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Non-resident Indians (NRIs), especially in the Gulf, want to buy property in India, but often think of it as a hit-and-miss situation. There are success stories of generous gains as well as horror stories involving dubious developers, poor construction and legal hassles.
Most investors have the funds and determination to make a purchase but fear signing on the dotted line as issues surrounding investment in India seem unsurmountable. How does one evaluate the credibility of a developer, study title deeds and check up on the quality of construction?
All this is about to change with the union cabinet recently approving the Real Estate Regulation and Development Bill, which aims to establish Real Estate Regulatory Authorities (Reras) at the central and state levels to enhance accountability and protect buyers.
The bill, first introduced by the UPA government in 2013, was never voted on. Now, the Modi government has made some changes and passed it, and it promises to bring about dramatic changes in the sector as well as restore investor confidence, especially among NRIs.
''The long-pending bill regulates transactions between buyers and promoters of residential real estate projects,'' says Sakshi Katiyal, Chairperson of Home & Soul, a Noida-based real estate development organisation. ''Some inclusions in the bill such as [allowing registration] of projects online are bound to revolutionise the sector and direct the companies to a customercentric approach.
''Additional inclusions, such as maintaining 70 per cent [of the] amount for the construction, will definitely drive this approach.''
The new regulations, covering both residential and commercial properties, require mandatory public disclosure for all registered projects. This includes details of promoters, the project, layout and development plans, and status of land and statutory approvals. Developers cannot sell properties by showcasing the super area, instead, they will have to disclose the carpet area before putting up advertisements.
''The bill could not have come at a better time,'' says Katiyal. ''There is a complete trust deficit among homebuyers and the industry is already paying a hefty price with rapidly falling sales. More and more buyers check their interests and profits in the long run and [they are] smarter today than before.
''A customer-centric approach [will] definitely encourage [people] to invest as they will be assured of the safety of their investments.''
Glossy brochures, fancy websites and tall promises may lure buyers, but the tendency is to provide sketchy details or leave them out entirely. With the new bill, developers need to mention all the information regarding contractors, architects, structural engineers, etc., associated with a project. Any buyer will get all the information from the Reras.
The consent of at least two-thirds of a property's buyers is needed if the developer wants to alter plans, design or specifications. Also, developers will have to pay refund with interest to buyers in case they fail to deliver projects on time—a huge relief to NRI investors.
Promoters will have to deposit 50 per cent of the amounts collected from buyers in a separate bank account within 15 days. This will ensure that they complete the project on time.
This provision will also allow developers to divert funds collected for a project towards land acquisition or other developments, and work in their favour by growing their land and project portfolio. However, the 50 per cent mandate will still place enough restriction on developers and ensure better completion records, says Anuj Puri, Chairman and Country Head of JLL India.
Another positive point of the bill is that it will allow real estate agents to only sell properties that are registered with a Rera. A code of conduct will be established to ensure that intermediaries maintain books of accounts, records and documents, and are not involved in any unfair trade practices.
Brokers and agents are punishable in case of noncompliance with authority and tribunal ruling, says Puri.
With the Reras, promoters will be mandatorily required to disclose all information regarding a project—completion time frame, layout plan, status of land, statutory approvals, etc. This leaves little room for hiding hard facts, especially with the availability of approval certificates and agreements online.
Additionally, buyer-seller transparency is going to revitalize investments in the future. A. Sridharan, Managing Director of Covai Property Centre, believes that NRIs will feel more comfortable with their investments since there would be safeguards and unscrupulous players will not be able to operate.
''NRIs would be assured that the developer would not dare swindle their money and delays would be a thing of the past,'' he says. ''Also, a redressal mechanism would be in place and penalties would be enforced. Most importantly, the feeling of secure investment in real estate will be established.''
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Source: Sanaya Pavri, Special to Property Weekly