Everybody wants a piece of real estate. The sector has been growing at 25-30 per cent a year since 2003, fired primarily by low interest on housing loans and the rising affluence of homebuyers. Those who had bought stocks of real estate companies, whose valuations have gone through the roof, are a happy lot. However, the same cannot necessarily be said of scores of financially and emotionally bleeding homebuyers. The developers play lord and master to middle-income individuals, who often live like monks to fulfill their dream of owning a house. Most sale agreements are heavily loaded in favour of builders in the currently unregulated market.
This disillusionment is reflected in the rise in the number of complaints that has accompanied the growth of the sector. In the first 25 days of August 2007, the Delhi-based National Consumer Helpline, a consumers' body, received 33 housing-related complaints. The Consumer Guidance Society of India (CGSI), Mumbai, says it gets two-three cases a day. In this scenario, what chance do you have of safeguarding your interests as a buyer?
In 1993, the Supreme Court ruled in favour of M.K. Gupta in his case against the Lucknow Development Authority for not delivering his flat on time. This landmark judgment brought housing construction under the purview of the Consumer Protection Act, 1986.
This, however, hasn't done much to change the unscrupulous ways of builders. Owing to the bonhomie between developers, the authorities and the contractors, projects get sanctioned easily but the quality of construction goes unquestioned. Supreme Court advocate C.M. Srikumar says: "Even in cooperative societies, the contractor, the
architect and the office-bearers of the society dupe the public."
Rahul Todi, managing director, Bengal Shrachi Housing Development, says: "Unlike other consumer products, here we sell a concept first. If there is a gap between expectation and reality, then we are not doing our job properly."
What are the most common games that developers play? Here are eight common tricks and ways in which you can guard against them.
I. When do I get my house?
Most agreements do not clearly specify the date of delivery. For instance, one says: "Completion of the building is expected to be delivered by the date mentioned in the covering letter of this allotment. The delivery of the possession is subject to force majeure." What this means is that you cannot hold the developer responsible if he does not stick to the promised delivery date.
There have been cases when the delivery has been delayed by 12 months or more. Typically, the buyer would have paid 95 per cent of the price by the time he reaches the expected delivery date. If he is living in a rented house, delays will drive his calculations awry as he would not have factored in this additional rent (see Double Bite). Mumbai stockbroker Bhupendra M. Pitroda, 58, fought a legal battle against Megha Property Developers for five years. Reason: delayed possession.
Pitroda was promised delivery of the flat he booked in 1998 in Navi Mumbai's Madhuri Cooperative Society Housing Project within 18 months. The builder later said that delivery would take another six months. When Pitroda visited the site six months later, he felt that the delivery would not happen soon. So, he instructed his bank to stop payment of the balance 37.5 per cent of the apartment's cost to Megha Developers.
The developer promptly sold off the flat. An aggrieved Pitroda then moved the State Commission in July 2000. Three years later, the commission asked Megha Developers to refund Pitroda the money he had paid with 15 per cent interest. Pitroda was also awarded a compensation of Rs 15,000 for the mental agony caused and Rs 5,000 for legal costs.
The developer appealed in the National Commission, which upheld the State Commission order but cut the interest to 9 per cent. The developer then moved the Supreme Court. "The Supreme Court judge flung the papers in the face of the builder's lawyer and asked the builder to compensate me immediately. The judgment was over in a minute," says Pitroda. Through the legal battle, Pitroda made 25 appearances in the State Commission, three in the National Commission and one in the Supreme Court.
Many agreements have penalty clauses for delayed delivery, but they are without bite. For example: "If the company fails to complete the construction of the said building/apartment within the period as aforesaid, then the company shall pay to the allottee compensation at the rate of Rs 5 per sq. ft of the super area per month for the period of such delay." What this means is that for a 1,000-sq. ft flat, you would get a compensation of Rs 5,000 per month�a pittance (see Double Bite).
In most cases, buyers put up with the delay quietly rather than 'antagonise' the builder. Most fear retribution, harassment and further delays in delivery. This is not entirely baseless. For one, agreement papers are designed to protect the builder. Two, your intention to fight the builder may look like a joke given your handicap in terms of financial prowess and influence. Three, there is no industry regulator you can turn to for redressal. Suresh Virmani of National Consumer Helpline says: "We generally encourage a dialogue between buyers and sellers to settle disputes. If that fails, the matter is taken to the regulatory body. But we can't even suggest this in real estate because there is no regulatory body."
What to do. Don't just take the builder's word on the progress of construction. Check it out from time to time, as Pitroda did. If you feel a delay is likely, start building up pressure on the developer. The best way to do this is to form a society, says Virmani. Usually, builders have many projects running at the same time and they push the ones where the pressure is higher. "The more the number of buyers, the greater is the pressure," says Bharath Jairaj of Consumer Action Group, Chennai.
II. Where are my papers?
A lot of builders are evasive about giving the completion certificate at the time of handing over the flat. A completion certificate is issued by municipal authorities and establishes that the building complies with the approved plan. A developer would not get the certificate if he deviates from the plan.
You cannot prove ownership over your house if you don't have the certificate as you would not be able to get the house registered. Also, you may not be able to get utility connections. You will have problems selling, mortgaging or reverse mortgaging the house as it will not be in your name. In the worst case, the unapproved parts of your house would be demolished by the municipal authorities. Not a happy state of affairs.
Businessman Mohammed Haroon, 45, got his flat in Tulip Garden, Gurgaon, six years ago, but he has not got the completion certificate yet. The same goes for the other 59-odd flat owners there. Together, they took Sarvapriya Developers, which built Tulip Garden, to the consumer court. "After four years, in mid-August this year, the court directed the builder to hand over the completion certificates within a month, or pay Rs 5,000 each as compensation to all the flat owners," says Haroon. "But we know that none of the two will come our way and are prepared to approach the Delhi High Court in this matter."
What to do. Sale agreements often don't mention the completion certificate. If yours doesn't and you notice it before signing the papers, insist on the inclusion of a clause that you will be given the completion certificate when the flat is handed over to you. Ask the builder for it as soon as he announces that the house is ready for possession. If, like Haroon, you move into the house without it, the court will probably be your last resort.
III. What's the guarantee of quality?
Within a month of moving into his apartment in Mahagun Manor, Noida, Rajiv Raghunath, 41, got trapped inside the house as the door lock failed. In six months, the plaster started peeling off and the fans stopped working. In another few months, water started seeping in as the pipes had corroded. "I felt cheated. This wasn't worth my money," says Raghunath.
As of now, there is no way for a buyer to check the building materials used or the quality of construction. Says advocate Anupam Srivastava, who is with law firm Chambers of Law: "Quality is a subjective matter. Buyers should enter into an agreement on the kind of material that the builder will use."
In October 2005, Pune's Gera Developments started a trend by providing a 5-year warranty on its buildings. The warranty, however, is subject to the conditions that no structural changes be made to the house and that there be no misuse.
What to do. Don't fall for the builder's glib talk. Insist on including the sanctioned plan of the building and the specifications of the raw materials to be used for construction in the purchase agreement. If you are already facing quality problems, you can go to the consumer court. Says Anand Patwardhan, a consumer activist and lawyer: "If you want to approach the consumer court, move it within two years from the day you take possession." Alternatively, flat owners can form a Residents' Welfare Association (RWA) and get the builder to fix the problems, as Raghunath, an RWA member, did.
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