It’s unfortunate that so many reform bills are stuck in parliament but in the case of the Real Estate Reforms Bill, this may actually be good news. The real estate bill is a long-awaited and much delayed piece of legislation that is arguably of more practical importance to most people’s savings and investment than anything else.
The bill’s draft was released to the public by the government in November. There were some news stories about this bill at the time, but there has been no real public debate and analysis. This is unfortunate because while there’s a lot that’s good in this bill, there are also a few of serious problem areas. If the bill were to be passed in its present shape, then that would leave some serious loopholes that could be exploited by unscrupulous developers. In fact, if one were to compare the 2009 draft of this bill that was made public at the time with the current draft, then it seems possible that the room for these loopholes has actually been created because of lobbying by the real estate industry.
Here are the two big problem areas. The first is about diversion of flat buyers’ funds by the developer. Such diversion is a widespread malpractice and is a major reason for delayed and stalled projects. The 2009 draft of the bill stipulated that all payments taken from buyers for a particular project would be kept in an isolated account of and would be used only for that project. Strangely, the 2011 draft of the bill reduces this to seventy per cent of the funds. Basically, the 2009 draft sought to prevent the diversion of the house-buyers’ funds but the new draft allows diversion of 30 per cent of these funds.
The second problem area is the exemption of small projects from registration and most of the provisions of the bill. The 2009 draft exempted projects smaller than 1000 sq meters. This has now been raised to 4,000 sq meters. Moreover, if a project is implemented in phases, then the limit will be applied to each phase separately. Practically, this means that a vast majority of projects could easily be structured to avoid the coming under the purview of this bill.
If the anti-customer practices of the powerful and politically well-connected real-estate industry are to be curbed, then these loopholes in the bill will need to be addressed.