Return to License Raj?

01 Jan 2012 CW Staff

The struggle between the builder lobby and the government continues! And the final verdict is not too far. Representatives from both parties share their views on the Real Estate Regulatory Bill with Shriyal Sethumadhavan.

The time between 1947 and 1990 was the era of the 'License Raj'. It was a result of India's decision to have a planned economy, but not much later the Government of India realised the havoc it had created and eradicated it.

In 2011, the Ministry of Housing and Urban Poverty Alleviation, proposed a bill to regulate the country's real estate. According to a report by Knight Frank India Ltd, the bill attempts to overcome the shortcomings of the existing system where the buyer's interest is frequently ignored by the promoter and government. Failing to register a project with the regulator, can lead to imprisonment of up to three years or a penalty up to 10 per cent of the estimated cost of the project.

The debate

"We may be looking at a return to 'License Raj' if the draft Real Estate Regulation and Development Bill is passed," says Paras Gundecha, President, Maharashtra Chamber of Housing Industry (MCHI). In agreement is T Chitty Babu, Chairman & CEO, Akshaya Homes, "The bill clearly states that the developer would be given a registration number within 30 days. However, if for any reason this number is not given within the timeframe, it will extend to 90 days, in short, a loss of 120 days." While Babu agrees that he is not against this bill, he expresses, "In its current form, it does not include all the stakeholders - developer, statutory authority, financial institutions, homes buyers - who are involved in the real estate business."

However, the ministry undoubtedly claims that there is no question of such a situation. "The intention is not to add one more clearance. There are 35 states and Union Territories, and each state acts to regulate this sector. The problem of clearance applies more to huge projects, which may involve environment, archeological, airport clearances, etc," says SR Rajshekar, Director (Housing), Ministry of Housing and Urban Poverty Alleviation. "We are not getting into micro management. In fact the bill will serve as a dispute-resolution mechanism and bring in more transparency and confidence in the real estate sector."

Route to corruption?

The preamble of the bill says, '...to make speedier constructions and the real estate sector deliver projects on time.' It also states that every project will be cleared, certified and permitted by the regulatory authority. "This means another window for corruption, and this time it will be huge because developers will have already invested in land, taken most of the approvals, but won't be able to start work," highlights Lalit Kumar Jain, President, CREDAI and Chairman and Managing Director, Kumar Urban Development. He strongly dismisses the bill as 'public amusement and developers' harassment bill'. "If the country's policymakers are really serious about providing affordable housing, they should set us free from red tapism."

The Knight Frank report also highlights a shortcoming in the bill: increased focus on the regulation of the real estate sector rather than development, which is the need of the hour. Also, some provisions are likely to create practical problems, believes Gundecha. As per the bill, promoters must register their projects with the regulator before advertising, booking or taking any advance from buyers. Additionally, 70 per cent of the amount realised for the project must be deposited in a separate escrow account and used specifically to meet the project's cost.

"This is the main crux of the act," highlights Rajshekar. "A builder does not have to take permission but has to register with the authority before advertising, which will keep his bona fide status in check. Also, escrow is not an entirely new concept and is already operating well in a few states."

The single window

CREDAI has proposed a model draft for speedy approval of projects through a single-window clearance and strongly advocates a comprehensive real estate regulatory regime. "The aim should be a single window clearance," says Shailesh Sanghvi, Director, Sanghvi Group of Companies. "Because until we get approvals, it will be difficult to commit possession. Hence, I believe some homework should be done internally before introducing such a bill." Agreeing on the same, Gundecha says, "A single clearance will ensure timely delivery of homes by developers or builders." As informed by Jain, Urban Development Minister, Kamal Nath has assured that the CREDAI model will be discussed in a joint meeting between Ministry of Housing & Urban Poverty Alleviation and Urban Development, and other bodies, and based on all their views, a final decision will be taken.

However, to this model, Rajshekar comments, "CREDAI is an independent body and can make any draft. The single window clearance has to come from the state government. So, the body has to negotiate and convince every state. We have no role to play here but only intervene to give a positive impetus. How much of the draft will be adopted by the state is up to them."

The countdown begins

January 11, 2012, the Ministry will see a national consultation - a complete, transparent discussion on the best solution for the people and the country. With plans to introduce the final bill by the budget session, the grand finale is not far off.

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