Indian Realty Sector in need of Regulation

The realty sector probably has the maximum rate and volume of investments and the number of investors. In contrast to the various Securities and Exchange Board of India regulations aiming to protect the capital market investors, real estate development regulation has mostly been neglected.

Current scenario holds that the Indian developers buy land; obtain clearances from the competent authorities for building and layout plans. The predevelopment clearances needed range from non-agricultural orders by way of government permissions for the proper use, building and floor plans are approved by local municipal or state urban development authorities, no-objection certificates are also to be obtained from state pollution boards, water supply and sewerage authorities, properties and other state and central authorities in order to rule out attendant risks.

But, in practice, these approvals are taken at a much later point of time, and booking and collection of a large chunk of demand from prospective buyers are concluded well before these clearances are obtained. This leaves buyers with no choice but to sign on the standard contract formats, with no right to negotiate. The contracts which the buyer is induced to execute are with loopholes for the developer to get away with.

So far the buyers’ recourse has been to the Consumer Courts. In 2007, The National Commission held that the builders’ practice of collecting money from prospective buyers without obtaining the required permissions amounted to an unfair trade practice and the builder is duty bound to obtain the requisite permissions in the first instance, and thereafter, recover from the buyer. Further it also held that if there is any express promise that the premises would be delivered within a stipulated time-frame, the builder has to bear the escalation costs.

A case in point is that of DLF Park Place in Gurgaon, which was to be constructed in 22 mn sq ft in 13 blocks of 1 floor and completed by fiscal 2010. The delay was caused due to DLF departing from the original project, in getting approvals for 29 floors with the plot area being substantially reduced, in breach of the Haryana Urban Development Act the Haryana Apartment Ownership Act, 1983.

With the change in law, such cases come in scope of the Competition Act. The Apartment owners Association, in this case approached the Competition Commission (CCI) for abuse of dominant market position. The CCI has restrained DLF from cancellation of the allotments and also creating third party rights, and also referred the matter to the Director General – Investigations for further consideration.

In the meanwhile, the builder lobby is trying its best to find the Bill, which requires preregistration with the Regulator before the property can be marketed. The Regulator will scrutinize all advertisements, which are to be mandatorily displayed on the developers’ website.

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