Real estate developers evoke little confidence among home-buyers and it is not without reason. While, this year, a large number of them have been focussing on offering delivery of their existing projects to customers, rather than launching new projects, home buyers are facing a new issue. Several developers offering possession letters have given residents an unpleasant surprise with several demands for charges that were not disclosed earlier.
Developers are demanding additional charges under various heads. While some are asking for money in the name of labour welfare charge, others are demanding huge amounts in the name of authority meters. There are other charges that are being demanded by most developers such as a one-year advance for maintenance of society, etc. In some cases, developers are cutting corners by leaving some key interior works for the customers to complete — like keeping the fire safety pipe network inside the flat exposed.
An industry expert said that creativity to cut costs is at its peak as developers are stressed on various accounts. While developers have witnessed their project costs escalate because of delays in execution and completion, it has also resulted in a rise in their overhead expenses on account of inflation.
“Developers are under stress and many are facing issues of cash flow which is forcing them to invent additional charges. Earlier, a lot of these charges were part of the overall cost of the house and thus were not demanded separately from customers. However, developers are now imposing them as separate charges,” said Ashwinder Raj Singh, CEO – residential services, JLL India.
Another expert said that the Delhi-NCR market is witnessing most of the innovations on the additional charges front. “With demand not picking up, the developers are innovating new costs. While they have reduced the base price of the projects to attract buyers, they are making up for it by imposing additional charges. So, once you go to purchase the house, you come to know about several additional charges that you need to pay at the time of possession. This may raise the price of house by 10-15 per cent. Other than this, some charges are even not disclosed upfront and charged at the time of possession,” said Sandeep Singh Katiyar, CEO, Century 21 Real Estate, India.
This is a completely grey area and insiders say the situation will only get worse in the absence of a regulatory body for the sector. Some of the common charges that developers across Delhi-NCR have imposed is advance maintenance fee for the next 1-2 years, legal consulting fee amounting to around Rs 20,000 that they claim to be charging for facilitating the registration process and expenses related to that.
There are also water charges amounting to around Rs 20,000 and piped natural gas (PNG) connection charges etc.
In several cases charges are being imposed under new heads.
For example, Supertech Ltd has, in its possession letter to customers, demanded a labour welfare charge of around Rs 30,000. Similarly, another developer on the Greater Noida Expressway is demanding authority meter charge amounting to Rs 70,000 from customers for 7 KVA power backup at the rate of Rs 10,000 per KVA — a rate which industry experts say is exorbitant.
This is other than the power back up charges that the customers had already paid for power back-up. This developer is also demanding a one-year advance of club usage charges that stands at Rs 500 per month.
“The additional charges at the time of possession is amounting to anywhere around Rs 200,000 and this was not disclosed upfront,” said a property advisor in Noida.
In another case, Gulshan Homz is leaving the pipe network for fire safety inside the flats exposed. An official at its construction site in Sector 143 said that either the customers can get it done by themselves or can ask the developer and it can be done at an additional cost.
While email sent to Supertech Ltd did not elicit any response, a Gulshan Homz spokesperson said, “We wish to bring to your notice that the information that you have is not correct. The construction for our project Gulshan Ikebana is going on and the flats are not handed over yet. The handover of the first phase of Gulshan Ikebana is expected in March 2016 and we shall complete the requisite construction work before the handover.”
A market insider said that while all developers building flats of more than 14-storeys have to provide for this fire safety feature as a regulation, almost all developers cover it rather than leave it exposed. “These are things that a customer will never ask the developer and assumes that they would be done. However, developers are cutting corners and saving money,” said the expert.
On the fact that all developers are asking for a one-year advance of the monthly society maintenance charge, an in expert said that for them, it has become a money-making tool.
Katiyar said that the situation has changed significantly over the last few years. “Earlier developers would do the maintenance of the society for free or for a nominal fee for the initial 1-2 years till the RWA was formed. But now it has become a process to earn more money. Also there is no focus on improving the quality of services in most of the cases,” said Katiyar.
If a developer sells 15 lakh sq ft of space in a society and charges between Rs 1-2 per sq ft more than the market average, then he makes an additional income of anywhere between Rs 1.8 crore and Rs 3.6 crore and that is what developers are eyeing, said an expert.
What can a customer do?
Industry insiders feel that in the absence of a sectoral regulator, this is something that no one can control and home buyers need to be more aware and vigilant at the time of buying the house and look for the charges being disclosed by the developers.
Singh said, “Homebuyers need to be more vigilant at the time of buying the house and they should ask the developer upfront to list all the charges and agree to pay only those charges. This is one way where homebuyers can safeguard their interest.”
Experts say that since most of these charges are imposed at the time of possession, there is hardly anything that a customer can do about it. “A customer looking for possession of his flat that has already been delayed accepts to pay these charges,” said a real estate consultant with a leading property portal.
Katiyar said that only a regulator can set the norms about the charges that developers can impose and a delay in entry of a regulator will only see a rise of such instances.
* Rs 2,00,000: Approx. additional charges at the time of possession which are not disclosed upfront
* Most developers across Delhi-NCR have imposed an advance maintenance fee for the next one to two years and legal consulting fee amounting to around Rs 20,000
* There are also water charges amounting to around Rs 20,000 and PNG connection charges
* A developer on the Greater Noida Expressway is demanding authority meter charge amounting to Rs 70,000 from customers for 7 KVA power back up at the rate of Rs 10,000 per KVA — a rate which industry experts say is exorbitant