A Perspective on the Real Estate Act

8/2/2019 A Perspective on the Real Estate Act

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A Perspective on the Model Real Estate Act

Ever since the development of private ownership of property µreal estate¶ has been a thriving

industry in the country. The liberalization of the country coupled with the consequent

increase in business opportunities and the large masses of migrant labour that came with it

gave a whole new dimension to the real estate sector. The real estate sector is the second

largest employer in the country after agriculture and contributes to more than five percent of

the country¶s GDP. The sector assumed growing importance with the increased demand for

housing and commercial space; these periods of scarcity of space were a season for rich

harvest for the real estate promoters of the country.

With the real estate boom resounding in all directions and tons of transactions

happening every minute the plight of the ³ultimate consumer´ often nicknamed the alotee,

often went unnoticed. With literally no laws regulating the sector and a perennial supply of

investors all that the promoter has to do is further hone his skills to get the best catch.However the situation seems to be heading towards a drastic change, be it the unending row

of investor complaints in courts across the length and breadth of the nation or the increasing

susceptibility of the sector to become a hub for black money, the authorities seems to have

taken note. The Model Real Estate (Regulation of Development) Act stands testimony to this.

The proposed acts is aimed at regulating the real estate sector and bring in sound

³business principles´ to the sector, a term which was perhaps until now alien to it. It

emphasises on the protecting the public interest in relation to the conduct of the promoters.

Considering the huge amounts that are invested in the sector and the mammoth contribution

to the GDP by the sector it is high time that the promoter is made accountable to the

authorities and the end consumer. The act takes this requirement in its right spirit and createsa regulatory authority which shall have a supervisory bearing on the promoters before the

project is started, during the continuance of the project and even after the completion of the

project.

Even before the project starts the act mandates registration of the project accompanied

by all necessary information including the plans and estimates to the Regulatory Authority,

which after perusal of the documents will issue the registration and publish the information

tendered to it in its website. The promoters too will be given a password to access the

Regulatory Authority¶s website and update as well as add to the information provided. The

act explicitly prohibits any kind of financial transaction in the name of advance or otherwise

before entering into a registered sale agreement between the parties. Since people are often

tricked into investing in projects that don¶t even exist and left with no option to reclaim the

amount, the registry of projects that will be published in the Regulatory authority¶s website

will be a must check for all potential investors in real estate. The act balances itself by

incorporating a thirty day time limit for approval of registration application after which the

application would be deemed approved.



A mere provision of registration does not serve the purpose of instilling a sense of

responsibility on the promoters, the ministry of housing and urban poverty alleviation which

initiated the draft act found in its study that a person investing in a housing project would

very well be making the biggest investment of his entire life and it takes the gross income of

approximately five years to own a house. Where such importance is attributed to the sector in

the personal as well as national economy promoter responsibility becomes a prerequisite.Under the act the 5% of the estimate of the project duly authenticated by a practicing charted

accountant has to be furnished as bank guarantee, which will be released only after the proper

completion of the project. The Regulatoy Authority reserves the right to cancel the

registration of the project, withhold the bank guarantee and publish the names of such

cancelled projects and promoters in its website. Hopefully, if not the bank guarantee, at least

the negative publicity will make the promoters comply with the requirements of the act.

Investor grievance is not new to the courts; the courts in the country are overflowing

with disputes relating to promoter¶s non-compliance with the promises in the prospectus. The

prospectus, although an essential element in the marketing strategy of every real estate

promoter, is seldom a reflection of honesty. The act addresses this grievance quite effectively,

not only does it make promoters accountable to what they promise in their prospectus by

making them liable for compensation incurred to any person due to any such false

information, it also explicitly prohibits advertisement and issue of prospectus for all

unregistered projects.

Disputes related to the escalation of costs, delay in completion of projects, absence of

clearance certificates, and non-inclusion of costs for fittings are also quite common. The act

dictates the display of all clearance certificates in relation to the project on site and an

obligation to provide any other such document to the alotee on demand. It even prescribes

that the promoter be made to bear the costs of procuring the occupancy certificate by the

alotee if the latter had to procure it himself. Mandatory provision regarding the disclosure of

all fittings is also an important step to ensuring consumer confidence in real estate deals. The

proposed act casts an additional obligation on the promoter to provide essential services

including water supply, electricity and even lights in passages. Other responsibilities of the

promoter include a full refund to the alotee on unilateral termination of contract and

submitting of documents for inspection to the Regulatory Authority. The regulatory authority

shall bear the burden of ensuring that all registered projects comply with provisions of the

act.

In order to avoid adding cases to the already overburdened court system and to an

extent to avoid unnecessary delay the jurisdiction of the civil courts are ousted. However theact provides for the creation of an appellate tribunal which shall be headed by a chairman

who shall be a someone who is or has been a judge of the High Court and assisted by two

others knowledgeable in the area or someone who has served as principal secretary to the

government to hear and dispose off appeals from the orders and directions issued by the

Regulatory Authority expeditiously within a span of ninety days from the date of receipt of

the appeal. Although the civil court¶s jurisdiction is ousted courts superior to and that of the



Judicial Magistrate of the First Class and Metropolitan Magistrate are entitled to try offences

punishable under the act.

Although the act is still in its draft stage it most certainly has the potential to be

instrumental in regulating one of the most unregulated and attention needy sectors of the

country¶s economy. But the fact that the act has completely overlooked the cause of millions

of largely unorganised workers is a cause of concern to many. However in the context of

numerous instances of corruption, malpractices and administrative red tepeism, the big

question seems to be ³How effective is the regulator going to be?´ which of course will only

be answered once the act comes into effect.

Documents

A Perspective on the Real Estate Act