Rajat Guha, New Delhi
The Economic Times
House owners, often subject to stiff penalties by realty companies and builders for failing to make payments on time during the construction of a house, may heave a sigh of relief. The government has introduced a clause in the Real Estate Management & Regulation Bill under which penalties have been capped at 1% of the value of a house.

Penalties are charged as interest on the defaulted payment. Industry sources say developers charge interest at rates as high as 8-12% in the absence of any regulation. Almost 30-35% of real estate transactions are construction-linked while the balance is done on the basis of down payments.

Construction-linked projects are typically those where a customer has to make payments to the developer directly as the project/house is constructed. In the second scheme, the customer deals with the bank, which makes a one-time payment to the developer on behalf of the customer.

Developers admit customers have had to pay steep penalties on defaults. “The insertion of the penalty clause in the lease deed is to make sure customers pay installments well in time. In most cases, the whole money is paid without any delay. Thus, there is no need for penalty,” Parsvnath MD Pradeep Jain said.

The Bill is expected to be taken up by the Cabinet, after which it would be tabled in Parliament. It provides for action against a developer in case the penalty charged is more than the prescribed limit. The proposed real estate regulator will be empowered to penalise developers up to Rs 1 lakh for such offences.

The real estate regulator would be first set up in Delhi. Other state governments would be free to decide whether to adopt the model, since property is a state subject. “It would be mandatory for Delhi, and other states would subsequently be asked to adopt the model law to regulate real estate in their respective cities. The Maharashtra government is already setting up a real estate regulator,” a senior government official said.

“Capping the rate penalty would rule out arbitrariness. Besides, the government should also fix certain responsibilities on part of the developer in terms of timelines of a project and late delivery on his part,” DTZ India director Vivek Dahiya said.

However, others feel the government should not have any role, as cases of default are too few. “About 30% of customers opt for construction-linked schemes. We have come across very few cases of default. I don’t find any role of the government in this,” Ansals API head (marketing) Kunal Banerjee said.
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