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RICS India expresses view on Real Estate Regulation Bill

India: In response to public consultation by the Ministry of Housing and Urban Poverty Alleviation, Royal Institution of Chartered Surveyors (RICS) expressed its views on the provisions of the current draft real estate regulation & development bill.
Whilst RICS supports and compliments the ministry’s efforts in drafting a national regulatory bill, there are a few critical areas that need to be better addressed than proposed in this bill. We have given our recommendations with a view to strengthen the proposed regulatory regime.
According to RICS, there are three main areas that need to be regulated:- Construction of buildings,- Buying and selling of property, including new build market (primary market) and secondary market- Rental/management of buildings.
The real estate bill, earlier drafted as a model bill (Model Real Estate Regulation of Development Act) and recently re-drafted as a central legislation (Real Estate Regulation and Development Bill) seeks to cover the first two areas however falls short in covering many important aspects and has some apparent flaws which are likely to be counter productive.
A summary of RICS comments on the current provisions of this bill, against its objectives, and suggested frameworkThe current bill is intended to serve three key objectives:- To establish the Real Estate Regulatory Authority for regulation and planned development in the real estate sector (relates to regulation of construction of buildings)The objective is in the right direction but we are of the view that the functions and clauses covered in the purview of the real estate authority are not comprehensive. The current version of the bill does not empower the state regulatory authorities to carry out enforcement of building standards or other state-level construction laws or licensing/regulation of building-related professionals. There seems to be some inconsistency in the level of documentation required while registration and the role and objectivity of the regulatory authority in screening of this documentation to allot the license. This apparent lack of clarity and subjectivity can be a potential risk for corruption. Similar lack of clarity and caps recommended on penalties for non-compliance of the provisions of this bill are also likely to create a non-conducive environment. There needs to be further refinement of the criteria for allotment/cancellation of a project licence and to determine the high risk areas that need to be regulated in a relatively objective manner.
To ensure sale of immovable properties in an efficient and transparent manner (relates to regulation of buying and selling of properties)RICS believes that given the fact that land is a state subject, the task of setting up real estate regulatory authorities in different states would be a time-consuming exercise. Once again, the objective is right but the coverage in form of various clauses has many gaps that may not lead to success in the desired objective.
The current version of the bill partially regulates developers through the registration of projects and fulfillment of prescribed obligations, but does not regulate brokers who are an important touch point to ensure ‘sale of properties in an efficient and transparent manner’. It seems unfair that consumers are afforded a certain level of protection and redress when they buy through a developer, but have a greatly reduced set of protections when they buy directly from a broker (if brokers are not covered under the bill, which is our understanding from the current bill).The minimum threshold for regulation at 4000 sm is too high and leaves out a substantial portion of the market unregulated.
This is applicable only for the primary market and leaves out secondary market completely. It leaves out the rental market, and leaves out the commercial property market.
To protect the interest of consumers in the real estate sector and establish an Appellate Tribunal to adjudicate disputes and hear appeals from the decisions or orders of the Authority and for matters connected therewith or incidental thereto (relates to consumer redressal)The bill leaves the task of dispute resolution or consumer redressal to the real estate regulatory authority at the state level, even though most aspects requiring consumer redress pertain to consumer protection and fair practice in ‘buying and selling’ of properties. This, as per our understanding, is in the purview of central Government to regulate, against many legislations already in place (such as Transfer of Property Act, Registration Act, Indian Contract Act, Consumer Protection Act). These do not need to be left to the state regulatory authorities, as that would be a very drawn-out process which would ensure this reform is delayed by another few years.
RICS views on the proposed regulatory framework and additions to the current billA robust regulatory mechanism should include a combination of the following tools:- Legislation- Regulation or enforcement of legislation- Consumer redress- Uniform standards or code of practice – to act as a basis for consumer redress.
Whilst we have many pieces of legislation for the Indian property and construction sector, many of which vary from state to state, there isn’t sufficient regulation or enforcement mechanism for those laws. Such regulation would also help in streamlining and bringing in much needed reforms in some outdated laws.
Also, even though regulation and redress are often linked in the minds of consumers, their aims and methods are distinctly different. Regulation is intended to change the pattern of behavior of firms in general and to improve the working of markets, often by undertaking measures that affect an industry at large in a broad kind of way. Redress is intended to provide compensation for customers who have suffered from unacceptable behavior, including cases of financial detriment. It deals with individual cases and looks at events that have happened. Even though we look at the real estate regulation bill to address both, there isn’t sufficient differentiation or provisions to address both aspects in the current bill.
RICS believes that the regulatory framework should consist of three pillars.The current bill provides for a central advisory council, whose role we commend. We recommend the further strengthening of the functions performed by this council. We believe that the central advisory council, needs to be empowered by this act to prescribe certain model guidelines, standards, procedures, etc, to be adopted and followed across different states for uniformity and sharing of best practice. 1. The task of the central advisory council should be:• As far as construction of buildings is concerned, to advise on matters related to standardisation, efficiency and development in construction of buildings• As far as buying and selling of real estate  is concerned, to set standards (such as standard sale and purchase agreement formats, and standard measurement norms) and codes of practice for all intermediaries including developers and brokers, against which consumer redress needs to be provided by ombudsmen. The role of developers and brokers in buying and selling of property would be covered in a regulatory code of conduct and would fit better there than in the main legislation. Without a clear and transparent code of conduct (currently laid down as obligations of the developer), it is difficult for any consumer redress mechanism to operate effectively. for it to be more practical to implement, as this is the burning need of the hour. 
2. Consumer redress relating to fair practice in ‘buying and selling’ of properties may need to be brought under the purview of central government• Towards this end, we have proposed a consumer redress council whose task should be to set up state or metro or city-level ombudsmen to provide consumer redress in the process of ‘buying and selling of property’against the standards/code of practice prescribed by the central advisory council. This should not be limited to real estate development of a minimum of 4 000 sm and the minimum threshold for consumer protection should be kept as 1 000 sm as in the earlier version of bill. This should be the immediate priority under the upcoming bill. This protection should be extended to transactions in the secondary market; if not immediately, it should be planned in the medium term.
3. The task of state level regulatory authorities should be to regulate the activity of construction of buildings, in order to:• Ensure all new projects are registered with the real estate regulation authority and have obtained all necessary approvals required by central and state legislation and procedure• Ensure regulation of various state building laws as well as property laws and policies• Provide consumer redress for non-conformance to building standards or building laws or building defects.
Source: RICS