Posted on August 2, 2016 by adminLast updatedAugust 2, 2016

Lok Sabha clears Bill for quicker, easier debt recovery

The Lok Sabha passed a crucial Bill that will pave the way for faster resolution of bad loans for banks and provide for swift action against ‘wilful defaulters’.

The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016, passed by voice vote, seeks to amend four laws — Sarfaesi Act, DRT Act, Indian Stamp Act and Depositories Act. Finance Minister Arun Jaitley said the banks must be empowered to take effective legal action against defaulters and the insolvency law, securitisation law and DRT law are steps in that direction. At the same time, he assured the House that banks will take a compassionate view on education loan defaults but there will be no waiver.

The changes in the Sarfaesi Act allow secured creditors to take over a collateral against which a loan had been provided, upon default in repayment. It also provides that the process will have to be completed within 30 days by the district magistrate.

“The present law simplifies the procedure by which there will be quick disposal of pending cases of banks and financial institutions by the Debt Recovery Tribunal,” Jaitley said.

“We cannot have a banking system where people take loans and do not repay. We should not create a culture that I have taken a loan and I can sleep well and banks should be answerable,” he said.

M Rajamohan Reddy (YSRCP) said the bill will improve the ease of doing business by providing a fast-track mechanism to deal with the bad loans of the bank.

Jagdambika Pal (BJP) expressed the hope that the changes in different Acts would help in reducing the non performing assets (NPAs) in the banking sector which are reported to be over Rs 5 lakh crore.

Posted on July 23, 2016 by adminLast updatedJuly 23, 2016

Single window clearance could drive down realty prices

The government is pushing for online application of building proposals and common application forms for approvals, from various departments. Will these moves ultimately benefit home buyers, by reducing property costs?

The construction industry is eagerly waiting for the single-window clearance of all approvals within 30 days, to be implemented. The procedure is at the final stage of implementation.

The Brihanmumbai Municipal Corporation (BMC), announced that they have started online acceptance of documents for building proposals, from May 15, 2016. The civic body has integrated approvals pertaining to the fire and water departments, while the integration of clearances pertaining to coastal regulation zones and forests, owing to the national park located within the city, are underway.

In Delhi, the municipal body has unveiled a four-page Common Application Form, in the north, south and east zones. According to officials of the Municipal Corporation of Delhi (MCD), 10 agencies including the Heritage Conservation Committee, Delhi Urban Arts Commission (DUAC), Delhi Fire Services and Delhi Jal Board, have been integrated with the common form, thereby, doing away with the need for applicants to separately approach these agencies for no-objection certificates.

The online approval process will be implemented, with the help of the National Monuments Authority’s (NMA’s) web portal called ‘NOC Online Application and Processing System (NOAPS)’. The NOAPS has been integrated with the online portals of the Municipal Corporation of Greater Mumbai (MCGM), the New Delhi Municipal Council (NDMC) and south, north and east zones of the MCD. Developers will now need to fill a single form which will be sent to the concerned agencies by the local body. The NMA will also give approvals to the local body, within six working days, down from the present time limit of 90 days.

Multiple approvals, delays and its impact

Developers on their part, have consistently complained that they face multiple hardships owing to delays in obtaining approvals. Zaheer Majeed Memon, partner, Zara Habitats, explains, “We have experienced a lot of delays, owing to the lack of a streamlined system for obtaining approvals. Lack of clarity in interpretation of regulations and multiple windows for obtaining permissions, increase the time taken for projects to commence.”

As a result, in the past few years, numerous complaints have been filed in the consumer courts against developers, for delays in the delivery of flats.

Kishor Pate, CMD of Amit Enterprises Housing Ltd is of the view that “Delivery timelines play a big role in determining how attractive a developer’s project is to investors and how much confidence end-users will have in a developer. In other words, developers not only suffer financial loss because of approval delays but also lose credibility. Now, with a single-window approval system, residential prices are expected to come down by 30%-35%.”

Harjith D Bubber, MD and CEO of Rivali Park, adds that hassle-free clearances will help under-construction projects, by reducing delays and the cost of the projects. Faster approvals will also help developers to start construction of their projects on time and keep it within the planned budget, by avoiding year-on-year inflation in costs.

Benefit to the end-users

By saving time and cutting costs, single-window clearances will eventually benefit the consumers. According to Ramesh Nair, COO – business and international director, JLL India, the government’s move towards a single-window system, will improve the supply pipeline. “It will increase competitiveness among developers and thereby, serve to manage pricing. This will work in favour of end-users. However, it could also bring about over-supply, if developers are not intelligent about their launch choices,” he concludes.

 

Posted on July 15, 2016 by adminLast updatedJuly 15, 2016

Delhi Metro IV phase to be a reality soon, six new lines cleared

To improve connectivity to the outer regions of the national capital, the Delhi government has approved the fourth phase of the Delhi Metro – a move that could boost real estate development and prices along its corridor.

Construction on the fourth phase that comprises six lines will start in 2017 and is scheduled to end in three years. After the completion of Phase IV, the total length of the metro corridor in the city will cross the 450-km mark. The project will cost 55,000 crore and is expecting to see 1.5 million commuters daily. The length of the currently operational corridors is around 213 km and phase III will add another 140 km to it by the end of this year.
These lines, in addition with the 140 kilometres of Metro network added in Phase III, are expected to free up traffic bottlenecks in the congested central and south parts of the city and help passengers from outer Delhi.

The new phase will benefit south Delhi as residents will have the option of taking the Metro to go to the airport and other localities.

The DMRC originally proposed to build a 20-km-long corridor between the existing Aerocity and Tughlakabad metro stations but has now extended it to Terminal 1 station.The line will go through densely populated areas such as Sangam Vihar, Saket, Mehrauli, Vasant Kunj and Mahipalpur of south Delhi.

A senior official said that the government has cleared the original ‘Detailed Project Report’ prepared by the Delhi Metro Rail Corporation (DMRC) despite demands by a few MLAs for bringing about minor tweaks in the route.

“In the meeting, some changes were proposed but the project has been approved in its original form. The construction will start next year and is scheduled to end within three years,” he said.

Earlier this month, a team of DMRC had made a presentation on the six proposed lines before Chief Minister Arvind Kejriwal. The proposed lines are expected to add around 105 km to the metro network and make the airport more accessible for south Delhi residents.

The proposed corridors:

Rithala – Narela – (21.73km)
Stations: Rohini Sector 26, Rohini Sector 31, Rohini Sector 32, Rohini Sector 36, Rohini Sector 37, Barwala, Put Khurd, Bawana Industrial Area – 1, Bawana Industrial Area – 2, Bawana, Bawana JJ Colony, Sanpath, New Sanath Colony, Anaj Mandi and Narela

Inderlok – Indraprastha – (12.57km)
Stations: Dayabasti, Sarai Rohilla, Ahmal Khan Park, Nabi Karim, New Delhi Delhi, LNJP Hospital, Delhi Gate, IG Stadium and Indraprastha

Tughlakabad – Terminal 1(22.20 km)
Stations: Tughlakabad, Tughlakabad Railway Colony, Anandmayee Marg Junction, Tigri, Khanpur, Ambedkar Nagar, Saket G Block, Saket, Lado Sarai, Mehrauli, Kishangar, Masoodpur, Vasant Kunj (Sec-D), Mahipalpur and Delhi Aerocity

Lajpat Nagar – Saket G-Block – (7.96 km)
Stations: Saket-G Block, Sheikh Sarai, Chirag Delhi, GK-1, Andrews Ganj, Lajpat Nagar

Janakpuri (west)- RK Ashram- (28.92km)
Stations: Krishna Park Extn, Keshpur, Meera Bagh, Paschim Vihar, Peeragarhi Chowk, Peergarhi, Mangolpuri, West Enclave, Deepali Chowk, Madhuban Chowk, Rohini East, Prashant Vihar , North Pitampura, Haiderpur, Mukarba Chowk, Bhalaswa, Majlis Park, Azadpur, Ashok Vihar, Derawal Nagar, Rajpura, GG Sabji Mandi, Pulbangash, Sadar Bazar, Nabi Karim and RK Ashram Marg

Mukundpur-Maujpur – (12.54 km)
Stations: Burari Crossing, Jagatpur Village, Surghat, Khajuri Khas, Bhajanpura, Yamuna Vihar and Maujpur

The government had earlier written to the DMRC, stating that it would prefer the revenue sharing model adopted in the construction of the previous metro phases.

Posted on July 13, 2016 by adminLast updatedJuly 13, 2016

Govt exempts big realty projects from obtaining environmental clearance

Following the NDA government’s “Ease of Business” mantra, the environment ministry has exempted big realty projects from mandatory environmental clearances if states impose pre-specified and standard green conditions under their building bye-laws.

But, even before the environment ministry carries out mandatory public consultation and notifies these proposed changes, the urban development ministry has already amended its model Building bye-laws public announcing the relaxation for the construction industry. This will take the construction industry out of the environment ministry’s purview and no project could be challenged on environmental grounds before the National Green Tribunal.

Under the current Guidelines for seeking Environment Clearance for Construction Projects the building and township projects of more than 20,000 square meters size are required to carry out an Environment Impact Assessment (EIA) study to gauge possible impacts of the project on the surrounding environment before starting its construction. If the project is considered safe, the State Environment Impact Assessment Authorities (SEIAA) appointed by the environment ministry, give permission (environment clearance) to the project.

The ministry has now issued a draft notification on April 29 which says the states which will integrate environmental conditions in the building approvals under their Building Bylaws will not have to get environment clearance for construction projects. It replaces the area-specific EIA and environment clearance process carried out by SEIAA prior to starting of the project with standard conditions such as ‘sewage discharge’, ‘water harvesting’ and ‘DG Sets specification’ imposed and monitored by the local urban authorities post construction of the project.

CHANGING STANCE

• 2004 Construction sector brought under the purview of the Environment Protection Act, 1986.
• 2006 EIA Notification, 2006 mandated building projects of more 20,000 sq meters should carry out green assessment.
• 2009 The ministry proposed to exempt projects up to 50,000 sq meters from requirement, but proposal dropped due to environmental concerns.
• Dec 2012 The environment ministry constituted a committee to review the provisions of Environment Impact Assessment Notification, 2006.
• June 2013 Environment ministry accepts panel’s recommendations.
• April 2016 Ministry issues draft notification to replace environment clearance for building projects.

The idea of integrating environmental conditions with building permissions is to ensure smaller buildings also meet the environmental standards. Buildings between 5,000 to 20,000 sq metres were not under the environment impact assessment (EIA) purview earlier but now, under the new model building bylaws, even smaller buildings will be monitored by urban local bodies. ” The idea is to make more buildings follow environmental norms,” joint secretary Manoj Kumar Singh said. ”

Experts Views

This has raised a number of concerns on how the new rules will impact urban environment. Though, the Model Building Byelaws have a chapter on “Requirement of Climate Resilient Construction”, experts believe that relaxing eco scrutiny could have unnecessary repercussions. One of the main problems with the new bylaws is that compliance to green conditions will be overseen by local urban bodies, which experts feel lack the competence to verify the environmental impact of large constructions.

“The municipal corporations or other development agencies are not equipped and qualified to inspect building sites,” said AK Jain, former commissioner (Planning) of Delhi Development Authority. “Such agencies will not be able to assess parameters such as transit-oriented development, water, energy, landscape and whether the location or site is suited for a large building project.”

Green lawyer Ritwick Dutta talked of another concern. As per a Supreme Court order, all construction projects within 10 km of national parks that requiring environmental clearance have to also get the nod of the National Board for Wildlife (NBWL). “If these projects no longer need to go through EIA process, then the projects will not go to the NBWL either,” he pointed out.

However, DS Mishra, additional secretary, urban development ministry, insisted, “The new rules will make compliance with environmental conditions even more stringent. Earlier EIA consultants were involved in preparing reports, they would reach the SEIAA and then go back and forth on various doubts the agency raised. Sometimes, the cost of these projects went up by 30%. Now things will be more stringent, and corruption and delays will be addressed.”

 

Posted on July 4, 2016 by adminLast updatedJuly 4, 2016

PE investments in real estate decline 42% in first half of 2016

PE funds channelled $954 million into realty projects in Jan-Jun, compared to $1.66 billion in the same period in 2015

Despite the falling numbers, the outlook for this year, especially in the office sector, is positive with two of the biggest PE investments in the Indian office space totalling $3 billion in the works.

Private equity (PE) investments in Indian real estate dropped 42% in the six months ended 30 June from a year earlier, as the supply of quality new projects dried up because of a persistent slowdown in home sales.

PE funds invested about $954 million in real estate projects from January to June this year, compared to $1.66 billion in the same period in 2015, according to data by investment-tracker VCCEdge and Mint research.

Large builders have stayed away from starting new housing projects, resulting in a lot of capital chasing a few good quality projects and pushing fund managers to look for refinancing.

“The number of deals has slowed down because there are not many project launches and developers primarily need money to finish projects or refinance loans,” said Diwakar Rana, managing director, capital markets, India, Cushman & Wakefield, a property advisory. “It is a situation where investors are ready to write large cheques but there are not many opportunities available.”

The outlook for 2016, particularly in the office sector, is positive with two of the biggest private equity investments in office space in India totalling $3 billion in the works. Canada’s Brookfield Asset Management Inc. is at an advanced stage of investing $1 billion to buy out 4.5 million office and retail assets of Hiranandani Developers Pvt. Ltd in the Mumbai suburb of Powai and DLF is in the process of selling a 40% stake in its rental assets arm to private equity investors raise about $2 billion.

The two biggest deals this year were in the retail sector. Blackstone Group Lp agreed to buy 1 million sq. ft of retail space in L&T Realty Ltd’s Seawoods project in Navi Mumbai for Rs.1,450 crore and sovereign wealth fund GIC Pte Ltd is buying a 49% stake in Viviana mall in the Thane area, near Mumbai, at an enterprise value of about Rs.1,300 crore. The actual investment by GIC couldn’t be ascertained.

Blackstone also invested Rs.470 crore to fund Bengaluru-based Salarpuria Sattva Group’s 6.6 million sq. ft under-construction and partly leased project in Hyderabad, its first investment in the city.

Among domestic funds, Piramal Fund Management Pvt. Ltd invested Rs.425 crore in a central Mumbai project, Lodha Azzuro, constructed by Lodha Developers Pvt. Ltd through the structured debt route, marking the first deal between the country’s largest developer and one of the largest real estate investors in the country.

Piramal, which has been wary of the National Capital Region, invested Rs.200 crore in two projects of the Prateek Group in Noida. “We have been doing different deals, mostly with developers with whom we already have existing relationships. We are adding new customers, but the pace is slow and this is because big developers have mostly slowed down on new projects,” said Khushru Jijina, managing director, Piramal Fund Management.

The nature of investments in real estate is mostly in the form of debt and structured debt, with very little growth capital available from investors, who aren’t willing to take much risk.

In residential, it is actually the same inventory of projects that are getting financed and refinanced with little fresh stock coming in.

“Debt can only work to an extent. Leveraging beyond a limit doesn’t make sense, unless there is enough cash flow cover. On-ground project activity has still not taken off, leading to weak cash flows, and fundamentally, the developer’s business needs to generate cash to encourage external investors to participate,” said Shashank Jain, partner, transaction services, PricewaterhouseCoopers India.

Despite the three-year slowdown, investors are seeing recovery in some micro-markets.

ASK Property Advisors, which has mostly done pure equity deals, is planning to raise a new structured equity fund this year. “There is demand for money which is patient, at a price which is risk-adjusted, and offers flexibility. Today, developers are busy servicing loans on a quarterly basis, putting pressure on their projects and construction pace. We want to give them that breathing time, so they can finish their projects, and then give us a profit share,” said Sunil Rohokale, chief executive and managing director of ASK Group.

ASK Group will invest from its Rs.1375 crore equity fund, some foreign money it has previously raised and a structured equity fund it will raise this year.

Posted on July 2, 2016 by adminLast updatedJuly 2, 2016

Delhi HC ruling on service tax a precedent for home buyers

There has been a lot of confusion over the recent ruling of the Delhi High Court which held that service tax cannot be levied on the purchase of under-construction flats. Does this judgement apply to home buyers across the country? We examine the implications of the ruling

In a recent judgment,the Delhi High Court has held that service tax cannot be levied on the purchase of under-construction flats. Presently, service tax of 15% is levied on 25% of the consideration value.

The case

Suresh Bansal had entered into an agreement with a builder, to buy flats in a group housing project, being developed in Noida, Uttar Pradesh. The builder recovered service tax from Bansal, for services in relation to ‘construction of the complex’ and on ‘preferential location charges’. Bansal challenged the levy on the grounds that the parliament does not have the legislative competence, to levy service tax on purchase of immovable property and as such, there is no machinery provision for determining the value of the service portion. He also challenged that preferential location charges do not amount to a service and hence, service tax cannot be charged on it.

What the court said

While upholding the centre’s competency to levy service tax, the court held that “A developer, directly or through a sub-contractor, carries out myriad activities for construction of a complex, which, apart from construction of buildings, also involves planning, preparation of a layout, development of land, construction of sewer lines, development of infrastructure for supply of electricity and water, etc. In such cases, it cannot be disputed that no services are rendered by the builder.

“However, indisputably, the arrangement between the buyer and the builder is a composite one, which involves not only the element of services but also goods and immovable property. Thus, while the legislative competence of the parliament, to tax the element of service involved cannot be disputed but the levy itself would fail, if it does not provide for a mechanism to ascertain the value of the services component, which is the subject of the levy.”

In the present case, the value of 25% determining the service component, finds its genesis in a 2012 CBEC notification. The court noted that this value cannot be used as a substitute for the lack of statutory provisions towards ascertaining the actual value of services involved.

With respect to the preferential location charges, the Court held that “These charges are charged by the builder, based on the preferences of its customers. They are, in one sense, a measure of the additional value that a customer derives from acquiring a particular unit.”

Consequently, the court ruled that it can be subjected to service tax.

What the service tax judgement means

While upholding the parliament’s competency to levy service tax on the purchase of immovable property, this judgment holds that the law as it stands today, does not clearly spell out the consideration paid for the services that one avails, while purchasing an immovable property from a developer. Due to this lacuna in the current legislative framework, service tax cannot be levied or collected by the developers.

The machinery provision, for computation of the service element, must be provided in the act or the rules.

The operation of this judgment will be limited, as it is binding on all the courts falling under the jurisdiction of the Delhi High Court. As this judgment is contrary to the view held by the high courts in Mumbai and Karnataka, the judgment rendered by those courts, will be operational within their jurisdiction.

Nevertheless, the Delhi HC’s ruling, may have a persuasive value before other courts across India.

As builders have been collecting service taxes, the contrary views of various high courts are likely to cause a series of disputes, between government departments, builders and property buyers, resulting in plethora of litigation. The latest judgment is also likely to cause significant revenue loss, for the centre. Hence, we can expect an amendment to the act itself, to remedy this lacuna, or a challenge before the Supreme Court along with a plea, seeking an ad-interim stay on the operation of this judgment.

 

Posted on June 30, 2016 by adminLast updatedJune 30, 2016

Real estate stocks gain as Cabinet set clear pay panel award

With the implementation of the 7th Pay Commission, voices are becoming louder that the real estate sector could gain from rise in salaries and pensions of the central government employees. The news may further boost real estate stocks which are already outperforming benchmark indices since the beginning of the ongoing financial year 2016-17.

The committee of secretaries tasked with reviewing the recommendations has given its report and the total outgo if the award, to be implemented from January 1, 2016, is pegged at Rs 1.02 lakh crore, which can work like a stimulus package for the economy, boosting consumer demand.

Reports of good progress of monsoon, which has already covered half of the country with normal rainfall, also raised hope of a drop in inflation, which can lead the central bank to cut interest rates further. Realty demand tends to rise in a low interest rate environment.

The sentiment were also perked up due to new draft rules unveiled by the government that showed developers may have to pay 11.2 per cent interest to buyers for delay in handing over apartments and homes.

Realtors’ two apex associations CREDAI and NAREDCO said the sector would also benefit from approval to a model law that allows shops, malls and cinema halls, among other establishments, to run 24×7 throughout the year. “It’s a very good decision. Hopefully it will lead to wise investment by the government staff for buying homes,” NAREDCO Chairman Rajeev Talwar said, commenting on approval for 7th Pay Commission recommendations.

JLL India Chairman and Country Head Anuj Puri said the retail sector accounts for about 15 per cent of the country’s GDP and this is expected to increase further with round-the- clock operations.

Shares of UnitechBSE 1.42 % closed 7.38 per cent higher, that of HDILBSE 3.12 % 3.01 per cent, Sobha DevelopersBSE 2.41 % 3.17 per cent and Oberoi RealtyBSE 0.59 % 1.03 per cent.

Industry leader DLF closed 7.86 per cent after reports that promoters KP Singh and family have decided to make the real estate company debt free by purchasing shares through a Rs 10,000 crore preferential issue. All the constituents of the BSE Realty index were trading in the green, with the index itself surging 4.30 per cent.

“This Act will have to be implemented by states. Once they have implemented it, offline retailers operating in those states will stand to benefit hugely as the Act brings them on a level-playing field with online retailers.”

 

 

 

Posted on June 29, 2016 by adminLast updatedJune 29, 2016

15% Cut In Circle Rate To Boost Gurgaon Real Estate

Circle rates have been slashed by 15% in Gurgaon effective Tuesday, a move that is expected to provide much needed boost to the sluggish real estate market.

This is the first time that circle rates have been slashed in the corporate hub. In the previous two financial years, circle rates were left unchanged but it failed to lift buyer sentiment. The district administration had mooted the proposal to cut rates and had sent it to the state government for approval.

A committee headed by deputy commissioner T L Satyaprakash proposed the cut to bring circle rates in line with prevailing market rates. Higher circle rates were hurting the market badly because all taxes have to be paid on the basis of circle rates. So, even if someone sells his flat at a rate lower than the circle rate, he will have to pay capital gains tax at the prevailing circle rate. The same applies to buyers who have to fork out more for stamp duty even when the actual sale price is lower than the circle rate. As a result, many chose not to buy or sell. Monday’s Haryana government notification is aimed to pull the market out of this inertia.

Satyaprakash said market rates had gone down over a period but the collector rates were still high in most areas, thus causing a dip in the number of registries. The new rate list is now available on the official Gurgaon administration website, he added.

Post the cut, circle rates for some prime residential areas like DLF Phase 1 and Sushant Lok will come down from Rs 77,000 per sq yard to Rs 65,450. Similarly, for DLF Phases 2, 4 and 5, it will drop from Rs 72,000 a sq yard to Rs 61,200.

“A drop in circle rates is directly proportional to decrease in property prices, and as property prices fall, the demand for the property plays an inverse relation. Falling property prices help in attracting end users more than investors, and it is crucial for Gurgaon’s realty sector to revive. The infrastructure is very sound and now with prices lowered, we’ll witness the comeback of buyers”, says Kushagr Ansal, Director, Ansal Housing.

The rate, however, will be different for land which has seen change of land use (CLU). For a residential plotted colony, three times the agriculture collector rate will apply. For residential group housing, it will be four times the agriculture collector rate, and, for commercial, five times the agriculture collector rate. Similarly, land less than 1,000 square yards will be treated as residential for stamp duty collection and areas less than 25 square – 225 sq ft or just big enough for a shop will be treated as commercial.

Developers are confident investor sentiment will significantly improve with the rate cut. “This will reduce the overall cost as these rates are the basis for tax calculations,” said Navin Raheja of Raheja Developers and added that this is a good move as property prices have dropped over the past couple of years, creating a gap between the transaction value and circle rates.

 

 

 

Posted on June 28, 2016 by adminLast updatedJune 28, 2016

Is FDI relaxation aimed at attracting investment in smart cities?

Narendra Modi’s pet project of creating ‘smart cities’, is likely to benefit from the government’s relaxation of FDI regulations and attract a major share of the FDI inflow

 

Posted on June 27, 2016 by adminLast updatedJune 27, 2016

Will the warranty clause in the Real Estate Act bring relief to home buyers?

The Real Estate Act provides a defect liability (warranty) clause of five years. The moot question for home buyers now is: Will this mean better quality of construction or merely result in higher prices?

Developers welcome the provision

Under the Real Estate Bill’s Clause 14 (3), the defect liability period has been set at five years. Consequently, home buyers are asking whether this clause actually translates into a warranty. Developers are also not complaining about the clause. They feel that this provisions will be a market differentiator, in a business where the non-serious players outnumber the branded developers.

A five-year defect liability period, is a positive step. Customers are extremely happy to have a warranty, as it assures them of the product’s quality. More importantly, in the event of any problem, there is an assurance that the developer will fix the problem.

Safeguarding home buyers’ interests

When the real estate sector was largely unorganised, the defect liability period varied between developers as well as states and was usually two years. The Real Estate (Regulation and Development) Bill, 2016, now eliminates this anomaly and offers a fixed liability period of five years, with Clause 14(3) acting as a warranty.

“Warranties will make buyers and investors feel secure, as it makes it mandatory for developers to rectify any construction defects that may be noticed, even after possession has been handed over”.

In international markets, such warranties have served to boost developers’ reputation for transparency and adherence to best practices. Such warranties are bound to be equally successful in India over the long term, because they will institutionalize accountability and boost transparency in the realty sector.

Impact on real estate prices

In the international context, the defect liability period varies from country to country. It is as high as 10 years, in countries where the contractor liability and legal dispute redressals are efficient and robust. In India, with warranties in place, developers are likely to improve their construction quality, to avoid higher cost overruns that additional repairs at a later stage would entail.

This also raises a question, as to whether buyers will be willing to pay a premium on properties that come with stronger warranties. Analysts believe that once systems and processes that boost home buyers’ trust are put in place, then, buyers will not mind paying a premium for properties with warranties. In the absence of warranties, buyers have been the victims so far, forced to undertake repairs at their own cost in case of any defect in construction.