The government is in the process of finalizing a new legislation, The Real Estate Bill, which would deal with the issues faced by consumers in the property market.
The provisions of this bill are still being finalized, and it is expected to be presented to the parliament for passing in the budget session (Feb / March 2013).
The proposed provisions are quite stringent and consumer friendly – if the bill is passed in its present form and becomes an act (The Real Estate Act), it would be a major boost to the common man buying property from builders.
Read on to know more about what to expect from the bill.
Deals Based on Carpet Area
The act would make it compulsory for builders to list the area of flats and apartments based on the carpet area. They would not be able to use confusing terms like “built up area” or “super built up area”.
This means that you would know exactly how much living space you would get, and you would know the exact cost per square foot for that livable & usable area.
(To know more about terms like carpet area, built up area and super built up area, please check out the article “Real Estate Terms Demystified: Carpet Area, Built Up Area, Super Built Up Area and More”)
All Clearances & Registrations of the Project Necessary Before Sales
As of now, builders can launch a project based only on the floor plan and start selling flats in a building. They worry about clearances later.
This even includes important clearances like the height of the building, which is very important since it decides how many floors the building can have! In fact, many builders launch a building project even before actually buying the land (they only have an agreement to buy the land)!
This means that if there is a delay in getting any clearance, the project would also get delayed. And since you are the one paying for everything, guess who would suffer? Of course, you!
This would become a thing of the past with the Real Estate Act coming into force.
Going forward, builders would have to get all necessary clearances before they can start selling the houses or flats. They would also need to register the project with a real estate regulator, which would be set up by each state.
No Diversion of Funds
Many builders have multiple construction projects going on at the same time. And many times, they use money collected from buyers of one project to fund another project.
This means that as a customer, your money is at risk not only because of the property you are buying, but also due to another property you have no stake in!
This would change, because now, builders would be required to deposit 70% of the funds collected for a particular project into a bank account meant only for that project.
This means that the builders would not be able to divert your funds, making it safer for you to buy under construction properties.
Model Sales Agreement
The Real Estate Act would have a model sales agreement, which would standardize sales agreements across the country to a large degree.
This would mean that as a consumer, you would not have surprised in the sales agreement.
Some builders are notorious to have terms hugely favoring them – like owning the terrace of a building (so that they earn from renting it out for mobile phone towers), right to construct more floors any time in the future (to earn more when they can buy TDR and sell more flats), etc.
Hopefully, with the model sales agreement, these things would be a thing of the past.
Penalty for Builders
Builders would be required to declare the status of all building clearances and all contractual obligations they have.
If they fail to do this, they can be fined up to 10% of the project cost, and can also spend up to 3 years in jail!
Registration of Real Estate Agents
The Real Estate Bill proposes that all real estate agents would need to register with the state’s realty regulator.
Currently, anyone and everyone can become & operate as a real estate agent, and there is no regulation. With registration, there would be more accountability, meaning better service for you.
The Real Estate Bill / Act – Conclusion
The proposed provisions of the bill are very good for consumers, and would really help make real estate transactions more transparent.
However, it needs to be seen what shape the actual Real Estate Act takes. There is a very strong real estate lobby in India, and we can only hope that they do not force the government to dilute the terms of this act!
Let’s hope for the best…