The Draft Real Estate Regulation Act is already in circulation. This is an Act proposed by the Central Government which will need to be adopted and passed by every state in the country separately as Real Estate is a State Subject.
The Act in its present form seems more like a Real Estate Consumer Protection Act as the Law is extremely customer centric and ignores many other aspects of the industry which are B2B and C2C. Ideally Real Estate industry is in desperate need for regulation and the reason why players in the Real Estate Industry are looked down upon as a bunch of unscrupulous profiteers is due to a lack of a Regulator for the industry. Even a semblance of regulation gives a feeling of security to promoters, customers, vendors and every other agency related to the industry. Hence however it may be at present, the draft Real Estate Regulation Act is a step in the right direction.
With such a move the industry can only benefit, however one should be careful not to get into the trap of overregulation and impractical laws which cannot be implemented in our enthusiasm to get the sector regulated. Ideally the industry should be self regulated, however since the industry deals with scarce natural resources and is the second largest employer in the country accounting for more than 7% of the GDP, the industry needs to be regulated. Regulations will see that no serious players, opportunists and profit mongers are weeded out of the industry which will do a lot of good for the industry. Secondly, there is a general perception that players in real estate have no ‘skin in the game’. This means that developers of real estate rarely invest their own money. They get into all kinds of transactions, arrangements with the lure of high returns and don’t need to invest. This will be history wiyth proper regulations and only serious developers with the equity to invest in projects should remain. This will mitigate the biggest risk in Real Estate Projects - the risk of timely project completion or project completion itself.
The proposed Act also attempts to dictate the use of funds which developers collect from the general public. This will ensure that the fund collected from buyers are not misused or diverted to other projects. Again a welcome development, however over regulation of monitoring of use of funds can create practical problems, bureaucracy and delays in implementation which could possibly increase project costs.
In a nutshell the Regulator of Real Estate should ensure:
- Only genuine promoters with the right background, financial capability and intentions remain in the industry
- Customers get what they are promised by the developers
- Only projects that have all permissions and sanctions are launched
- Projects are completed within specific time lines
- There should be a tribunal in place to handle disputes between Developers themselves, Developers and Government, Developers and Buyers, Developers and Vendors etc.
This will improve the image of the industry and get capable Developers and promoters who have stayed away all this while as they think they don’t fit here.