The Rajya Sabha passed a bill on Thursday to regulate the real estate sector, protect home buyers and ensure the timely execution of projects with an aim to boost investor confidence and stamp out illegal practices.
The new rules, applicable to residential and commercial developments, will make it mandatory for all projects and brokers to be registered with the real estate regulator who will oversee transactions and settle disputes.
The bill will apply to new and ongoing projects.
Over the years the sector has acquired a degree of notoriety which needs to be addressed to enable enhanced flow of investments, Venkaiah Naidu, minister of housing and urban poverty alleviation said in parliament when tabling the bill.
During recent years sluggish economic growth and delays in getting approvals stalled several projects, leaving buyers waiting for their homes and developers holding high debts. It has also put a strain on investors such as banks, private equity firms and non-banking financial companies.
The bill, designed to bring transparency and accountability to the sector that contributes about 9 per cent of India's gross domestic product, is expected to revive investor and buyer confidence.
"It will help distinguish good real estate companies that conduct business by the book from those who have not ... It will make buyers more confident and will perk up market sentiments as well," said J.C. Sharma, managing director of Bengaluru-based developer, Sobha Ltd.
The new law is expected to benefit developers such as DLF Ltd, Oberoi Realty, Prestige Estates Projects Ltd and Godrej Properties among others.
It is also likely to help Prime Minister Narendra Modi achieve his election promise of providing homes for all Indian families by 2022.
"Effective regulatory mechanism will lead to orderly growth of the sector and give a strong impetus to our vision of 'Housing for All'," Modi tweeted after the bill was passed.
Provisions and penalties
Several projects in India have been delayed in recent years after developers diverted funds raised for one project to another, leaving them unable to complete construction and resulting in buyers still waiting for their homes.
The bill seeks to stop this practice and impose penalties in case of a breach.
In a key provision, the bill makes it mandatory for developers to put aside 70 per cent of money collected from buyers during the pre-sale of homes and use that solely for funding the construction of the project.
The bill also proposes that consumers and developers pay the same interest rate for any delays on their part. It also allows for developers to be arrested and jailed for up to three years for any violations.
"Even though some clauses are heavily stacked against the builders, we believe that this bill has the potential to transform our industry," said Rajeev Talwar, group executive director at Delhi-based developer, DLF.