Friday, December 16, 2011

With the Real Estate Regulatory Bill stipulating norms for project advertisements, home seekers expect more clarity but there is also a possibility of projects being delayed, prices rising and restrictions on raising finance deterring new launches

The ramifications of ‘reliable information’

With the Real Estate Regulatory Bill stipulating norms for project advertisements, home seekers expect more clarity but there is also a possibility of projects being delayed, prices rising and restrictions on raising finance deterring new launches



The provisions of the proposed Real Estate Regulatory Bill have been discussed and debated in various forums. Among the aspects that have drawn attention are the norms for advertising projects. Some term these norms a panacea for most ills plaguing project communication while others feel they would complicate matters and delay project launches, leading to scarcity and higher prices.

Yet another approval
Bharat Dhuppar, CMO, Omkar Realtors & Developers Pvt Ltd, points out that real estate already suffers from a long list of approvals which take anywhere around one year plus. "This will add into yet another approval and thus further delay the project. Also there are many approvals which are granted at various stages of the project and stating all approvals to be in place may not be possible. This needs to have more clarity. The realty sector has come a long way in terms of transparency and it is improving day by day. The FDI and other funds along with banks ensure enough due diligence before a project starts."

May trigger litigation
Neeraj Gulati, MD, Assotech Realty, emphasises, "By restricting advertising before registration, the practice of 'pre-launch' sales resorted to by most builders will be done away with. In that case, the builder will suffer on the account of liquidity since it would not be possible to raise capital by inviting finance from prospective investors. The builders will now have to find alternate/ innovative ways to raise the capital required which will also impact the prices of the property. From the customer point of view, those who are looking at buying real estate as an investment vehicle will also lose out on the opportunity. Now, they will only get built-up real estate properties at slight price differences. Although it is a move in the right direction, but there is no clarity on its implementation which may bring in a lot of litigation. The details relating to the same would have to be worked out minutely for it to have the desired effect"

Higher project costs
Shrinivas Rao, CEO-Asia Pacific, Vestian Global, feels the impact of this will be that builders will not be able to sell units in the pre-launch phase. The amount collected during this phase is used for the pre-construction phase. However, this may not be an option post the bill. Established developers will lose out on this option of raising funds. The registration cost of each project will be additional cost on the builder and will add to the project timelines. This will eventually lead to an increase in project costs. This is also another area when corruption can arise. Instead, the bill could introduce an online registration system which makes it more transparent.

Buyers will benefit
Rao opines that buyers will benefit in the following ways: Every project launched by a developer has to be registered with the regulatory body. In order to register, the projects must have obtained all the approvals, the land title must be clear. This not only protects the buyer's interests but also saves the buyer time and cost involved in legal due diligence. Bookings for projects are allowed only after the registration. This will prevent pre-launch bookings thereby collecting money from buyers before obtaining the necessary approvals and in some cases even before purchase of the land. At least 70% of the payments made for the projects have to be deposited in a separate project account and should be used exclusively for the project only. This will prevent transfer of money from one project to other thereby ensuring projects are not delayed. The registration is valid for three years within which the project must be completed. An extension of 1 year can be availed twice within which the project. Mandatory signing of agreement to sell, followed by sale/ conveyance deed on completion of the project in favour of the buyer and hand over title documents to the society formed by the buyers.

Good in intent
Harresh Mehta, CMD, Rohan Lifescapes, says, "The proposed legislation is both necessary and good in intent. It will change the ground rules and dynamics of the business if implemented in spirit. Increased transparency is really necessary. The proposal to centralize litigation before a tribunal is a welcome move. Actual implementation will depend on the respective states which is different from the other agencies like SEBI and IRDA. It will give much more comfort to home buyers and in the long run facilitate faster growth."

Secure and transparent
Amar Britto, director, Acron Developers opines that the real estate regulatory bills seek to make the buying process more secure and transparent with a view to protecting the buyer's investment. "In the current market many home buyers face problem of getting trustworthy information about the identity of the promoter and basic facts regarding the legal and approval status of the land and the project concerned. The new law mandates that each project be registered with and approved by the Real Estate Regulatory Authority and that all information filed with the authority be made available on its website."

Lays down penalties
Britto underlines that "The draft bill also mandates that the developer stick to the announced specifications and plan, and it lays down penalties if they don't. As far as fund diversion is concerned, the bill also tackles the transferring of funds from one development to the other by registration of a project for three years and is then extendable for specific reasons twice for one year each. After that, the law allows for what appears to be a handover of the project to some other entity like an association of the buyers. It mandates that 70% of the funds taken from buyers be kept in a separate audited account and paid out only for project expenditure."

No disclaimer clauses
Manoj Asrani, brand & marketing manager, Soham World, opines that advertising control in real estate will act like a stick to the developers; they will not be able to caveat the projects any more or put a disclaimer clause of subject to change. "I appreciate the control being a marketing manager as it's the right of customer to know and receive right information."
According to Asrani, there are several ways by which certain developers misuse advertising. These include brochures with stock Images; unscaled furniture plans, which project flat size bigger then what they are; landscapes of other projects or computer generated images (CGIs), disproportionate sample flats and showing interiors, which actually are not delivered, just to mislead the customer. Abstract terms such as Lexicon of Heaven, Paradise and 7th Air are used, which are not measurable. The customer is misled and he can't do anything as the brochure says it's subject to change. Then why can't the customer also change his mind and cancel the booking without fine?"

Ensure location transparency
Sunil Mantri, chairman, Sunil Mantri Realty, opines, "I believe this is a good move proposed vide the Regulatory Bill wherein developer is supposed to disclose in a true and transparent manner, the picture of the project. I hear a number of complaints wherein couple of developers have started playing with the 'area location' itself. A couple of developers having projects in Parel write the location as Mahalakshmi/ South Mumbai. Why this manipulation? Everyone knows where Parel is and where Mahalakshmi is situated."
In his view, with the introduction of the bill, developers will be forced to write the exact specifications and amenities in the advertisement. If you show a swimming pool in the advertisement in the project and actually do not provide it, the same would amount to a violation and the consumer would have the right to knock on the doors of the Regulatory Authority in the case of such misrepresentation from the developer.
Probably, in the government's mind, people understand what has been printed in the advertisement rather than going through a legal and complicated agreement text and other relevant paper texts.
This will help to a great extent where an exact picture of what the developer is going to provide is disclosed in the advertisement. I believe it is a good move from the consumer's perception, where eventually the consumer would be benefited and the developer would be forced to disclose a true and transparent picture of what he is going to provide in the project.

Insulated from risk
Ayush Bagla, director, Equirus Capital, feels that since developers can only publish advertisements or invite home buyers to book flats in projects, after obtaining a copy of the certificate of registration from the regulatory authority, this will ensure home buyers are to a large extent insulated from approval risk in the projects, and an independent authority has completed a level of land and approval diligence on the project. This move will help project promoters get enough equity in place and not rely on pre sales for project progress.

Compensation for buyers
If a home buyer sustains a loss due to a misleading advertisement, the project promoter will have to compensate him in a manner determined by the authority. A person affected by false statements in the advertisement/ prospectus, who intends to withdraw from the project, shall be returned his entire investment along with interest at such rate as may be prescribed. These in effect are deterrents for project promoters to accelerate the process of advances from home buyers without setting the project on a particular trajectory.

Safeguarding buyer investments
Sanjay Pareek, president, Percept Out of Home, feels that, "This will surely help the customers, as this will safe guard their investments. They will have full transparency and information on the investments they plan to make. For most people this is the biggest investment in their life time; this process will surely help security of their investment.”
“For Out of Home agencies, this is alsoa very welcome move. This move will help the agencies to deal with the projects, which are legitimate by real estate industry and we hope that the default or delay in payment instances will reduce substantially."

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