purview as
well, and are effectively rendered punishable in case of non-compliance with
the authority's and tribunal ruling.
All under-construction projects have to be
compulsorily registered within three months of setting up of the regulator, and
developer cannot make changes to original plans or the structural design unless
he gets the consent of 2/3rds of the customers.
The states have to set up the
regulatory bodies within one year of the Bill’s enactment while also setting up
a web-based online registration facility within a further period of one year
from setting up of the bodies.
· Failure to register a project will cause the
developer to attract a penalty of 10% of the overall project cost, and an
additional penalty of 10% penalty and/or a three-year prison term in case of
continued non-compliance. Incorrect or incomplete disclosures will attract a
penalty of 5% of the project cost. Project cancellation has been stated as
possibility in case of continued non-compliance.
· One issue pointed out in the bill by
stakeholders was that it aimed to place itself as the sole course of action for
redressal of grievances by customers, with no recourse to other consumer
forums. It was correctly pointed out that such a stance could lead to pressure
on this regulatory body in terms of an increased log of cases, though it would
certainly reduce instances of multiplicity of suits.
This clause has been done
away with in the version that the cabinet has cleared, so customers can now
seek recourse with consumer courts and forums as well. All projects which have
not received their completion certificates will also be now covered under the
bill, so it now allows bigger umbrella coverage for buyers and investors.
· The Bill will provide a renewed boost to
transparency levels in the Indian Real Estate sector. India which lies in the
middle in a survey of 90 countries for the JLL Transparency Index will make
further progress up the rankings. This will instil more confidence among global
investors, thus providing better access to structured capital for this sector.
However, though, the new amended Bill reads very positively for inducing
transparency and better governance, the continued non-inclusion of government
agencies whose slow approval processes are a major contributors to project
delays, remains an issue and needs to be addressed.
About the author..
Mr. Anuj Puri is Chairman & Country Head at JLL India
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