India passes bill to regulate real estate sector (updated)

Unitech

10/03/2016 15:30

(Adds details of the new law, quotes from company executives) 
    NEW DELHI, March 10 (Reuters) - India's upper house of 
parliament 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 percent 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  SOBH.NS . 
    The new law is expected to benefit developers such as DLF 
Ltd  DLF.NS , Oberoi Realty  OEBO.NS , Prestige Estates Projects 
Ltd  PREG.NS  and Godrej Properties  GODR.NS  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 percent 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. 
 
 (Reporting by Aditi Shah, additional reporting by Nigam Prusty, 
Editing by Anand Basu and David Evans) 
 ((aditi.shah@thomsonreuters.com; +91-11 4178 1031; Reuters 
Messaging: aditi.shah.thomsonreuters.com@reuters.net; twitter: 
@aditishahsays)) 
 
Keywords: INDIA REALESTATE/REGULATIONS