What do you do when you go to the dreamland promised by your developer and see no signs of what was to be your home?
Delays in construction of residential projects are common in India. Developers include a grace period, generally six months, in their agreement with buyers. Most homebuyers take a delay of 6-12 months as granted. Sometimes, possession is delayed even beyond the expected tenure.
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Amit Aggarwal, a Delhi-based surgeon, is one among lakhs of buyers who are left in quandary due to snail-pace construction of property projects. Hoping to earn rentals, Aggarwal had booked a store in a mall being built by Delhi-based Ansal API. He paid Rs 3 lakh to book a space in March 2008 for the Rs 30-lakh store in the project in Kurukshetra.
In 2009, the project was shelved and Aggarwal was forced to shift to the developer's residential project Europa residency in Sonipat. He had to pay an additional Rs 1.7 lakh as booking amount for the apartment priced at Rs 17 lakh. Aggarwal continued to pay his installments for the apartment on time until he realised that the residential project had also failed to take off.
On request for a refund, the developer offered him to pay just the deposited amount, which had accumulated to around Rs 8 lakh, without any interest. The booking agreement did not have any penalty clause for delays in construction.
"I was asked to take my deposit unconditionally or fight it out in the court," says Aggarwal. Consumer lawyers did not recommend a litigation for claiming interest.
He had to sign an affidavit forfeiting all claims against the builder and leave the table with his basic amount.
"On the same plot, a new residential project was launched by the builder at higher rates. The builder might not have been been willing to continue the project at lower rates," he quips.
According to an official spokesperson of the developer, the case was settled in June 2011. The company failed to provide reasons of the projects being shelved. The spokesperson did not comment on the buyer's claims about the project being relaunched at a higher rates.
Home buyers should be ready for more bad news as projects launched before the 2008 slowdown come close to possession.
"The general track record for timely completion of residential projects in the metros has been poor in Mumbai, Chennai and Delhi-NCR," says Santhosh Kumar, CEO (operations), Jones Lang LaSalle India.
In the Delhi region, which attracts the maximum number of investors , the list of delayed projects includes those from developers such as Unitech, Raheja Developers, DLF and Jaypee Group.
"The crisis of 2008-09 impacted projects of all companies. We has taken measures to ramp up construction activity as well as reduce construction time," according to an email from Unitech. The firm did not clarify whether it will compensate customers for delays.
A Delhi-based realtor also cites delays in payment from buyers as a reason. "During the meltdown, all economic activity came to a halt. This led to a long chain of delayed payments by many buyers," says Anil Jindal, chairman, SRS.
Developers have also been facing challenges in sourcing funds. "With banks tightening credit conditions for the real estate sector, developers were forced to borrow from NBFCs at 16-18% interest and from PE funds at rates between 20-24%," says JLL's Kumar.
Not all causes for delay are due to developers. For instance, projects have been stalled for over a year due the Noida Extension land acquisition debacle. Projects have to be cleared by several government authorities and procuring clearances is a long-drawn process.
Buyers need to be alert to avoid risk of getting locked in a delayed project. The builder is likely to offer possession on time if a project has necessary approvals along with funding from a bank. Several projects boast of 100% funding from foreign private equities and other investors, which means delays are less likely for lack of funds.
"A buyer is entitled to ask for a copy of the project's drawings, duly stamped by the municipal authorities. If there is any doubt, conducting a purchase through an attorney is advisable," says Kumar.