The principle of buyer beware has never been an adequate protective measure in real estate. Lack of transparency, information asymmetry and a maze of transactions have put consumers in an unfairly disadvantageous position. Even the most vigilant among them find home buying an agonisingly risky venture. While many countries have improved their regulations and climbed up the global real estate transparency ladder, India has been sliding steadily. From a poor 41st position in 2010, it has slipped further to reach 48th among the 97 countries reviewed. Self-regulation has clearly failed. Realising the urgent need to protect home buyers, the Union Cabinet has recently approved the Real Estate (Regulation and Development) Bill. This legislation, first conceptualised in 2011, is applicable only to residential projects. The full text of the updated bill has not yet been released, but the details circulated by the government indicate that it has largely retained the original objectives. A State-level regulatory authority will be set up, and developers will have to disclose all the details of their projects and submit approvals obtained to the authority, which in turn would make them public. Developers can advertise projects only after getting clearance, and must compulsorily deposit 70 per cent of the amount collected from buyers in a separate bank account. This would help prevent misuse of funds. Penalties for non-compliance include imprisonment.
The new draft includes the activities of real estate agents. The proposed legislation has also improved on the previous version in terms of applicability. Now, projects on plots larger than 1000 square metres in size will be covered by the new rules; this reduced threshold will help bring a greater number of projects under monitoring. Some may argue that new regulations would increase the time and costs of projects, and burden buyers. This objection is invalid since the bill is about presale checking, and projects cannot commence without clearance. Second, the gains clearly outweigh the costs. Regulatory measures are common even in mature property markets. For instance, the Property Misdescriptions Act 1991 in Britain makes it a criminal offence to provide misleading or false information. Benami holdings abound in the real estate sector and clean up measures must address these. Perhaps the use of UID numbers — which is insisted upon even in disbursements of subsidies for the poor — should be made mandatory for property deals to track the money trail. The risks involved in property transactions would further reduce when land record management, building approval systems and enforcement mechanisms are also improved.