Consumer protection in real estate sector

Reema Bali, Assistant Professor of School of Real Estate, shares the nuances of consumer protection in the real estate sector.

27 January 2016

Expert Talk
Reema Bali, Assistant Professor of School of Real Estate, shares the nuances of consumer protection in the real estate sector. She sheds light on the legal as well as awareness aspects of the subject.


Real estate sector in India is one of the major sectors in India with a considerable contribution to the GDP of the country. The real estate sector comprises of residential, commercial, retail, industrial spaces and alternate assets (schools, hospitals, golf courses and hotels etc.). With the rapid growth the sector has witnessed in the past two decades it still remains primarily unorganised in nature. At present, there is no regulatory body governing the sector or a legislation in this regard (Proposed bill- Real Estate Regulation and Development Bill, 2013). Most of the consumer grievances from this sector at present fall within the ambit of Consumer Protection Act, 1986.
However there currently exists a self-regulatory body called CREDAI (Confederation of Real Estate Developers’ Association of India) with a mission to make the industry more organized and progressive.

It brings together more than 11,500 real estate developers from across the country. It has also become a preferred platform for national discourse on housing, planning, policy making, financing, consumers and real estate professionals. Being self-regulatory and a voluntary organisation it lacks the authority to adjudicate and redress any kind of consumer related grievances. Its policies are recommendatory in nature to assist in a more organised development of the real estate sector.

However CREDAI’s efforts have resulted in abolition of urban land ceiling, rationalization of stamp duty, modification of the environmental impact assessment rules, amendments related to service tax. Its campaigning under housing has been adopted by the Government in 2014 as a ‘Housing for All 2022’ goal. CREDAI also helps promote ethics and best practices in the form of Code of Conduct to provide its members with clear guidelines for community transparency and professionalism.

The customers for the real estate sector see themselves helpless at the hands of the real estate developers and have no choice but to bow down to their demands. They are often exploited due to lack of proper knowledge and awareness of the sector and various applicable laws. At present the consumer of the real estate sector for the purpose of redressal of grievances is only protected by the general consumer protection laws in the country as ‘The Consumer Protection Act of 1986’. For the purpose of invoking the protection and remedies under this act certain criteria needs to be fulfilled.

The act provides clear and unambiguous definition for who the consumer is under this act as per Section 2(d). According to this section only the following person would be considered as consumer (Section 2(d), The Consumer Protection Act, 1986 ) 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 / promised / 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 the services for consideration paid or promised / 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; 

Explanation— For the purposes of this clause, ‘commercial purpose’ does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self-employment;
The consumer in the real estate sector would fit into the second part of the definition provided by the act, someone availing ‘services’ for a consideration.
(The definition of goods (Section 2(i) of the Consumer Protection Act, 1986) as per this act applies only to goods covered under the Sale of Goods Act, 1930 (movable goods). Hence the real estate products would find place in the services sector in the form of construction services.

The consumer in the real estate sector is a consumer of services; hence any complaint will be with respect to deficiency in services and not for a defect in product (Section 2(c)(iii) of the Consumer Protection Act, 1986, ‘Complaint’ means any allegation made in writing by a complainant that the services hired or availed of or agreed to be hired or availed of by him suffer from deficiency in any respect). Depending on the value of services agreed to be hired or availed by the consumer, any complaint of a deficiency there on will be made in front of the appropriate forum (District, State or National Consumer Disputes Redressal Forum)

Though at the very first look the above system of dispute redressal seems to be just and fair unfortunately there are many underlying problems which the consumer faces. The consumer of this particular sector is more vulnerable due to the large amount of money involved and the lack of information (also misleading advertisements about various projects) that one has regarding the real estate sector. The trends and prices in the real estate sector are mostly skewed or fixed by the real estate agents who run this unorganised industry.

Moving ahead in the right direction, there is the proposed Real Estate (Regulation and Development) Bill of 2013, which proposes the establishment of a Real Estate Appellate Tribunal. This specialized judicial body would deal specifically with grievances of the real estate sector in more effective and speedy manner, giving the much needed relief to the consumer.

The present consumer protection laws could also be amended by widening its scope to include within its ambit immovable property in their definition of goods so that real estate sector consumer can be well covered and protected. Instead of establishing new tribunals to deal with real estate cases the existing tribunals could be given the much needed jurisdiction to decide such cases in a speedy and effective manner.

When we go to the other side of the spectrum that is to the developer side, there are innumerable checks and compliances that one needs to obtain for the implementation of any project. There are various bodies at state and national level that need compliance from real estate projects, which if made simpler and modest would give a breath of relief to the real estate developer too. Any arbitrariness in the law making process should be avoided in order to circumvent any penalty or compensation which would ultimately be passed on to the consumer.

However making amendments to the legal framework is not the only way forward. The consumer needs to equip himself with the essential knowledge of the real estate sector and be aware of their rights and duties in order to prevent any kind of exploitation.

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