Missing deadlines

CONSUMERS IN DISTRESS

According to Nitin Saxena,a consumer rights activist,the downturn brought to the fore the ugly underbelly of the Indian real estate sector. In the absence of regulations,developers are breaking rules with impunity and taking customers for granted. This is the single-biggest reason for loss of confidence among customers,be they investors or end users, he says.

Saxena explains that buyers get entrapped once they sign a buyers agreement. Developers get this document signed even before construction has commenced. The agreement papers are unilateral and biased in nature. Buyers are given no exit option either they sign the agreement or pay a penalty for not signing it. The penalty entails cancellation of the flat and forfeiture of the earnest money deposit EMD. The EMD is equal to 10 per cent of the cost of the flat that buyers have already paid at the time of booking. The agreement is couched in such a language that the buyers can not make any representation or object to any of the developers sins of commission or omission. Since the agreement is a lengthy document,almost all customers sign it without reading it. It would shock the buyer into disbelief if he were to actually read the document and understand its implications, he says.

A large number of consumers are struggling to get refunds from errant developers. In some cases,developers have refunded buyers money after deducting around 20 per cent to 40 per cent of the initial deposit. To cite one example of customers plight,in 2006 Kamlesh Wadhwa,an aged widow,invested Rs 7 lakh to purchase 350 square yards in a township being developed by TDI. Her broker in this transaction was Jyoti Estates. Wadhwa was later shocked to learn that the broker had,with the developers connivance,inserted his own name as a joint applicant. Later,the developer not only refused to delete the brokers name but also refused to refund the money deposited by her.

Similarly,YK Sharma had invested Rs 6 lakh in 2006 to purchase a 250 square yard plot in a township at Panipat to be developed by TDI. In spite of repeated requests,the developer has not refunded his registration money. On being contacted by The Indian Express,the developer refused to respond to these issues.

FLEEING DEVELOPERS

There are several instances where developers have escaped after collecting advance money from home buyers. Criminal cases under economic offence are pending against these developers. Some of the developers against whom cases of non-delivery of

projects are pending are NR Build Home,Green Builtech,Seven Heaven,Triveni Builders,AJS Builders,U-Turn Housing,Arun Dev Builders,Nitishree Infrastructure,PSG Builders and Dhampur Alco Tel.

Saxena,who runs an NGO called All India Consumer Education Society,has filed several criminal cases on behalf of aggrieved buyers. Some of these developers have not constructed even a single wall after collecting registration money from investors in cities like Noida,Faridabad and Gurgaon, he says. 

STATE OF FLUX

Agarwal of JLLM says that market conditions have been in an extreme state of flux over the last two quarters. Developers who have switched from luxury housing to budget home formats a while ago are now seeing the luxury segment make a comeback. This has made it difficult for them to zero in on the most viable typology, he says.

According to a source at Knight Frank Research,while residential prices are once again on the rise,the jolts of the past year have altered the dynamics of Indias residential market. The days of plentiful luxury projects and exorbitant prices have probably been consigned to history. Developers have now wisened up to the market potential of middle-class housing or affordable housing,as it is branded today. Low-cost housing is the key to addressing the housing shortage of approximately 24 million units across India. And if affordable-housing-for-all becomes a reality,we might just have the realty slump to thank, says Gulam Zia,national director-advisory services,Knight Frank Research.

IPOs LINED UP

The current buoyancy in the capital markets has made developers hopeful that they will be able to raise funds from the primary market. Says Sushanto Roy,CEO of Sahara Prime City: Even though many developers were able to push back repayments,high interest costs and requirement of funds for project execution remain a concern. The developer is planning a 650 million IPO this year. Others who are planning IPOs include Lodha Developers 650 million,DB Realty 325 million,and Emaar MGF 830 million. Market experts however say that investors are likely to be cautious about investing in the IPOs of a sector that is plagued by project delays and failure of players to execute projects.  

LESSONS LEARNT

With the market slump that altered the landscape of Indias residential market,perhaps the most conspicuous shift in market dynamics is being witnessed in the interaction of the demand and supply side. In the bull market,developers cashed in on premium segment housing demand and dictated prices. However,as consumers turned cautious and premium segment demand dried up,developers began to feel the pinch of the liquidity crunch. Consequently,prices were slashed and developers were compelled to come up with innovative solutions like discounted parking and assistance with EMI payments in order to attract buyers.

According to Knight Frank Research,although the residential market is on the upswing again,the trauma of the past year has placed the markets focus squarely on affordable housing,and the long term development of this initiative is expected to necessitate greater cognisance of consumer sentiments by developers. This has already resulted in introspection by developers,who,due to greater price sensitivity are now being forced to justify exorbitant floor rise charges and loading. They have realised that a market slump requires greater alignment with demand dynamics. The push for affordable housing is undoubtedly the most significant silver lining of the realty slump. Developers realised that the middle class home buyers market was a huge and untapped source of demand,and they demonstrated their eagerness to tap into this market by reducing unit sizes and lowering rates of premium projects to remarket them as affordable housing projects.

BUYER BEWARE

Meanwhile,consumers need to exercise caution in order to safeguard their interests. Saxena says that blindly signing the buyers agreement may put you in a disadvantageous position vis- a-vis the developer. Most consumers,he says,do not dig into the fineprint of this document and hence end up seeking justice in the courts. It is no wonder,he adds,that so many cases are pending in the consumer forum,crime branch and regular courts. He says: These developers invariably collect approximately 60 per cent of the cost of the flat from the consumer within the first 11 months of booking. The construction schedule committed to is invariably in excess of three years. They commence construction generally after a year and earn interest on the instalments collected from the buyers. When asked for an explanation,developers invariably pass the buck by attributing the delay to delays in receiving government approvals. Nowadays most banks and housing finance companies have linked the disbursal of funds to developers to meeting of construction milestones. In an environment where the buyer is waiting to trip you up,buyers need to exercise all the caution that they can and take every step after due deliberation.

praveen.singh expressindia.com