If you're investing in a flat or villa, take care to ensure that the project has received all the clearances it needs. Otherwise, it can end up costing you dearly, says Shanthi Kannan

It came as a rude shock when the Senthils found out that the apartment they had invested in was yet to get the seal of approval from the Directorate of Town and Country Planning (DTCP). The shock came exactly a year after booking the apartment, and meant that construction would certainly be put on hold.

The Senthils had done the booking after seeing a glossy advertisement splashed in the papers. On contacting the builder, they were told that 25 per cent of the flats were already booked. Fearing they would lose out on a good deal and a dream home, the Senthils decided to book a flat.

Now, who is to be blamed? The builder, for not being transparent in explaining the details of the various required approvals to the buyer? Or the buyer, for not checking out the details? Remember the adage, “buyer beware.” If one is investing in a home, there is no getting away from the fact that one will have to be careful in checking out the required details.

An investor should do a proper check on the price, the location and credentials of the promoters, says R. Kumar, Managing Director of Navins Housing and Properties Ltd. Apart from this, an investor should also make note of the key approvals that a residential apartment needs for its completion (see box).

There are a lot of Senthils in the city today, who go in for pre-booking without checking whether the builder has got an approval or not. In fact, most builders use the funds raised through these pre-bookings for the initial construction of the projects. When investors find that their project is being delayed, it's often too late: getting out is very difficult. They stand to lose, both in terms of money and time. Even if the investor gets out, a new project will end up costing more, says C.Chandran, Managing Director, Chandran Elegant Construction.

But it is not the buyers alone who are to blame. Banks also play an important role in this issue. Banks compete with one another to offer loans. In their keenness to show results, they tend to forget the role they have in checking out the documents. This ends up costing the buyers dearly.

If a builder wants to retain brand reputation, transparency is the key mantra, says Mr. Kumar. Many builders take shortcuts to achieve their sales targets. When a project is announced, these builders create an artificial hype and also increase prices marginally during market slow down. By doing this, they ensure that the existing buyers are retained. “It is better to avoid speculators to keep the real estate industry in good health,” feels Mr. Chandran.

The government's role is no less in creating a congenial atmosphere for investors. It should direct the various agencies concerned to be transparent in issuing approval and clearance certificates. The agencies should be made to issue allotment numbers for all the cleared projects, and this information should be made public.

But in the absence of regulatory mechanisms to compel builders and promoters to be fully transparent in their dealings, and easy access to information about which projects have received full clearance, it is necessary for buyers to exercise due diligence; ultimately, it's their money which is at stake.