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Unappraised Deals

The present law is heavily biased in favour of housing developers. If a developer delays delivery of a house,he is liable to pay a small fine. But if a buyer delays payment,he is made to pay through the nose....

Written by Praveen K Singh | Published: April 10, 2010 11:34:24 pm

In July 2006,Ramesh Agarwal,a Delhi-based businessman,booked an apartment in Orchid Petals at Gurgaon,which was to be constructed by Orchid Infrastructure Developers. After paying around 25 per cent of the total cost in January 2007,the developer signed a buyer-seller agreement with him with a provision that he will get the possession within 36 months. Today,four months past the deadline,Agarwal is struggling to pay the equated monthly installments (EMIs) of Rs 39,040 (on a loan of Rs 40 lakh) along with the monthly rent he is paying for his current residence. As per the buyer-seller agreement signed by Agarwal,the developer is expected to pay a penalty of Rs 5 per sq ft for every delayed month,which works out toRs 6,750 for his 1,350 sq ft of apartment. The developer is not paying any penalty to him or any other allottees.

Agarwal,along with other aggrieved buyers,is now planning to file a legal case against the developer for not paying the penalty as they have failed to

deliver the project in time,the deadline for which was clearly stated in the agreement.

There are several cases similar to that of Agarwal. Projects of most developers have got stuck,delayed or been shelved. However,barring a few,none of the developers are paying penalty to buyers.

Dr PSN Rao,founder-chairman of National Association of Realtors (NAR-India),“It’s an unfair practice. Such one-sided contracts amount to cheating the innocent home buyers.”

PREVALENT PRACTICE

In most cases,developers tend to delay signing of buyer-seller agreement even after receiving a booking amount. Sometimes they even take more than a year. Home buyers either feel helpless or,out of sheer ignorance,fail to understand the motives of the developer. The hidden agenda behind this practice is that these developers are not bound to complete the project as per the date of receiving the booking amount. But once they sign a ‘buyer-seller agreement’,they have to deliver the project within 36 months. If they default,they are supposed to a pay a paltry penalty of Rs 5 per sq ft only for every delayed month. On the other hand,if a home buyer defaults in his installments,he has to pay a heavy interest of around 18 per cent on the due amount.

Pranab Datta,MD of Knight Frank India,says,“Penalty payable by a developer for failure to deliver as per deadline should be based on the value of the property. Mere Rs 5 per sq ft may be extremely inadequate if the flat has been sold at Rs 50,000 per sq ft.”

FLEECING INVESTORS

Some market watchers believe that there is a need for tougher regulations as these developers are fleecing investors in several ways. The housing products are grossly overpriced and not at all affordable. “The government permitting this loot,without any controls whatsoever,is like promoting a ‘laissez faire’ economy. It is ironical that on the one side,it talks of affordable housing in the National Housing and Habitat Policy while on the other,it does precious little to rein in the developers who operate with little or no controls. This reflects the complete lack of sensitivity of the government towards the housing requirements of the common man,” says Rao.

READ BEFORE SIGNING

Experts advise that the prospective buyers should check into the developer’s credibility,past projects and performance and delivery record,while booking an apartment. “Buyers should also ensure that the project is funded by a known bank and it has all the requisite approvals. A buyer is entitled to ask for a copy of the project’s drawings,duly stamped by the municipal authorities,” says Sanjay Dutt,CEO-Business,Jones Lang LaSalle Meghraj.

The best way for home buyers to safeguard themselves would be to ensure that the developer has a good track record,is customer-centric,and has got the requisite approvals from the concerned authorities for developing the project. They must ascertain that all terms and conditions governing the sale are transparently captured in the agreement. For buyers,if there is any reason for initial doubt,conducting a property purchase through an attorney qualified and experienced in handling real estate-related issues is advisable.

According to Nitin Saxena,a consumer rights expert,home buyers need to warily read each and every provision mentioned in the agreement letter. “Generally,consumers are unable to take any benefit from the builder if there is any delay. This is because as per the clause,builder is only entitle to give relief from the date of signing the agreement,which is generally signed after more than a year from date of booking,” he adds.

Some market watchers believe the developers are still affected by severe funds crunch and experiencing difficulties in executing projects. Many intend to delay their projects also because of lack of demand. The prime reason behind project delays in Delhi-NCR has been the diversion of funds by these developers. During the boom,they had over-booked their projects and then failed to deliver. Also,the lack in demand has made a large impact on the process of the timely delivery of apartments.

THE REGULATORY BILL

Taking advantage of an unregulated sector,developers delay projects with impunity,causing untold hardship to customers all over the country. The incidence of delay would have been less had there been a regulator for the sector. Finally,the housing ministry is coming up with a piece of legislation for the establishment of a regulator. As per the proposed Model Real Estate Regulation Bill,which is expected to be tabled in the coming session of Parliament,no deposit or advance can be obtained by a developer without first entering into an agreement of sale. It reads: “Notwithstanding anything contained in any other law for the time being in force,a promoter shall not accept any sum of money as advance payment or deposit,from a person who comes forward to take a plot,building or apartment,as the case may be,without first entering into a written agreement for sale,including as provided for in Schedule-I which shall be registered under the Registration Act,1908 (16 of 1908).”

Rao says that this is no doubt a good provision. “But what is more important is not the ‘agreement to sell’ but the conditions of the contract (with respect to default) and whether it is registered or not. Further,what happens if the developer does not adhere to the promises – how serious is the government in punishing the erring developer?”

Hopefully,all these will be answered once Model Real Estate Regulation Bill comes in force. Then,if the developer reneges on his promise,the buyer will be able to approach the regulatory body for redressal.

praveen.singh@expressindia.com

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