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An Unreal Development: How new Maharashtra real estate law legalises malpractices

Pic Courtesy- Nik Wheeler

Pic Courtesy- Nik Wheeler

25 Apr, 2014, 0452 hrs IST

 

Curious Case: Rewind Button The central Bill allowed registration of projects only after all clearances have been obtained. Maharashtra removed this requirement.

By Bibek Debroy

In August 2013, the Real Estate (Regulation and Development) Bill was introduced in the Rajya Sabha. The idea is to set up a real estate regulatory authority (Rera) in every state, to pin down functions and duties of promoters, list rights and duties of allottees, provide for registration of realty projects and list out offences and penalties.

The standing committee submitted a report in February 2014. This is about extending the Rera mandate rather than diluting it. In addition to residential real estate, why not cover industrial and commercial real estate? Why not include smaller projects? The Bill covered projects of more than 1,000 sq m and more than 12 apartments.

The standing committee wanted the threshold reduced to 100 sq m and three apartments. Why not insist on registration of all real estate agents, and not just those linked to projects under the ambit of the Bill? The only “dilution” in favour of promoters was for structural defects. In the Bill, promoters had to rectify structural defects within two years; the standing committee recommended five years. If one lists the sectors that require regulation, real estate will be right at the top.

There used to be a Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963. An old piece of legislation needs repeal and change. Indeed, under the proposed central legislation, states can have their own laws. Hence, the state government offered the Maharashtra Housing (Regulation and Development) Bill of 2012.

Logically, this should be an improvement on the 1963 Act and on what the Centre proposed in its Bill. However, if you read what the state proposes, it dilutes rights of allottees and errs on the side of promoters. Here are some instances.

Curious Case: Rewind Button

The central Bill allowed registration of real estate projects only after all clearances have been obtained. Maharashtra removed this requirement

Without written agreements, the central Bill allowed promoters to collect 10% from buyers. Maharashtra changed this to 20%. The central Bill imposed the responsibility of providing utilities (electricity, water supply) on the promoters. Maharashtra exempted them.

If a promoter defaults, he returns the money to the buyer, with an interest cap of 15%. However, if a buyer defaults, the penalty is equal to the amount defaulted. Compared to both the proposed central legislation and the earlier 1963 Maharashtra statute, this new is relatively lenient towards promoters and harsher towards buyers and consumers.

This Maharashtra Bill was sent to the ministry of housing and urban poverty alleviation (Hupa). In May 2013, the Hupa ministry disagreed with what Maharashtra had proposed, labelling it anti-consumer. It then becomes stranger. In December 2013, the same Hupa ministry disagreed with its earlier opinion and told the home ministry that it was fine with what Maharashtra had proposed. Now, look at Article 254 of the Constitution, on “inconsistency between laws made by Parliament and laws made by the Legislatures of States”.

Under 254(1), if there is a conflict, laws made by Parliament will override those made by states.

But there is a catch, and it’s 254(2), “Where a law made by the Legislature of a State with respect to one of the matters enumerated in the Concurrent List contains any provision repugnant to the provisions of an earlier law made by Parliament or an existing law with respect to that matter, then, the law so made by the Legislature of such State shall, if it has been reserved for the consideration of the President and has received his assent, prevail in that State.”

Shelter for Promoters

Therefore, it boils down to presidential assent, at least for Maharashtra. Despite objections from consumer organisations, the President gave his assent in February 2014. So, from June-July 2014, this becomes law in Maharashtra, irrespective of what happens in other states. Let’s state this a trifle less politely.

The real estate sector is rife with malpractices and regulation is meant to curb these. Instead, this legislation has legitimised some of these malpractices, often those that courts disapproved of.

Agreement the New Bible

For instance, should developers be allowed to charge for free car parking or common areas? Under the new law, as long as the developer mentions this in the agreement, he can charge for these.

The Maharashtra legislature did what it thought was best and it has the right to do so. But I am puzzled at the attitude of Delhi, in particular the volte-face by the Hupa ministry. In this climate of real estate scams, several of which have been in Maharashtra, surely some explanation should have been forthcoming.

Only what changed in June 2013 — at least all that one knows of — was the minister. Surely, that cannot have been the reason for the volte-face. And if a central Bill is pending, what was the need for the desperate hurry? But despite all the talk of transparency, there are some questions that can never be answered.

The writer is consulting editor, ET

 

Read more here — http://m.economictimes.com/opinion/comments-analysis/an-unreal-development-how-new-maharashtra-real-estate-law-legalises-malpractices/articleshow/34173566.cms

 

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