Need for a Statutory Regulator for Property Transactions For most people, the process of buying property requires great attention. It is often a huge investment – possibly the largest that an individual is likely to make; and they would want true value for the money invested. Coupled with the decision to liberalise the FDI norms in the construction sector, it comes as a surprise that the real estate sector continues to function unregulated without a consumer friendly legal framework, especially when mutual funds, insurance policies, fixed bank deposits and securities are all subject to the guidelines of a market regulator. Until now, only Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) were permitted to invest in the housing and the real estate sectors. Foreign investors other than NRIs were allowed to invest only in development of integrated townships and settlements either through a wholly owned subsidiary or through a joint venture company in India along with a local partner. Though the real estate sector in India is proclaimed to be the most promising sector today, it is still hugely plagued by market uncertainties and inhibitions. The real estate market in India predominantly continues to remain unorganized, fairly fragmented, mostly characterized by small players with a local presence. Thus, a Rs 500 transaction has a regulatory structure in place, while a Rs 50,00,000 contract runs on trust or might. What makes the purchase process even more harrowing is the complete lack of professionalism. The sector is replete with builders and brokers who are not only ignorant of the law, but also about the ways of civil engineering. The Finance Ministry has also expressed concerns about the exponential growth in the highly unorganised sector, which is also supposed to be one of the most corrupt sectors of the economy. In a bid to protect consumers, the urban development ministry plans to create a regulator for the real estate sector. A real estate commission will be set up to frame guidelines and a code of conduct for property dealers. This would mean that property dealers and architects would have to get themselves registered before doing business. These moves are all likely to be part of the proposed Real Estate Management Bill. However, keeping in view the strong opposition of a section of lobby of builders and property agents, it remains to be seen whether the government would be able to push forward the proposed Bill. There are proposals for self-regulation by the industry. However, a section of builders have also supported the government’s move, as it would bring transparency in the industry and an assurance to the customers. Once confidence level improves, the quantum of foreign investment coming into the sector could rise substantially leading to growth in the sector. As per an estimate, the real estate sector is expected to get an investment of over $50 billion in next 5 years. Under the proposed Bill, neighbourhood property dealers will have to compulsorily seek licence from the proposed commission for practising in specific catchment areas. To further protect the interest of consumers, the commission will also entertain complaints against dealers and will be empowered to take punitive action. There are also plans for setting up an assistance window at the proposed commission, where prospective buyers will be able to thoroughly check the antecedents and other details of the property. The same act is also expected to ban pre-launch offers – a method to take consumers for a ride in the housing sector. Realtors would take huge advances for proposed flats immediately after acquiring land even without the necessary clearances. In some cases, developers have even received advance money before the land was even transferred. More often than not, the developers have sunk the money in alternate projects. Once a project has been approved, builders will be barred from accepting any advances or deposits from buyers unless a sale agreement has been executed. The moves are expected to put an end to pre-launch bookings and publicity which jacks up property prices beyond prevailing market rates. This speculation severely disadvantages genuine buyers while aiding those out to make a quick buck. Apart from the ban on making these offers, the bill is also likely to mandate that the developer sign an agreement with the buyers, assuring them of delivery of the property within a stipulated period.
However, the draft of the proposed enactment reveals a few serious flaws. These mainly stem from India’s federal constitution which places property as a subject for state legislation. The fear is that the new statute will face the fate of the National Building Code, which is being ignored by states as much as possible.

For most people, the process of buying property requires great attention. It is often a huge investment – possibly the largest that an individual is likely to make; and they would want true value for the money invested. Coupled with the decision to liberalise the FDI norms in the construction sector, it comes as a surprise that the real estate sector continues to function unregulated without a consumer friendly legal framework, especially when mutual funds, insurance policies, fixed bank deposits and securities are all subject to the guidelines of a market regulator. Until now, only Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) were permitted to invest in the housing and the real estate sectors. Foreign investors other than NRIs were allowed to invest only in development of integrated townships and settlements either through a wholly owned subsidiary or through a joint venture company in India along with a local partner.