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Finally, Some Credible Movement on the Real Estate Bill

This government seems serious about passing the Real Estate Bill, and it's version has some crucial improvements

Because I'm a conscientious and hard-working person, I'm going to actually write this column about the Real Estate Regulation Bill, which appears set to become the law sometime soon. Otherwise, I would have been tempted to paste in one of the columns that I wrote on the subject in 2006, 2009, 2011 or 2012.

You see, that has become a routine now. Every one or two years, there is some glad news about the long-awaited Real Estate Regulation Bill having moved from one stage in a bill's life-cycle to the next. Newspapers and TV channels talk about the wonderful, post-bill phase of India's history when real estate developers and sales agents will be magically transformed into honest, customer-focussed people who will deal fairly and transparently. There are stories in the media which basically sound like "Woh subah kabhi to ayeegi..." And then, nothing for a couple of years. We are currently in the third Lok Sabha since the earliest version of the bill was first said to be on the verge of becoming the law.

The interesting thing about this bill is that unlike so many laws connected in some way with economic reforms, no political party has ever opposed this bill. Everyone is looking forward to it, everyone agrees that it's sorely needed. And yet nothing ever happens. Actually, that's not right. Something does happen. What has happened over the last decade is that some key provisions of the bill keep getting softer and softer on the abuses that customers generally suffer at the hands of the real estate industry. For example, the anti-fund-diversion provisions of the bill are among the most important reforms that the Indian real estate needs. The biggest threat that anyone trying to buy an apartment faces are delays and even derailment of the project after they have paid the money and are paying an EMI to the bank. Almost always, the root cause is the diversion of funds by developers to launch other projects.

To see the weakening of these provisions, read what I wrote in December 2011: Compared to the 2009, the government has weakened the anti-fund-diversion provisions of the bill. In the 2009 draft, all funds collected from the buyers would have to be kept in a separate bank account, from which money could be taken out only for direct use of the project. In the 2011 bill, developers have to route only 70 per cent of the funds in this segregated bank account. This serves no purpose except to make it easier for developers to divert 30 per cent of the funds. That was in 2011. But guess what, this percentage is now down to 50!

However, unlike the past, the current bill introduces some measures that are genuinely meaningful for customers. The biggest is that ongoing projects will be brought into the ambit of the bill. While the actual impact is some way off, I'm sure it will be beneficial--otherwise the real estate developers' association (CREDAI) would not have been protesting so loudly against this provision! It's interesting to note that the only way for builders to get ongoing projects out of the bill's purview would be to complete them before it becomes the law. Now, think of the implications. This alone could be the best thing to ever happen to customers whose money is stuck in incomplete projects.
In any case, regardless of whether some parts of the bill could have been somewhat different, this is a situation where the glass is definitely half (or more) full. A house to live in is the biggest investment that most Indians make and it's a shame that this activity is almost entirely unregulated. Even basic measures like how apartments are measured, or that they can't be sold till a project is registered, and the many transparency measures in the bill will go a long way in fixing the complete jungle that real estate is.