Wednesday, December 09, 2009

Model Act + Regulations - Potential Problems

We studied the proposed Model Real Estate Act and here are some potential problems.

Prohibits development of land into a colony or construction of apartments for marketing without registration.

This will prove tough on small developers given its inflationary impact on project cost. The key concern here is whether licencing would occur at the Centre or State level licencing at the Centre level could prove detrimental.

Mandatory registration by a regulatory authority prior to each project launch; 36-month licence period; bank guarantee from developers

These steps would safeguard the consumer from false developer claims regarding carpet area, built-up area and flat development plan, as developers would be required to proffer these details to the registration authority prior to launch. Prices, however, may increase due to the bank guarantee clause.

Disallows the issue of advertisements or prospectuses inviting advances or deposits

This could have a negative impact on end consumers since the absence of advertisements would leave buyers in the dark about upcoming projects.

No deposit or advances to be taken by promoters without first entering into an agreement of sale

This will prevent any discrepancies in the sale agreement, thereby protecting the interests of end users. It will also discourage investor-buyers from entering into the market and fuelling price speculation.

The Big Question - How efficient this Regulator will be ? All Developers are Politicians or First / il-legal Blood of Politicians and hence the regulator won't be in a spot to pass orders like SEBI or RBI does.

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