Realty Bill must cover more ground

The Real Estate Regulatory Bill, 2011 in its draft form (the draft Bill) seeks to single-mindedly tame rapacious builders.

It contains all the right provisions, garnered painstakingly from the experience of gullible buyers —compulsory registration of the builder with the appropriate Real Estate Regulatory Authority (RERA), furnishing of all sanctions, deposit into an escrow account of at least 70 per cent of collections from the buyers, uploading of all the necessary information on the website of the RERA, as opposed to the private website of the builder.

There would be as many such authorities as are States and union territories, with each one's jurisdiction being strictly territorial. Mandatory signing of agreement to sell, followed by sale/conveyance deed on completion of the project and allotment and prohibition of pre-launch sale, a means for collecting money from gullible buyers even before the appropriate sanctions are obtained, are in keeping with the legislation's intent to serve the consumer interest.

To be sure, consumer interest must be uppermost to any government, but there are issues that can neither be glossed over, nor legislated upon piece-meal. The fact that RERA oversight would not apply to projects on land measuring up to less than 4,000 sq. m (43,052 sq. ft) has also come for some criticism, but the draft seems to have realised the futility of regulating anything and everything, and has drawn the cut-off point at a level where huge public interest starts.

The buildings on lands of 4,000 sq. m and less are obviously in most cases the ones where the existing owner/s of buildings seek the services of builders to demolish their existing structures and build new multi-storied structures in a win-win deal. The draft Bill must be lauded for steering clear of such private interests.

COOPERATIVES OVERLOOKED

Curiously, the draft Bill contemplates building of structures only by builders after they have organised the requisite land for the purpose. The Delhi Development Authority (the DDA) has done stellar work by encouraging cooperatives on a scale not attempted anywhere else in India.

The most pilloried institution in the capital for sloth and corruption, the DDA is, nevertheless, remembered wistfully by those who took advantage of its schemes to allot land at hugely concessional prices to cooperatives which, in turn, facilitated acquisition of houses by members of the vast middle-class at affordable prices.

The draft Bill's obsession with builders, including ownership of land by them, betrays the government's blinkered view on the issue. The law on the anvil betrays a knee-jerk reaction to the problem of exploitation of buyers by wily builders, whereas the government should have thought of cooperatives as an alternative.

Indeed, allotment of lands to cooperatives and then ordaining them to complete construction within a stipulated period would have been more beneficial for buyers, given the fact that land cost now accounts for more than 50 per cent of the cost of a house.

The draft Bill ought also to have thought of this alternative route to house acquisition, and provided for special provisions for oversight of cooperatives as well, which, in turn, would be overseeing the builders appointed by them.

BLACK MONEY

When one talks of black money, one instinctively conjures up visions of real estate. Indeed, the lion's share of black money generated in this country, be it proceeds of crime or speed money or illegal compensation for tweaking government policies, is parked in the real estate sector in cahoots with builders, who are only too willing to accommodate any amount of illicit money.

In fact, the real estate sector is the only section of the economy that lends itself to seamless blending of illicit money with a sprinkling of legitimate money.

Shouldn't the Real Estate Regulatory Authority, therefore, be mandated with the role of eliminating black money in the real-estate sector to the extent possible in the course of fulfilling its broader mandate without being seriously detracted?

Let it be law that no builder would accept cash from the buyers. The results would be dramatic. To be sure, the RERA should not be called upon to verify the genuineness of bank accounts, but the very fact that bank money is liable to come for investigative scrutiny would have act as a check on buyers. Corrupt officials and politicians would shake in their boots.

As it is, black money is collected by the builder and passed down the supply chain to sundry steel, cement and paint dealers. Marble and granite dealers accept cash with greater alacrity. The fear of RERA sleuths swooping down on black money owners could snap this chain of transactions.

ROLE OF BANKS

The real estate scenario is not complete without banks and financial institutions. Surprisingly, the draft Bill maintains a studied silence on them and their role.

To be sure, some of the progressive housing finance companies take upon themselves the onerous task of verification of land title, etc, at great pains through a separate legal department, albeit for a processing fee the buyers do not mind paying as it is in their own interest to have the credentials of the builder verified by an expert.

Nevertheless, the draft Bill ought to have put this explicitly in the law and called upon financial institutions to verify the credentials of the builder before advancing money to buyers. In other words, the Real Estate Regulatory Authority and financiers should work in tandem in the interests of buyers.

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

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