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 Today, the real estate industry is one of the most flourishing industries in India. The Sector is unique because the target group is categorized in unique ways-----people invest to buy homes for themselves or to make money, by renting them, or selling at a higher price. In such a scenario, the demand for residential and commercial property is increasing constantly and so are the number of builders and developers who offer special features to attract prospective buyers.
Without checking the credentials of the mushrooming developers especially in Delhi- NCR region, hordes of NRIs and other investors have been depositing the initial 10 % deposit money for booking their homes with these lesser known and lacking-in-credibility developers. Very often, buyers find themselves locked into buying defective properties or paying for things they don't need. Worse, they might be shelling out more to fund fines levied on builders.
Unfortunately, India's real estate industry is notorious for lack of transparency. In most of the cases, the greedy developers cheat their customers of their hard-earned life savings promising the moon through the hoardings around the city and full page newspaper color advertisements. They also profusely use the electronic media and SMSes, e-mails claiming they would ensure 12 per cent assured returns on their investment in residential as well as commercial properties. Some developers who have recently mushroomed on the Indian realty scene have started calling themselves ‘PROPERTY GURUS’. They have the dubious distinction of buying awards from organizations whose existence itself is in question. Big newspaper advertisements and hoardings around the city are put up by these developers to fleece the gullible investors in their residential and commercial projects.
All constructions in the country have to be done according to the National Building Code. Though all good developers get their plans cleared by the authorities, some do not strictly adhere to them. In some cases, the building is not built according to the plan submitted to the governing body and the poor buyers of the property have to pay dearly. The violations range from the height of the building to margins namely the open spaces. The two classic cases are Mumbai’s Campa Cola compound and Noida’s Supertech’s two under-construction 40-storey towers----Apex and Ceyane. It is no secret that in both the cases, the poor home buyers have been the victims. Their dream of having their own property has shattered. The message in both the cases is loud and clear: customers have to be vigilant before buying a flat (see box on buyers’ checklist).
CAMPA COLA and SUPTERTECH
Also a real estate regulator is the crying need of the hour. While in the case of Campa Cola compound, the owners of illegal flats of Campa Cola compound would have to find alternative accommodation as the apex court made it clear that they have to leave their flats.
In Supertech’s case, there is still some hope for the customers. All is not lost for them as R K Arora, the Managing Director of the company, has promised that the interests of the customers will be looked after and they (company) would challenge the verdict of Allahabad high court. The company has filed a special leave petition against the high court order in the Supreme Court, and the demolition has been stayed. It may be recalled that Supertech was allotted a 48,263 sq mt. plot in Noida’s Sector 93A in 2004 for constructing Emerald Court Group Housing Society, which was to have 15 towers with 11 floors each. These apartments were completed in 2010. In both the cases the developer had violated rules, thinking that their buildings will be regularised by urban local bodies. It has built more floors than permitted.
The two towers are at an advanced stage of construction. More than 21 floors have been built in Apex and 17 in Ceyane. The towers were to have 14 flats on each floor besides a penthouse each. The builder had concealed the fact that there was an ongoing litigation for the past three years.
And talking about Campa Cola compound, what is really shocking is that those who would lose their roof got bank loans. Banks after due diligence were satisfied with the documents and loans were sanctioned by nationalized banks. What a pity, now the buyers will be suffering mental agony, emotional and financial loss for the wrongs committed by the developers. It is time that such developers be hanged without any trial, says an industry analyst.
What's worse, in some townships / projects that promise a grand lifestyle, developers do not transfer ownership of facilities with commercial value, such as club house, gymnasium and tennis court, to resident associations. Builders retain rights over such facilities in the builder-buyer agreement and profit from it. In such an arrangement, residents end up paying for maintenance while the builder enjoys ownership rights.
GREY SALABLE AREA
Another bone of contention between the developers and buyers is the salable area. In a building, the maximum built-up area is linked to the plot size. The ratio of built-up floor area to plot size is called the Floor Space Index (FSI) or Floor Area Ratio (FAR). It is different for different localities. Some spaces, such as balconies, terraces, voids, open parking lots and circulation areas, are not included in the FSI calculation. This is because these cannot be monetized. However, in many cases, once the layout has been approved, developers convert these into habitable spaces through 'creative construction' and charge based on the super built-up area, that is, the total area of the apartment plus its share of common spaces, including all open spaces. It is difficult for buyers to calculate the super built-up area.
Developers have to pay external development charges, or EDC, to the Government for civic amenities such as roads, water, electricity supply, sewerage and drainage. The EDC is fixed by the local authorities and is passed on to buyers in proportion to the built-up area of their properties. The EDC is clearly mentioned in the agreement. In the normal course, this should not be a problem, as builders deposit the money collected under EDC with the local authorities. But there have been cases of projects running into trouble as developers did not pay the amount collected under EDC to the authorities. If EDC is not deposited on time, a penalty is imposed. Some developers pass on the penalty to buyers. This is wrong. A developer cannot pass on the extra cost to buyers if the penalty has been levied because of its own fault. You can check the EDC rates by visiting the local town planning authority. "Builders are not allowed to charge more than the Government-approved rate.
PROJECTS IMPACTED
Another problem is related to the clearance certificates. For new constructions, developers have to seek clearance from the local authorities. Projects of more than 45 developers including Jaypee, Amrapali, ATS, Logix and Ajnara have been impacted, with buyers demanding penalty from them for the delay. Builders in Noida are unable to hand over more than 30,000 completed homes to their buyers, because of a National Green Tribunal order forbidding the Noida Authority from giving completion certificates to projects within a 10-kilometre radius of the Okhla bird sanctuary. Developers in Noida say they have in the past seven months since the tribunal's order lost close to Rs 1,000 crore as they have been holding on the flats, paying interest on their loans as well as penalty to home buyers.
When the state government has recommended 100 metres around the sanctuary as the eco-sensitive zone then why doesn't NGT (National Green Tribunal) allow the authority to give us completion certificates," asks Getambar Anand, managing director of ATS Infrastructure and also the president of the Confederation of Real Estate Developers Association of India (Credai). “Such a lot of stock has been put at jeopardy because of the decision, notwithstanding the fact that all of us have environment clearances for our projects.” A senior executive at Amrapali Developers said the company has 5,000 apartments ready for possession but it can't offer physical possession to buyers. “We have sent them intimation for possession sometime back but we can't give them their homes,” he said on the condition of anonymity.
"We are finding it difficult to launch new projects in the vicinity of the sanctuary because investors and banks are reluctant to fund such projects till there is clarity on the matter," said Shakti Nath, managing director of the Logix group, which has put three of its mixed-use projects on the backburner due to the issue.
In October last year, the tribunal had directed the Noida Authority to stop all construction activity within 10 kilometres of the sanctuary and asked the central government to fix the rules on the distance to be kept for such developments from wildlife sanctuaries.
| PAINFUL FACTOIDS |
BUYERS’ CHECKLIST |
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No regulator in property industry.
* Buyers at mercy of top builders.
* Lifetime savings gone.
* Pressure of bank EMIs goes up, even though possession is indefinitely delayed.
* Builders seldom provide compensation for delays.
* Prior litigations of builders are hidden during marketing and national advertising of projects.
* Classic Examples of Harassments: Campa Cola Apartments by Pure Drinks Ltd, Worli, Mumbai and Apex and Cayene by Supertech Ltd., Noida Expressway. |
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Verify original documents of property.
* Title report of last few years must be searched.
* Builder should have non-agricultural permission from local collector.
* Verify development agreement between land owner and builder.
* Seek copy of order under the Urban Land Ceiling Act.
* Check building plans, approved carpet area, including balconies sanctioned by competent authority.
* Check commence certificate by local corporation.
* Check completion certificate during possession.
* Check building bye-laws to verify side setback, height.
* Confirm transfer fees, stamp duty, registration charges, other outgoings to be paid.
* Scrutinize sale agreement in detail.
* Ensure property stamp duty has been paid by builder.
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The Centre then asked state governments to suggest rules for sanctuaries depending on how fragile they were. In February this year, the Uttar Pradesh Government sent its recommendation for deeming 100 metres as the eco-sensitive zone. "We should be given instructions about who to go to rather than dealing with multiple authorities," said Anand of ATS Infrastructures. When the building is ready, the local authority awards a completion certificate stating that the approved plan has been followed. This is mandatory for getting basic amenities such as water and power. But this certificate alone does not give occupation rights. One also needs an occupancy certificate, which is awarded after authorities check that the rules for fire safety, elevators, electrical wiring, water supply and waste disposal have been followed.
To tackle the problems, the government is planning to set up a regulator, with a Bill on this already cleared by the Union cabinet. Until the regulator becomes a reality, buying property remains a risky task. Buyers often find themselves stuck with properties that are on the wrong side of law or paying for things they don't need. To avoid this, knowledge of common tricks property developers use can come in handy.
With the Narendra Modi-led NDA Government taking charge at the Centre, there is a surge in consumer sentiment as the “affordable housing for everyone” is among the prime agendas for the new Government. The real estate players believe that essential bottlenecks like clearances, land acquisition, funding, delay in decision making should be addressed by the new Government and affirmative agendas are placed across the table. Since the sentiment is positive, analysts believe that this should push up demand from the consumer side. The sector has been under the reel of consistent slowdown over the last one and half years. Coupled with this, high inflation, rupee devaluation, lack of one window policy has not only delayed many real estate projects, but also the existing properties have suffered a debacle from the judiciary end. For the consumers, finally a Real Estate regulator will put their grievances into the fore and help them get justice.
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