Delayed but welcome

Last Updated: Tue, Nov 15, 2011 19:21 hrs

The draft Bill unveiled by the Union government to set up a regulator for real estate seeks to address a key need that has so far remained unattended. The largest investment most people make in their lifetime is in a place to live, but the housing market is governed by the law of the jungle in which the developer is the lord. This situation has prevailed in part because unaccounted big money generated in politics is deployed in real estate and politicians can hardly be expected to clean up the sector. So the official move is to be welcomed. Although builders are right to argue that this will add one more layer to the enormous number of sanctions needed to get a project off the ground, no one should really complain if the regulator is able to deliver a transparent, non-discretionary and rule-based system. So, it is in the interests of builders to not just cooperate in the initiation of the regulatory process, but also work through their associations to evolve a forward-looking regulation.

The first thing that needs to be changed in the draft Bill is its scope. By restricting regulation to only projects that cover at least 4,000 square metres, which translate into around 60,000 square feet of built-up area or 50 apartments, a lot of small builders who cater to clients aspiring to own modest houses will remain outside the ambit of regulation — these are people who need a vigilant policeman the most. Increasing the scope will mean more work for the regulator, but use of information technology and innovative procedures can help. For example, the regulator should specify a model sale agreement between builders and homeowners with benchmark norms. Agreements that deviate from these can be flagged as potentially problematic and kept under watch even before trouble begins.

Also, the Bill has the potential to end a common practice followed by many builders. This pertains to announcing a soft launch (accepting deposits) before receiving all sanctions, which allows builders to do business with other people’s money. The stipulation that 70 per cent of all payments should be deposited in a project-specific account within a fortnight of receipt is just right. Of the two points made by HDFC Chairman Deepak Parekh for long, the Bill scores on one. Builders will have to declare the carpet area of a unit they wish to sell. But no warranty is in sight for construction. The Bill says a buyer can complain about any major structural defect within a year of taking possession and it will be set right by the builder. But this is totally inadequate. The rains in the first year may be weak and leaks and seepages may not show up. Not only should there be a cast-iron warranty for a longer period, but it should also be covered by a universal insurance policy so that if a recalcitrant builder has gone bankrupt, the regulator can get a contractor to fix the defect. Civil society organisations should start displaying lists of builders and political leaders who are for and against the Bill so that they are forced to come out in the open and be counted.

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