Real Estate Bill

This could make a real difference to the realty business in India…

The Real Estate Bill that was passed in the Rajya Sabha yesterday was the first step towards bringing greater transparency in the real estate business. In a billion dollar industry that is largely unregulated, unstructured and unwieldy, this was long awaited. The bill is still far away from being implemented. Firstly, there is the need for a presidential assent to the bill, which should not be a major worry. The bigger challenge is getting to pass the relevant bills at the state level. In India land is still a state subject and hence without proper legislations passed by the respective States, this bill will only be a model. That entire process of all states ratifying the bill itself may take nearly 2-3 years.

Will bring transparency…

This is an all-encompassing bill which will regulate commercial and residential real estate. The bill is important because despite being a multi-billion dollar industry, it was hardly regulated. There is a bigger issue in India of builders managing to collect monies in advance from the buyers and then not delivering on commitments. This has been the bane of most projects in India, especially where the prices of property have crashed subsequent to the commencement of the project. Secondly, most builders tend to function across multiple projects and hence the buyer’s deposits become working capital for the builders. This is also sought to be addressed by this bill. Builders will have to deposit 70% of the collections in a separate account and that can only be used in sync with the status of the completion of the project. This will go a long way in ensuring that the interest of the buyers is protected. But above all, the liability of the builders will be extended from 2 years to 5 years making them accountable well after the completion of the project. This will weed away the fly-by-night operators and lend itself to great corporatization.

Digitization and structuring…

While these may be early days yet, one big advantage of the bill would be that it would result in a greater structuring of the real estate business. The government has already taken an important step towards digitization of land records which will help to give form and structure to this industry. The structuring of the industry will have 3 important ramifications for the real estate projects. Firstly, it will enable a more positive credit rating for the projects enabling them to attract a better price and buyer interest. Secondly, funding from banks will become a lot easier since titles will be clearer and hypothecation will become less cumbersome. Above all, this will enable real estate companies to hive off stakes to P/E funds and also securitize their receivables through REITS. In the final analysis, real estate developers and builders will actually stand to benefit the most from this bill! ©

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