Builders to Give Performance Guarantee

August 6, 2007	(2 votes, average: 1.5 out of 5)  Loading ...
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Paving the way for greater transparency in Indian real estate, the Urban Development Ministry is bringing stringent rules into the sector. According to the newest, builders will now be required to give a performance guarantee based on the project value.

The Ministry has placed the proposal in the Real Estate Regulatory Management Bill to regulate builders who delay in completing residential projects or develop low-quality houses. The society of property developers has criticized the proposal saying it will put real estate development at risk.

Builders have to deposit the performance guarantee (which would be calculated on the size of the venture.) with the housing regulator. It would be forfeited in case the builder defaults. The move will serve as an insurance to bail out the investors and buyers.

The basic idea behind bringing such a rule is to protect the interest of property buyers. Relevancy of the move gets more vivid after seeing the recent building collapse in Mumbai.

However, the proposal is getting mixed responses. Chairman and CEO of Orbit Corporation Pujit Agarwal calls it a grey area and a tough task to execute. He also adds that if there would be a lack of transparency in the sector then big developers will have a problem implementing it. And small time developers would come out as the worst sufferers.

Supreme Court Advocate Dr DC Vohra sees the proposal as a boon for buyers. The state government is bringing legislation which will make it mandatory for builders to register in the forthcoming winter session due to recent building collapse. After making the registration, the builders will themselves find it important to monitor the quality of the construction.

Sharing the same opinion, Arun Goel, CEO of Dewan Housing Finance Corporation (DHFL) also feels in favor of the proposal. The performance guarantee will strengthen the collateral security of the bank and safeguard the buyers’ interests.

News Published Under:   Real Estate India |

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