640px-Royal_Lagoon_Bhubaneswar_underconstruction

This article is written by Deeksha Jain.

The Real Estate Industry is one of the most progressive industries in the country. It is that infrastructure service which is said to be driving the economic growth of our country. One of the fastest growing markets of the world today, Real estate Industry has come a long way. It comprises of 4 sub-sectors, i.e., Housing, Retail, Commercial and Hospitality, out of which, housing constitutes 5-6% of India’s GDP. The total realty market in the country is expected to touch US$ 180 billion by 2020.[1] There are hardly any apprehensions about the scope of this sector. It has constantly been gaining huge capital investments by corporate giants spread all over the world. Total investment by private equity (PE) funds in the real estate sector from January–March 2014 was approximately Rs 28 billion (US$ 465.19 million). This is a substantial increase of 28 per cent compared to the previous quarter and close to 2.5 times the investments during January–March 2013.[2]

The fast-growing pace of Real Estate Industry in India shall contribute to the development of Indian economy to a large extent. The Government has also been undertaking steps to improvise the industry and bring out higher amount of investment in all the sub-sectors of Real Estate. The Real Estate (Regulation And Development) Bill, 2013 which is yet to be passed and turned into a statute, aims to create a Real Estate Regulatory Authority and an Appellate Tribunal that will act as a watchdog for the housing sector, primarily towards protecting consumer interests while creating an alternative redress mechanism for any disputes that may arise. This bill also aims to provide a uniform regulatory environment in the real estate sector which is laced with black money, red-tapism, land mafias and corruption. The core objective of this Bill is twofold: firstly, to ensure sales of immovable properties in an efficient and transparent manner and secondly, to protect the interest of consumers in the real estate sector.

NEED FOR CONSUMER PROTECTION

A Consumer, as defined in the Consumer Protection Act, 1986, is a person, who:

i.            “buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or

ii.            hires or avails of any services for a consideration which has been paid or promised or partly paid and partly prom­ised, or under any system of deferred payment and includes any beneficiary of such services other than the person who ‘hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person but does not include a person who avails of such services for any commercial purposes.”[3]

Like any other industry, consumers hold a pivotal position in management of affairs of this sector as well. Real Estate agents carry out deals with the sole purpose of luring the consumers into buying what they sell. Being the bearer of such a position in the cycle of trade in this sector, consumers are prone to a lot of vulnerabilities. There are innumerable chances for such agents to indulge in certain malpractices at the cost of fidgeting with the safety of the consumers. They may lure the consumers into buying a plot of land which is below the agreed standards by means of misrepresentation or flashy advertisements in the print or electronic media. Consumers may even become victims of fraud or deception at the hands of real estate agents. There are often incidents when such agents, with the motive of making more money and employing fewer resources, indulge in fraudulent activities and take advantage of the lack of knowledge on part of consumers. Consumers are mostly prone to exploitation owing to their illiteracy and ignorance towards the rights they possess.

Thus one can undoubtedly say that Consumers in the real estate industry are prone to a higher degree of risk than they are in the other sectors of the economy. Though progressive, the real estate industry is immensely unregulated. It lacks regulations, it lacks the required ethics. Consumers are exploited by taking advantage of these limitations that plague the real estate industry. The housing sector is immensely opaque, due to which consumers are unable to procure complete information, or enforce accountability against builders and developers. There exists no binding regulatory body to the industry, which affects it by delaying completion of projects, diversion of funds collected from buyers; one-sided contracts in the absence of adequate supply; reneging on contractual commitments by both the developers and the buyers; and constraints in financing and investment options available to the sector, thereby affecting its long-term growth.

 

ABSENCE OF A REGULATORY BODY

In the Belaire Owner’s Association vs. DLF Ltd case, the Competition Commission of India categorically stated that, “The absence of any single sectoral regulator to regulate the real estate sector in totality, so as to ensure adoption of transparent and ethical business practices and protect the consumers, has only made the situation in the real estate sector worse.[4]” It has also been brought out by various sector specific studies that the very establishment of a regulatory mechanism is likely to infuse more investments in the sector, the absence of which has kept investors at bay. Thus, it can be perceived that there has been a crying need for a real estate regulator to ensure transparency and fix accountability.

 

With the high level of vulnerability and risk involved, and with the lack of a regulatory framework, it becomes all the more necessary to extend to the consumers legal protection against the malpractices by real estate agents.Primarily, there are 3 reasons for the necessity of Consumer Protection in real estate industry:

  • Real Estate Business involves a large amount of money. Therefore, malpractices against consumers would result in large amounts of losses for them. On the other hand, consumer protection would benefit enormously to the consumers and is in their best interests and other agents tied to the industry.
  • The Real Estate Industry is ‘controlled’ by real estate agents. When governments formulate policies to improve the real estate industry they ask people who represent real estate agents. They rarely ask people who represent consumers. Therefore the consumers have no say in formulation of policies that regulate the industry. The real estate industry not only deceives consumers, it also deceives governments.
  • Consumers lack knowledge. Lack of knowledge and information on part of consumers about the industry also causes them to be exploited. They are misinformed, cheated and often end up losing large amounts of money at the hands of fraud agents because of such lack of information.[5]

Consumers are exploited in the real estate industry in a number of ways which range from up-front expenses, misleading advertisements, false and misrepresented offers, Open inspections and auctions, negative gearing, false advice and needless expenses. The simple reason for the high level of exploitation is that, the Real Estate Industry is controlled by agents of the industry. These agents represent the industry and not the consumers. They are concerned with providing information which relates to real estate agents, and not consumers. Thus, misleading information is given out to the Government as well as consumers which hinder the benefit of the consumers.

EXISTING LEGISLATIONS FOR CONSUMER PROTECTION IN REAL ESTATE SECTOR

Under the provisions of the existing statutes, an aggrieved consumer can rightfully claim relief and compensation, though the legislations require amendments to suit the modern day requirements of the realty sector. Consumers are given legal protection with respect to real estate sector by means of the following legislations:

Consumer Protection Act, 1986: The Act defines the term ‘service’[6] which includes ‘housing construction.’ Therefore the realty sector falls within the ambit of this Act and an aggrieved consumer can approach the Councils set up under this Act and claim relief. However, there is a limitation here that the Act only provides for pecuniary damages and compensation; it doesn’t provide for specific performance. Thus, the recourse available to an aggrieved consumer is real estate industry is only curative and not preventive.

Indian Contract Act, 1872: The recourse available to an aggrieved person under this Act does not stipulate specific performance. Just like the Consumer Protection Act, 1872, the relief granted is only curative and not preventive. In case of breach of contractual obligations, the Act doesn’t provide for specific performance but pecuniary compensation for damage caused.

Specific Relief Act, 1963: This Act, however, provides for specific performance as one of the recourses available to the aggrieved consumer. Though it is only limited to situations where “there exists no standard for ascertaining actual damage caused by the non-performance of the act agreed to be done” or “when the act agreed to be done is such that compensation in money for its non-performance would not afford adequate relief”. Thus, a person dispossessed of immovable property without his consent (other than in due course of law) can recover possession by a suit filed within six months from the date of dispossession.

Indian Penal Code, 1860: Under criminal law, namely, the Indian Penal Code (IPC) the recourse available to an aggrieved homebuyer or a realty consumer is to file a criminal complaint for criminal breach, which if established, entails punishment but does not provide any preventive provisions. Therefore, criminal law too, does not mandate specific performance of contractual obligations.

Competition Act, 2002: While the Competition Law in India is gaining momentum in the real estate industry, it does not provide for making good any loss suffered by individual consumers. It prohibits specific offences like abuse of dominant position, monopoly, etc., but doesn’t lay down the provisions for prevention or specific performance by agents in real estate industry.

The existing provisions in our laws are only curative measures against consumer exploitation. For complete eradication of consumer exploitation it is necessary to lay down provisions for specific performances which are able to prevent consumers against such exploitation.

THE ROAD AHEAD

Reforming the law is not the only way of extending consumer protection. Consumers themselves need to take up individual steps which enable them to build up their cadre and prevent them from exploitation. Not being ignorant about the real estate industry and being informed are the first steps which need to be taken towards it.

To exemplify, Consumers ought to know that in Possession and Allotment related issues, the Supreme Court and National Commission have granted payment of interest up to 18% as compensation. Moreover, rate of interest from allottees of land need to be charged on simple interest basis and not on compound interest basis. Consumers have the right to claim compensation if the land allotted to them is of an inferior standard or defective. Consumers should not fall for random news and information provided them to them. It is so because systems which benefit agents and hurt consumers are given too much good publicity in the real estate industry while systems which offer an alternative viewpoint receive little or no publicity. Proper investigation and verification about the source of the news shall keep them rightfully informed. Therefore, investigation is the key.

Protection to consumers shall pave way for growth of the real estate sector and eventually, it will contribute in the development of Indian economy which in turn, shall benefit the real estate agents as well as the consumers. The real estate industry in India is in dire need of effective regulation, towards consumer protection, and the constitutional limitations within which the Real Estate Bill 2013 was envisaged, is a good starting point towards change.

 

[1] http://www.ibef.org/industry/real-estate-india.aspx as visited on 20-08-2014.

[2] http://www.ibef.org/industry/real-estate-india.aspx as visited on 20-08-2014.

[3] Consumer Protection Act, 1986, Section 2(d)

[4] http://www.epw.in/system/files/pdf/2014_49_25/Legislation_for_Real_Estate_Sector.pdf as visited on 22-08-2014

[5] http://www.jenman.com.au/Ethics_Concerns.php

[6] Consumer Protection Act, 1986, Section 2(o)

Did you find this blog post helpful? Subscribe so that you never miss another post! Just complete this form…

2 COMMENTS

LEAVE A REPLY