Builders to Submit Performance Guarantees

Real estate developers in India may now be required to submit a performance bank guarantee, if the proposal submitted by the Union Urban Development Ministry is incorporated in the Real Estate Regulatory and Management Bill.

The bank guarantee would be a proportion of the project value and would
have to be submitted to a real estate regulator. If this bill comes into
force, builders would be forced to pay a penalty on project delays.

The urban development ministry is working on a format which would
make it mandatory for real estate developers to obtain approval
for their projects, and the performance guarantee would be calculated
on the size of the venture.

In case the builder fails to meet his delivery targets, the financial
guarantee would be used to repay investors in the project.
Once approved, the regulation would be tested in Delhi , and other
states would adopt it in due course.

This initiative is part
of a larger policy of making the real estate industry responsible.
The legislation is expected to force erring builders to adhere
to commitment and protect the investors’ interest.

The proposed bill will also have a clause requiring builders to refund
the investor’s money in case of delayed delivery. Investors are highly inconvenienced financially when builders fall back on promises.

The bill also proposes to carry a provision for cancelling the permit
in case the builder falls far short of his obligation.