Buying a house? Here's how to check if builder can be trusted or not
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Tips to check if a builder can be trusted or not

While builders give a whole long list of reasons for these delays, in the end the burden is borne by buyers. So, it's up to them to do due diligence before buying.

 Renu Yadav   
Buying a house? Here's how to check if builder can be trusted or not
While builders give a whole long list of reasons for these delays, in the end the burden is borne by buyers. So, it's up to them to do due diligence before buying. (Photo: Reuters)

Of all the things that you do while buying a house, the most diffi cult perhaps is checking the builder 's credentials. After all, in the present market, not many developers have a record of delivering projects on time and fulfi lling their promises.

The problem has intensified in recent times as the sector is going through a funds crunch due to poor sales. Even big developers are struggling to fi nish work on time. The situation is bad, especially in the Delhi National Capital Region (NCR) and the Mumbai Metropolitan Region (MMR), where the percentage of projects on schedule is 20 per cent and 15 per cent, respectively.

What makes it more difficult for buyers is the large number of developers in the market. According to data from Liases Foras, a real estate rating and research company, there are 3,785 active developers in six major cities (Bangalore, Chennai, Hyderabad, MMR, NCR and Pune). MMR alone has 1,363 active developers.

While builders give a whole long list of reasons for these delays, in the end the burden is borne by buyers. So, it's up to them to do due diligence before buying. We bring you tips on how to select the right builder.

COMPARE PAST RECORD WITH COMMITMENTS:

"One should evaluate a developer on the basis of project delivery and size of commitments," says Pankaj Kapoor, Managing Director, Liases Foras.

Find answer to questions like for how long the developer has been in business. Enquire about projects he has delivered. Was he able to fi nish those on time? If there was a delay, fi nd out the period for the delay as well as the reasons. How many projects are still pending? Has the builder provided occupancy certifi cates for all projects that he has completed?

If a builder has never delivered a project on time, it is unlikely that he will be able to do so this time, too. Also, remember that chances of delay are higher in bigger projects.

Check the website of the Ministry of Corporate Affairs (http://www. mca.gov.in). It has a database of all registered companies with information about their addresses, names of directors, authorised/paid-up capital, etc. There you can also get information about any charges against the company or its directors.

"Many land aggregators or contractors wish to become developers. That is where the problem starts. One needs to see the website of the Registrar of Companies to know about the board of directors and the developer's website to check the management team and its experience. Many times land aggregators or contractors are one-man shows and continue to face challenges in delivering projects on time," says Om Ahuja, Chief Executive Offi cer (residential), Brigade Enterprises.

COLLECT INFORMATION ABOUT DEVELOPER'S FINANCIAL HEALTH:

Find out about the developer's cash fl ow and debt levels. In case of listed developers, this information is there in annual reports. But in case of unlisted developers, it is diffi cult to get these data and so you may have to ask the developer directly.

Due to lack of strict regulations, builders use funds collected for one project for other projects. So, your builder may have taken a loan in the name of the company launched to implement a previous project and so the entity for the new project may show zero debt. You must be careful about these facts.

"It's best to restrict oneself to buying property from developers with sound fi nancial strength. Ideally, one must look at developers listed on stock exchanges. This is because their fi nancials are in public domain," says Brigade's Ahuja.

DEVELOPER RATING:

The ratings take into account the track record of the developer in executing projects as per specifi ed standards and ability to transfer clear titles within schedule. The parameters on which they judge developers are track record and organisational & fi nancial strengths. Based on their performance on these parameters, they assign the developer rating on a fi vepoint scale from DA1 (Excellent) to DA5 (Poor). A higher rating signifi es belief that the developer will deliver projects on time and in line with the agreed standards for quality.

"Both qualitative and quan- titative factors are used to arrive at the ratings. The quantitative factors include the developer's legal record, quality-testing mechanism, size of past projects, delivery and fi nancial strength. The qualitative factors are commitment to safety, after-sales service, market reputation, organisation structure and management quality," says V. Srinivasan, Business Head, CRISIL Ratings, SME & Real Estate. Opt for highly-rated developers.

CHECK IF BANKS ARE GIVING LOAN OR NOT:

Before extending the loan facility for a project, banks do extensive due diligence. They not only check if all approvals are in place but also appraise the builder's profi le. So, it is good to fi nd out if leading banks and housing fi nance companies have approved the project for giving loans to buyers.

"Even approved projects may subsequently be disapproved for new customers if there is a considerable delay or construction is not in line with sanctioned plans or a serious court case is fi led," says Jairam Sridharan, President & Head, retail lending & payments, Axis Bank.

VISIT PAST PROJECTS:

Visit the completed projects of the builder and interact with home owners there. This will help you ascertain the quality standards followed by the developer. Validate facts given to you by the developer like date of delivery, etc., with the owners. Also talk to brokers of the area to know more about the developer.

READ FINE PRINT OF THE CONTRACT CAREFULLY:

Don't go by verbal commitments. Ask the developer to give everything in writing. Check for details such as date of possession, penalty for delayed possession and payment terms.

"The sales team usually gives buyers a readymade agreement. The buyer must ensure it captures every important detail. If not, the buyer is fully entitled to ask for inclusion of points important to him and clarifi cation of grey areas. A copy of the agreement must be retained as it will serve as a primary evidence if you need to take legal action," says Anuj Puri, Chairman and Country Head of property consultancy JLL India. One can also appoint a lawyer to validate the title of the property and vet documents for other approvals.