Bill for keeping tab on real estate sector on the anvil

[RajaRC]

Home > Economy & Policy Live Markets | Commodities






Print this Facebook Twitter




Bill for keeping tab on real estate sector on the anvil

http://www.business-standard.com/india/news/bill-for-keeping-tabreal-estate-sectorthe-anvil/417217/

Kumkum Sen / New Delhi December 6, 2010, 0:08 IST

The year 2010 will probably go down in India’s history as the year of
scams. As always, the authorities swing into action after the event.
Regulations and compliances notwithstanding, scamsters continue to
devise and leverage the loopholes.
Click here to visit SME Buzz

Unregulated sectors, such as real estate, which is in acute need of
regulation, probably demonstrate best the investors’ predicament.


The real estate sector probably has the highest rate and volume of
investments and the largest number of investors. Contrasted with the
various SEBI regulations which aim to protect the capital market
investors, real estate development regulation has been sadly
neglected, though there is a draft Bill on the anvil.

Currently, the Indian promoter-developer buys the land from villagers
and “obtains” clearances from the competent authorities for the
building and layout plans. The predevelopment clearances required
range from non-agricultural orders by way of Government permissions
for the proper use, as for example conversion of land earmarked for
agricultural purposes only. Building and Floor plans are approved by
local municipal or state urban development authorities, depending on
location. In addition, a no-objection certificates are to be obtained
notably from the state pollution boards, water supply and sewerage
authorities, properties and respective state and central authorities
such as the Archaeological and Airport bodies in order to rule out
attendant risks the development may pose to the existing structures
and operations.

In practice, these approvals are taken at a much later point of time.
Because of the tight demand and supply situation, booking and
collection of a large chunk of consideration from prospective buyers
are concluded well before these clearances are obtained. The buyers
have no choice but to sign on the standard contract formats, without
the right to negotiate, leaving customers and investors to the mercy
of unscrupulous promoters and subjected to various unfair trade
practices, with cavalier disregard for compliances. The contracts
which the buyer is induced to execute have clauses which are onerous
and one-sided, with loopholes for the developer to get away with
delays, random cost escalations, exorbitant penal interest, to name a
few. The Developers ensure that they are fully insulated from all
future liabilities, which are passed on to the buyers at a later point
of time, when they become aware that their rights to ownership, super
areas, common areas and facilities are very different from what was
represented.

The buyers’ recourse so far has been to the Consumer Courts. The
National Commission in 2007 dismissed DLF”s appeal from the complaint
filed by one Kamal Sood to hold that the builders’ practice of
collecting money from prospective buyers without obtaining the
required permissions amounted to an unfair trade practice, and the
builder is dutybound to obtain the requisite permissions in the first
instance, and thereafter, recover from the buyer. It further held that
if there is any express promise that the premises would be delivered
within a stipulated time-frame, the builder has to bear the escalation
costs. Even then the developer’s deep pockets, and rounds of appeals
are often a deterent for mostinvestors.

A case in point is that of DLF Park Place in Gurgaon, which was
represented to be constructed in 22 million square feet in 13 blocks
of one floor, to be completed by fiscal 2010. The delay was caused by
DLF departing from the original project, in getting approvals for 29
floors with the plot area being substantially reduced, in breach of
the Haryana Urban Development Act the Haryana Apartment Ownership Act,
1983. Additional charges were taken for stilted parking spaces, which
the Supreme Court in its Judgment of August 2010 in the matter of
Nahalchand Laloochand (P) Ltd. vs. Panchali Co-op Housing Society has
held to be illegal.

With the change in law bringing such cases in the ambit of the
Competition Act, the Apartment owners Association, in this case
approached the Competition Commission (CCI) for abuse of dominant
market position, after certain allotments were priced much higher than
initially projected. The Competition Commission has restrained DLF
from cancellation of the allotments and also creating third party
rights. The CCI has also referred the matter to the Director General –
Investigations for further investigation.

If the CCI can deliver fast, and with the appeal lying only to the
Supreme Court, the process should be quicker.

In the meanwhile, the builder lobby is trying its best to scuttle the
Bill, which requires preregistration with the Regulator before the
property can be marketed. The Regulator is to scrutinise all
advertisements, which are mandatorily displayed on the developers’
website. Unilateral cancellations are subjected to stringent
conditions, permitting withdrawal by the investor with full refund and
interest thereon. Given the above, this Bill needs someone like Aruna
Roy to fast forward it.

Kumkum Sen is a Partner in Rajinder Narain & Co. and can be reached at
Email: kumk...@rnclegal.com