New laws were introduced in India earlier this week, citing that developers have to use a minimum of 70% of their sale proceeds in order to finish residential property schemes.
Currently there is a trend for Indian developers for funnel profits straight into new developments without completing all of their schemes that are already underway.
Developers in India will also be banned from pre-selling apartments before all of the correct building approvals have been obtained. Developers who don’t comply with the new laws can face up to three years in prison.
The changes have been implemented in a bid to clean up the new-build industry in India. At the moment, just over 30% of all residential schemes run at least a year over schedule, and developers have a reputation for cutting corners. Tactics such as starting work before all approvals are granted and using sub-standard materials have been reported, and it is predicted that the new changes might wipe out the thousands of small developers who won’t be able to comply with the updated laws.
“The new law was required as a deterrent,” said Pankaj Kapoor, founder of real estate rating and research firm Liases Foras.
“Now developers won’t be able to misuse and siphon money in the manner they did in the past. Many builders who didn’t have the net worth were leveraging themselves beyond their means. Those loopholes are being plugged.”
From now on, new-build developers will be required to post updates on the progress of all of their residential projects on the regulator’s website every three months. They will also need to take financial responsibility for any defects that come to light within five years.