At a time when one thought there could be an end to the reports of corruption and scams, a real-estate project in God's Own Country reminds us that nothing is over till it is over. Quaintly named Apple-a-day Properties — it may have kept the doctors away but attracted buyers in hordes; the project has left buyers holding the baby as the promoters are at large.

The modus operandi can be cast in stone – attract buyers on the basis of existing projects and vanish at an appropriate time. In the instant case, non-resident Indians seem to be the most affected.

Regulatory Bill

A Real-Estate (Regulation and Control) Bill was drafted in 2009. Enough tumult has happened in the sector since then to necessitate implementing the Bill post-haste. The Bill envisioned a Real Estate Regulatory Authority (RERA) on the lines of the Insurance Regulatory and Development Authority (IRDA).

RERA proposed a much-needed registration with them providing details of all projects and property dealers and middlemen involved in the project. After the execution of the agreement, the builder will not be entitled to create a mortgage charge on the plot, building or apartment, without the prior written consent of the buyer.

The real estate regulator would have the important task of evolving a consensus among various stakeholders, such as Central or State governments, the Bureau of Indian Standards, urban local bodies, developers, associations of engineers and architects, on various issues like structural safety, speedy grant of planning permissions, building approvals and licenses, rating of real estate projects and promoters, reliable land title certification system, speedy and transparent registration of properties, statutory framework for equitable and balanced relationship between landlord and tenants and to promote affordable housing .

State subject

The regulation of activities of property developers and builders in India is a State subject and comes under the purview of the respective State governments, urban local bodies (ULBs) and development authorities. This has led to inconsistency, vis-a-vis rules and regulations being followed in governing, constructing, purchasing, transferring and leasing of properties across the country. RERA faces the difficult task of attempting to mend these inconsistencies. RERA being a quasi-legal body, the Regulations contain provisions for appeal to a Real Estate Appellate Tribunal.

Accounting Standards

Accounting Standard 7 on Construction Contracts stipulates that when the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract should be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date.

An expected loss on the construction contract should be recognised as an expense immediately.

RERA should make it mandatory for real-estate companies to file their financial statements with them. More than the numbers, RERA could stipulate providing quantitative information in the public domain about the projects under construction including the stage of completion and proposed completion date.

Credai role

The Confederation of Real-Estate Developers' Association of India (Credai) has already established a presence in India and has been interacting with the Government on policy and tax measures relating to the sector.

Credai would be ideally suited to ensure that a dialogue takes place and the RERA is enacted at the earliest. Credai could also provide value-added services such as rating real-estate projects so that potential buyers are aware of the risks in investing in a project.

(The author is a Bangalore-based chartered accountant.)

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