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Need for regulating real estate industry

As the Indian real estate sector continues its sprint through hurdles, the most talked about thing related to the sector has been the proposed regulation of the sector. That real estate in India desperately needs regulation, is beyond doubt for most most of the analysts and policy advisors. The recently formed Federation of Apartment Association (FAOA) marks one step ahead in the direction of forming a regulatory authority for the sector.

The real estate regulation bill has been pending in the parliament since 2009. It seeks to achieve a two fold purpose – to ensure transparency in realty deals across the country and to protect consumers’ interest. The decision to regulate the real estate industry showcases its importance in relation to the Indian economy.

Real estate in the Indian economy

The space and importance occupied by the realty sector in 21st century India can be perceived from the following facts:

(i) With 5% contribution to India’s GDP, it is an undeniably important player when one looks at the nation’s economic portrait.

(ii) Real estate is the second highest generator of employment opportunities in India after agriculture.

(iii) The total revenue of real estate sector is $66.8 billion during 2010-11. By 2020, real estate sector is expected to earn a revenue amount of $180 billion.

(iv) Over the next decade, the Indian real estate sector is expected to grow by 30%.

(v) Government has decided to allow 100% foreign direct investment (FDI) into building townships, housing projects, infrastructural construction, etc.

The Regulatory Bill

The Maharashtra Housing Regulation and Development Bill passed by the Maharashtra state assembly is the first regulator of the country’s housing sector. The regulatory bill has been a topic of discussion for long considering the lack of transparency in the real estate sector. There have been talks of a regulatory body in both central and state level. The central bill, when passed by the parliament, is expected to help out the home buyer to figure out the difficulties faced in a world mazed by terms such as built up area, super built up area, floor space index, etc.

At the same time, it is expected to prohibit the developers from adopting unfair techniques like selling or advertising a housing scheme before it gets approved by the regulator. The bill also proposes that the developers will have to declare it beforehand how much they will be charging for the use of common areas like lift, staircases, parking lot, etc. Moreover, the bill seeks to address a vital issue – to make the developers’ promise realistic and ensuring delivery on time. The bill also imposes a fine upon any errant developer who does not abide by the agreement between the buyer and the developer.

FAOA: A step towards regulation

The recently formed Federation of Apartment Association (FAOA) was established as a common platform for apartment owners’ association (AOAs) after it was being realised that developers from different states have been violating the Apartment Ownership Act of various states. FAOA’s formation indicates a need of a regulatory body in the country through which grievances related to buying and selling of properties can be addressed.

FAOA has decided to bring to light few key areas that concern every apartment owner in the country. The main issues that they have taken up are – limiting developers’ profit to 15%, ensuring free access to common areas for residents, demystifying covered area and super built up area, etc. The Federation will deal with Resident Welfare Associations (RWA) of various regions and will address the common issues plaguing most number of buyers. Till now over 12,000 apartment owners being part of 15 RWAs are part of the FAOA.