Why some states could delay real estate regulator Bill

Laws in several states are inconsistent with the model Bill passed by Parliament.

The Real Estate Regulation Bill may trigger a Centre-state clash as some states, including Maharashtra, Haryana and West Bengal, already have similar rules in place.

The Real Estate (Regulation and Development) Bill, 2013, passed in Parliament recently, seeks to create a set of rights and obligations for developers and buyers.

Developers will now have to set aside 70 per cent of sales proceeds from a project in an escrow account and get mandatory approvals before launching a project.

Also, buyers and developers will be paying the same interest rate on defaults. This, however, is a model Bill and states can have their own rules based on it. 

Many developers have already started bargaining with state governments to not bring under-construction projects in the ambit of the Bill.

Many have also requested state governments for a less stringent imprisonment clause.

Experts say the Bill differs from existing laws in many states.

States can continue to apply their laws regulating real estate as long as they are not contradicting the central one.

According to PRS Legislative Research, while the central Bill mandates establishing a statutory regulatory authority to register projects in a state, West Bengal has delegated this function to a government department.

The clause mandating 70 per cent of the funds collected from buyers of a project to be kept in an escrow account is also inconsistent with the new Bill as many states have allowed for greater flexibility in usage of funds.

While Maharashtra Housing Regulation and Development Act, 2012 mandates that the entire amount collected from buyers be kept in a separate account, the draft Haryana Real Estate (Regulation and Development) Bill, 2013 mandates at least 70 per cent of the amount collected from buyers be used for the particular project.

Punjab, West Bengal and Uttar Pradesh have hinted they would prefer to continue with existing state laws on real estate, PRS said. This will make it difficult to have one set of regulations across India.

Pankaj Kapoor, founder and CEO, Liases Foras, a real estate research firm, says states are bound to follow the model Bill.

“It is in favour of the consumer. It is mandatory for them to follow the model under a section of the Constitution. Although they can delay the implementation of the Bill, ultimately they will have to do it.”

Minister for urban development Venkaiah Naidu has been seeking cooperation from states for faster clearances to projects to make this Bill, which will override all state legislations, a success.

“Our ultimate intention is to ensure consumer satisfaction. Once the Bill is notified, you will get more investments in the real estate sector, early clearances and property prices will come down." 

After the Bill is put into place, it will make it mandatory for all residential and commercial projects to register with the regulator.

It also provides for imprisonment of up to three years in case of promoters and up to one year in case of real estate agents and buyers for any violation of orders of Appellate Tribunals or monetary penalties or both.

The mandatory registration for projects has been brought down to 500 sq m area, or those comprising eight flats.

Also, a clear definition of carpet area and a system that would require the consent of two-thirds of the buyers in case there are changes in project plans.

INCONSISTENT RULES

While the central Bill mandates establishing a statutory regulatory authority, West Bengal has delegated this to a government department.

While the central Bill says that 70% of the funds collected from buyers of a project should be kept in an escrow account, some state governments have allowed for greater flexibility. 

The Maharashtra Housing Regulation and Development Act, 2012, mandates the entire amount collected from buyers be kept in a separate account.

States such as Punjab, West Bengal and Uttar Pradesh say they would prefer to continue with existing laws to regulate real estate.

Experts say while the central rules will eventually overrule the state norms, some states might delay implementation.