And now, warranty for homes

Developers are beginning to provide home warranties that not only cover the maintenance of essential services, but also damages that occur due to structural flaws

March 25, 2016 02:57 pm | Updated 02:57 pm IST

With the realty industry witnessing a lull in the last few years, the latest Real Estate Regulation Bill passed in Rajya Sabha earlier this month comes as a relief. In the Bill, the developer’s liability for structural defects (if any) has been fixed to up to five years from possession — before this announcement, the usual warranty period was between two and five years.

In most cases, however, the warranty offered by developers covers the appliances that come with a furnished flat, and not the construction-related attributes of the building. But now, for the first time, developers are beginning to provide a warranty that protects the first as well as subsequent buyers of the home against structural defects in the project.

The concept of home warranty is gaining popularity, especially after the floods that hit Chennai in December last year. Buyers are now more cautious about the structural stability of projects. A construction warranty will help build confidence among buyers, and is a mechanism to hold developers responsible for any mishaps due to structural defects.

For instance, a recently launched villa project in Puducherry offers buyers a ‘10+10 warranty’. The warranty, which is a legally binding document under the Indian Real Estate Act 2016, includes building aspects such as foundation, waterproofing, plumbing, and electricals. “The warranty offered to the buyer will be valid for 10 years even if any particular product warranty is applicable for a lesser period of two or five years. In fact, the facility extends to the subsequent buyer, if the property is sold during the 10 year tenure,” says K.K. Kulothungan, MD of Kemia Homes.

Apart from the initiatives taken up by the government, developers are now keen to offer more incentives to buyers such as warranty for damages incurred due to structural defects in the construction process. After the purchase, the expenses a buyer needs to incur towards the property are on damages, repairs, and maintenance, says Arun Kumar, MD, Casa Grande, and if these expenses are covered by the developer, it will encourage more buyers. Once the warranty home concept is in place, buyers get an assurance of optimum project quality and, with more potential investors, the market could revive from the current slowdown.

The concept benefits both buyers and sellers. Buyers can be stress-free should something go wrong within the warranty period, besides which any teething problems are also addressed effectively, especially in new apartment complexes, as Kanchana Krishnan, Director – Chennai, Knight Frank (India), says. From the seller’s perspective, home warranties boost sales and improve the company’s credibility. Krishnan adds, “It is important that a buyer read the terms and conditions clearly before inking the agreement.”

T. Chitty Babu, Chairman, Akshaya, says craftsmanship and quality of construction play a key role in branding and customer satisfaction. The company provides a 10-year maintenance service that includes property maintenance, repair work, painting, interior solutions, household professional services, utility bill payment, and pest control. “Today, customers are well-informed and expect quality projects with after-sales services. It helps in building trust, and by offering a warranty developers are also a part of the development in the initial stages.” Suresh Jain, Partner, Atikramya Builders, who have been offering a 30-year warranty on the structure as a general practice, says it helps build brand value and customer satisfaction. “Products that we purchase from vendors such as sanitary fittings, doors, windows, locks, and hinges are all branded and come with a warranty period that is extended by the company.” In most cases, after the warranty period is over, the building is handed over to the Building Associations.

Explaining how the process works, V.S. Sridhar, Managing Director, Chennai, Cushman and Wakefield, says developers collaborate with top manufacturers of the appliances and products being offered in the project — electronic appliances, kitchen appliances, wall paint, waterproofing, and cement work. “Even in cases where the builder offers a construction-related guaranty, it is applicable on the building and not individual apartments. This is generally up to the period the project is transferred to the Association.”

The trend of home warranty is popular in developed markets abroad in the form of home shield companies. “These companies provide home warranty as an exclusive service and charge home owners annually. They come in after the developer hands over the home to the buyer and also offer home insurance to their customers at additional charges,” says A. Shankar, National Director, JLL. Speaking about the concept in India, Chandan Kumar, Managing Director, Vijay Shanthi Builders, says, “Earlier, the concept of warranty catered mainly to premium projects, as the maintenance costs in such projects are very high. It was not feasible to provide the warranty scheme in mid-segment or affordable housing projects.”

Shankar adds, “In my opinion, the term warranty is just a buzz word in the industry today. It is a mere extension of services already provided by the developer.” When the warranty is extended from the usual appliances to the quality of construction itself, then the term begins to make sense for buyers.

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