Realty developers see lack of single window clearance as a hurdle

Home buyers have reason for cheer as Parliament has passed the Real Estate Bill, but developers and real estate consultants expect that finance and the lack of single-window clearance will pose as challenges in its implementation.

Getamber Anand, President of CREDAI, said, “While we welcome the Bill, projects that were going at a particular speed will now slow down due to the paperwork that the Bill mandates. We also expect an increase in litigation going forward once this law comes into force. It is likely to throw the industry out of gear.”

Problems faced by developers, including multiplicity of approvals and lack of adequate funding avenues, continue to remain unaddressed in the current version of the Bill, a report by ICRA stated.

“Builders will first need to align their systems and processes with the new requirements under the Bill as they shift to the new law,” says Gulam Zia, Executive Director, Advisory, Retail and Hospitality, Knight Frank India.

The Bill requires developers to deposit 70 per cent of the funds collected from buyers in a separate account towards the cost of construction (including land cost).

While the objective of allowing withdrawals from the separate account in proportion to percentage of completion of the project is to avoid diversion of funds, experts believe it can worsen liquidity issue for developers – particularly in a project that has experienced low sales.

Sudip Mullick, Partner, Khaitan & Co, a law firm, says, “I see procuring of finance to be a challenge because of the escrow provision of 70 per cent of the amount receivable from the allottees.”

These challenges are likely to increase during the initial transition phase, particularly for the smaller developers who have weak information systems and lack financial strength, the ICRA report added. The Bill includes the projects that are currently under construction as well. “The implementation issues also stem from the clause that the Bill will have retrospective effect,” says Zia. “However, buyers who are currently hanging in balance should also have some mechanism to address the wrongs done to them,” he added.

The regulation, in its current form, has not taken the approval sanctioning authorities under its ambit. Developers argue that they should not be held accountable for delays in granting approvals from the authorities’ end.

“The government needs to relook into certain paragraphs in the Bill so that there is a level playing field,” Anand added.