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Saturday, July 21, 2018

There is no excuse for delay

When buyers are expected to meet payment obligations while buying into a housing project,it becomes the responsibility of the developer to honour the contract and deliver on time

Written by Anshumali P Ruparel | Published: March 3, 2012 3:58:13 am

A well-known developer having a project in the Palam Vihar neighbourhood in Gurgaon was made to pay a hefty fine and 24 per cent interest to the buyer by the National Consumer Disputes Redressal Commission (NCDRC) for not giving timely possession.”

Cases such as this are routine as almost 90 per cent projects in India are delayed and a significant rise in complains of delayed possessions has been recorded. The image of the real estate industry is being tarnished by a few but it is the buyer who suffers the most.

The Impact

“I have taken a loan and am paying huge EMI on it since 95 per cent of the payment is taken by the developer. I was to get the possession in last June,hence I sold my small house by then. Since I didn’t get the possession as promised,I had to shift to a rented apartment for a short while. Now I am paying EMI and rent every month. The recent hike in interest rates has added to my ordeal. If I still do not get possession by this April,I will face increased rent as well. It is a mess,” says Jasbir Mehrotra (name changed),who has booked a flat in the project by a known developer in a central suburb of Mumbai,which has been delayed by years.

Many buyers are not been able to plan their shifting especially with school going children. Worst hit are the middle class.

“Buyers can follow a pre-planned financial outflow without any surprise burdens,” says Devang Verma,director,Omkar Realtor & Developers. By pointing out the benefit of timely possession,he hints at the losses for the delaying developers as well. “Developers have an excellent opportunity to build overall brand goodwill with all the stake holders and credible track record of timely delivery,which can attract better investments for their future projects,” adds Verma. However,a few developers prioritise money over reputation..

The Reasoning

There are some genuine and out of control reasons for delay such as natural calamity,political unrest etc. “There are also some genuine problems such as sudden changes in fiscal policies leading to the funding crunch,unforeseen socio-political pressures in the region,etc.” says Santhosh Kumar,CEO-Operations,Jones Lang LaSalle India.

However,developers present two main reasons for most of the delays,which they claim to be out of their control: 1) Delay in approvals and formalities by authorities and 2) Shortage of raw material increases the cost and impacts construction schedules.

“All experienced developers know the time taken for the necessary approvals. He can always add a few more months as a buffer for the sudden policy change or unexpected paperwork and then declare the time of possession,which would hardly go wrong. If one declares four years and takes four years for possession then it is not a problem. But declaring three and taking four years is not right” says a developer on condition of anonymity.

The issue of shortage of raw material does not go well either by industry veterans. “Each developer has a contract with the building contractor for the entire structure inclusive of raw material and labour costs. So,it is not the developer’s headache. Besides,both contractor and developer provide for possible fluctuations,” says a reputed contractor,a member of the Builders Association of India (BAI). “It is like booking a ticket in advance and at the time of the movie show,the theatre guy says he does not have a projector! The buyer didn’t give you excuses. There could be reasons beyond his control but as he was committed, he managed anyhow. Well,you must do the same.” he adds.

“Delays in delivering projects can be because of insufficient initial capital to start the project on time,inefficient project management,delays in procurement of construction materials,labour issues,cash-flow problems manifesting in the middle of project construction and issues with land acquisition. When unplanned and hastily launched projects get bogged down,the responsibility clearly lies with the developer. “ adds Kumar.

The diversion

Mark the pattern: After pocketing almost 80 to 90 per cent of the total cost of the flat from the buyer in the first 2-3 years,these defaulting developers turn away leaving the buyers in the lurch. If industry sources are to be believed,these developers divert the fund to invest in more lucrative projects,land buying,new proposals and sometimes in businesses other than the real estate.

There seems to be another hidden agenda in delaying. With delay,the developer gets a higher profit as he takes the advantage of the appreciation of the project. He sells the balance stock of flats at a higher price with every passing month. Despite this additional profit,he cries about fluctuations in raw material.

Options for Buyers

The buyer disappointed by the delay has two options: a) Opting out or b) Taking legal action without opting out.

In 1983,the Supreme Court ruled in favour of a buyer in a case against a Development Authority for not delivering his flat on time. This landmark judgment brought housing construction under the purview of the Consumer Protection Act,1986.

In of its verdicts,The NCDRC held that the buyer is entitled to opt out in case the project is delayed and he is also entitled to full refund with reasonable interest. The state laws such as Maharashtra Ownership Flats Act also echo the same for opting out. However,this rarely happens. There are mainly two reasons:

a) The buyer would have paid 90 per cent of the total cost. He would also be paying EMIs and rent etc. as the case may be. He may lose on many fronts like rent,interest,legal costs etc if he pulls out at that stage. The developer may not refund him in full or may not pay interest. Even if a decent developer pays a compensation,it may not match the loss.

b) If buyer,gets the refund,it would be as per the rate prevailing 2-3 years ago when he booked the flat. He may not find the same space at the same location at the same price due to appreciation. He may have to cough up more money to meet the new rate which may not be affordable. He may also not like to compromise on location or space besides price. Again he cannot be sure of the destiny of the next project as well.

Considering these aspects,the buyer prefers to suffer delays. This vulnerability is exploited well.

The second option is to take legal action against the defaulting developer without opting out,asking for speedy possession along with the compensation. The ‘Agreement for Sale’ creates the basis. Despite the fact that most of the agreements are heavily loaded in favour of the developer,there is a mention of the time of the possession linked with the payment schedule. So,any delay beyond that date can be termed as ‘breach of contract’ and thus forms the basis for legal action.

“As on date,for delay a buyer can file a consumer case before the District Consumer Forum on account of deficiency in service or go to a Civil court on the basis of his contract if it stipulates date of possession and any penalty for delayed possession. Ideally,the developer should refund the entire amount received by him along with the interest as specified in the said agreement from the date he received the payments till he returns the payments with the interest. Buyers can take help of various NGOs which are working for the cause of Consumer Right Protection,” says Advocate Lalit K Jhunjhunwala.

However,the legal battle in India is usually perceived as a waste of time,energy and money and to compromise and avoid suffering is termed as a practical approach. In addition,the buyer has to face the might of the developer in terms of legal muscle,connections etc.

“When it comes to enforcing their rights these very buyers refrain from coming forward for the legal process to claim the compensation due to them under their respective agreements,fearing unnecessary delay which the developer may create for them thereby further delaying the possession for their flat,” adds Jhunjhunwala.

The last mile

The government should speed up the enactment of much-needed laws such as The Model Real Estate (Regulation and Development) Bill and Regulatory Bills to control these practices. The approval processes should be simplified,expedited and made time-bound. One window system is worth considering for faster clearances. The developer should take a professional approach and engage in consultation right from planning till the end. He should ensure sound financial,technical and legal support before the commencement of the project and not stage-wise and should refrain from diverting funds and defaulting on his commitments at the cost of the buyer. It is in his interest as well.

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