Recent Trends in Construction and Real Estate Industry including salient features of Real Estate Bill

1. Recent Trends in Constructions & Real Estate Industry
CA Rajesh D
rajeshd@sbsandco.com
Date: 19th Feb 2016
by

2. Introduction (1/2)
 In India, real estate is the second largest employer after agriculture
 It is slated to grow at 30 per cent over the next decade
 The construction industry ranks third among the 14 major sectors in terms of
direct, indirect and induced effects in all sectors of the economy
 The Indian real estate market has become one of the most preferred
destinations in the Asia Pacific as overseas funds accounted for more than 50
per cent of all investment activity in India in 2014, compared with just 26 per
cent in 2013
2 www.sbsandco.com

3. Introduction (2/2)
 Fast urbanisation , it is expected that 600 Million Indians will be living in cities by
2030 as compared to 230 million as reported in 2011
 Size of real estate sector is estimated to grow five folds and to reach 676 Billion
by 2025 , providing lot of opportunities in to global real estate stake holder in
India as significant technical and financial supports lacks in India
 The real estate sector clearly emerging into four sub sectors - housing, retail,
hospitality, office and commercial
3 www.sbsandco.com

4. Market Size (1/2)
 The Indian real estate market is expected to touch US$ 180 billion by 2020. The
housing sector alone contributes 5-6 per cent to the country's Gross Domestic
Product (GDP)
 CAGR of 11.2 per cent of is expected during the period FY 08-20
 Retail, hospitality and commercial real estate are also growing significantly,
providing the much-needed infrastructure for India's growing needs
 During the first nine months of 2015, PE funds invested about US$ 2.4 billion in
the real estate sector, across 53 transactions compared US$ 1.3 billion across 57
transactions in the same period last year
4 www.sbsandco.com

5. Market Size (2/2)
 Private Equity (PE) funds and Non-Banking Financial Companies (NBFCs) in India
are seen increasingly investing jointly in real estate projects, in order to hedge
risk and undertake bigger transactions
 Mumbai is the best city in India for commercial real estate investment, with
returns of 12-19 per cent likely in the next five years, followed by Bengaluru and
Delhi-National Capital Region (NCR)
 India's office space absorption stood at 35 million sq ft during 2015, which is the
second highest figure in the India's history after 2011, and was driven by
corporates implementing their growth plans
 According to data released by DIPP, the construction development sector in
India has received FDI equity inflows to the tune of US$ 24.156 billion in the
period April 2000-September 2015
5 www.sbsandco.com

6. Central Government Initiatives
 The Smart City Project, where there is a plan to build 100 smart cities, is a prime opportunity for
the real estate companies
 The Housing for All by 2022 was approved by Narendra Modi. Under the Sardar Patel Urban
Housing Mission, 30 million houses will be built in India by 2022, mostly for the economically
weaker sections
 The Government of India has allowed 100% FDI under the automatic route in the construction
development sector. This move should boost affordable housing projects and smart cities across
the country
 The Securities and Exchange Board of India (SEBI) has notified final regulations that will govern
real estate investment trusts (REITs) and infrastructure investment trusts (InvITs)
 This move will enable easier access to funds for cash-strapped developers and create a new
investment avenue for institutions and high net worth individuals, and eventually ordinary
investors
6 www.sbsandco.com

7. State Government Initiatives
 The Government of Rajasthan became the first state to initiate private
investments in affordable housing by signing four Memoranda of Understanding
(MoUs) with private players for an investment of Rs 5,400 crore (US$ 810
million).
 The State Government of Kerala has decided to make the process of securing
permits from local bodies for construction of houses smoother, as it plans to
make the process online with the launch of a software called 'Sanketham'. This
will ensure a more standardised procedure, more transparency, and less
corruption and bribery
7 www.sbsandco.com

8. The Real Estate (Regulation and Development) Bill,
2015
 The Real Estate (Regulation and Development) Bill, 2013 was first introduced
in 2013 was recently approved in April 2015 with by the union Cabinet pending
in the Rajya Sabha
 The bill provides for a Uniform regulatory environment,
 Protect consumer interests, help speedy adjudication of disputes and ensure
orderly growth of the real estate sector
 The Bill aims at restoring confidence of the general public in the real estate
sector; by instituting transparency and accountability in real estate and housing
transactions
 This in turn will enable the sector to access capital and financial markets
essential for its long term growth
8 www.sbsandco.com

9. The Real Estate (Regulation and Development) Bill,
2015
 The Bill contains provisions of registration of real estate projects and registration
of real estate agents with the Real Estate Regulatory Authority; functions and
duties of promoters and allottees;
 Establishment of Real Estate Regulatory Authority;
 Establishment of fast track dispute resolution mechanism through adjudication;
establishment of a Real Estate Appellate Tribunal; offences and penalties etc.
 The Bill ensures mandatory disclosure by promoters to customers through
registration of real estate projects as well as real estate agents with the Real
Estate Regulatory Authority
9 www.sbsandco.com

10. The Salient Features
(a) Applicability of the Bill:
The proposed initial Bill was applicable for residential real estate. It is now
proposed to cover both residential and
commercial real estate;
(b) Establishment of Real Estate Regulatory Authority:
Establishment of one or more ‘Real Estate Regulatory Authority’ in each State/
Union Territory (UT), by the Appropriate
Government for oversight of real estate transactions,
To appoint one or more adjudicating officers to settle disputes and impose
compensation and interest;
10 www.sbsandco.com

11. The Salient Features
(c) Registration of Real Estate Projects and Registration of Real Estate Agents:
Mandatory registration of real estate projects and real estate agents who intend to
sell any plot, apartment or building, with the Real Estate Regulatory Authority;
(d) Mandatory Public Disclosure of all project details:
Mandatory public disclosure norms for all registered projects such as details of
promoters, project, layout plan, plan of development works, land status, status of
statutory approvals and disclosure of proforma agreements, names and addresses
of real estate agents, contractors, architect, structural engineer etc.;
11 www.sbsandco.com

12. The Salient Features
e) Functions and Duties of Promoter:
· Disclosure of all relevant information of project;
· Adherence to approved plans and project specifications;
· Obligations regarding veracity of the advertisement for sale or prospectus;
· Rectify structural defects;
· Refund money in cases of default;
(f) Compulsory deposit of 50 percent:
To compulsorily deposit 50 percent (or such lesser percent as notified by the Appropriate
Government) of the amounts realized for the real estate project from the allottees in a separate
account in a scheduled bank within a period of fifteen days to cover the cost of construction to be
used for that purpose;(Earlier it was 70%)
On going projects which have not got completion certificate also got into purview.
12 www.sbsandco.com

13. The Salient Features
(g) Adherence to declared plans:
· To bar the promoter from altering plans, structural designs and specifications of
the plot, apartment or building without the consent of two-third allottees after
disclosure;
· However, minor additions or alterations permissible due to architectural and
structural reasons;
(h) Functions of Real Estate Agents:
· Real estate agents to sell properties registered with the Authority;
· Maintain books of accounts, records and documents;
· Not to involve in any unfair trade practices;
13 www.sbsandco.com

14. The Salient Features
i) Rights and Duties of Allottees:
· Right to obtain stage-wise time schedule of project;
· Claim possession as per promoter declaration;
· Refund with interest and compensation for default by the promoter;
· Allottees to make payments and fulfill responsibilities as per agreement;
(j) Functions of Real Estate Regulatory Authority:
The Authority to act as the nodal agency to co-ordinate efforts regarding
development of the real estate sector and render necessary advice to the
appropriate Government to ensure the growth and promotion of a transparent,
efficient and competitive real estate sector;
14 www.sbsandco.com

15. The Salient Features
(k) Fast Track Dispute Settlement Mechanism:
· Fast track dispute resolution through adjudicating officers (District Judge);
· Appellate Tribunal to hear appeals and adjudicate the cased in 60 days as against
90 days.
(l) Establishment of Central Advisory Council:
To advise the Central Government on implementation of the Act, recommend
policy, protection of consumer interest and to foster growth and development of
the real estate sector
15 www.sbsandco.com

16. The Salient Features
(m) Establishment of Real Estate Appellate Tribunal:
Real Estate Appellate Tribunal to hear appeals from orders of the Authority and
the adjudicating officer. The Appellate Tribunal is to be headed by a sitting or
retired Judge of the High Court, with one judicial and one administrative/technical
member;
(n) Punitive Provisions:
Penalties include 10 % of project cost for non registration and payment of
additional 10% of project cost or three year imprisonment or both 5% of the
project cost in case of wrong disclosure of information,
Provisions including de-registration of the project in case of contravention of
provisions of the Bill or the orders of the Authority or Tribunal;
16 www.sbsandco.com

17. The Salient Features
(o) Bar of Jurisdiction Courts:
Provision for barring jurisdiction of court and any authority from entertaining
complaints in respect of matters covered under the Bill;
(p) Power to make Rules and Regulations:
Appropriate Government to have powers to make rules over subjects specified in
the Bill;
Regulatory Authority to have powers to make regulations;
17 www.sbsandco.com

18. Other Points
 Registration of Real Estate Projects and Real Estate Agents
 Makes provision for seller –buyer agreement and the developer agreement
should be in line with the model agreement set out in the Bill
 Carpet Area is now clearly defined to include usable space like kitchen and
toilets to make it clear
18 www.sbsandco.com

19. Expectation not met from Industry
 Single window clearance is not provided. The bill does nothing to stream line the
50 plus approvals required for housing project
 Urban and Local bodies have not bought under the purview of the regulatory
authority since the process of issue of certificate is under their control
19 www.sbsandco.com

20. Major short Comings/Challenges
 Ongoing Projects included in the definition of certain provision will bring lot of
confusion and also industry request the bill should be implemented prospectively
and not retrospectively
 Inclusion of commercial real estate in the definition. The residential and
commercial real estate segments are two different nature of industries , in
commercial segment the cash flow will only come after the completion and leasing
of the property and in such case depositing 70% in escrow account is not possible.
 Analysts feel that once the bill becomes law, supply shortage is imminent as the
developers cannot launch without obtaining all project permissions. They need to
arrange funds for getting approvals and registering the projects with the authorities
will require lot of upfront cash flows which will create lot of hardship on
developers
20 www.sbsandco.com

21. www.sbsandco.com/wiki
Read our monthly e-Journal
SBS And Company LLP
Chartered Accountants
6-3-900/6-9, Flat No. 103 & 104, Veeru Castle
Durga Nagar Colony,
Panjagutta, Hyderabad - 500 082
Telangana, India.
Our Presence in
Telangana: Hyderabad (HO)
Andhra Pradesh: Nellore, Kurnool, TADA (near Sri
City), Vizag
Karnataka: Bengaluru
+91-40-40183366 / +91-40-64584494 / +91-9246883366
CA Rajesh D
PH: +91 9849304255
rajeshd@sbsandco.com
Thanks for your patient hearing!!!