Real Estate

Cracking down on builders

In 2012, Vikram S (name changed) booked an apartment at Green 201, a project at Siruseri, Chennai. Almost 400 residents were promised homes - to be delivered within three years after the launch in 2011. The project was to be spread across four blocks. Unfortunately, construction stopped midway and now, nine years later, buyers continue to pay EMIs on a home they don’t own. “The project was marketed well with unique balcony gardens for each home. The layout of the apartment, amenities, and even the company’s city office was well designed,” says Vikram, who invested ₹57 lakh in the house, of which ₹45 lakh was from a bank loan. “The EMI is approximately ₹45,000 a month. Since the EMI was calculated slab-wise, and the builder completed constructing 13 floors, the EMI has been on for the last eight years.”

He explains that the resident’s welfare association lodged a police complaint against the builders and a case is ongoing between the landlord, builder and the association. “The association tried to collect money to restart the project but it didn’t materialise. The project was a dream home for many. Now, tower A stands as a bare shell along with a half-done Tower B. Tower D was removed from the design at a later stage and other towers remain on paper,” says Vikram, adding that the court has asked another builder to take it up but the appointment of a new firm is pending.

CHENNAI:02/01/2016: Green Tree Homes flat buyers at in Siruseri protested in front on their flats against delay of completion, on Saturday. Photo: T. Madhavan

CHENNAI:02/01/2016: Green Tree Homes flat buyers at in Siruseri protested in front on their flats against delay of completion, on Saturday. Photo: T. Madhavan   | Photo Credit: T_MADHAVAN

Bengaluru-based Suzan R, who resides at an apartment complex in Indira Nagar, explains how the builder of the complex (who also stays in the same premises) deviated from the original plan when it was constructed in 2011. “I bought one under-construction unit then and another later as an investment. By the time the project was handed over, he had sold the designated common areas as garden areas to the ground floor apartments. In addition, the builder deviated from the Occupation Certificate (OC) to construct another floor above the one he lives in,” says Suzan, adding that they continue to pay the monthly maintenance and property tax on common areas that are not accessible or usable.

For the last six years, the builder, who insisted on registering the apartment association under the Karnataka Apartment Owners Act, has been urging owners to sign the document that he has tweaked to add his deviations. “He went ahead and registered the Deed of Declaration (DoD) in a hurry because the owners had paid the building maintenance in advance for 15 years. He ran out of money in seven years and they could not collect it from owners until the Association was formed,” she says, adding, “He added a clause in the DoD stating that all owners who had not signed it could join the Association by signing a Deed of Affirmation that by default gets the signatories to acknowledge the DoD.”

Over time, barring her, all the residents (12 owners signed the DoD and 2 signed the Deed of Affirmation) gave in and signed. Suzan says that she refused to sign the DoD as it was factually incorrect and any violation of the OC will result in its revocation. “I do not want to be party to the violations.” Last year, she took the legal route and issued notices to all the owners and the builder when she was refused a seat as a committee member. “I have made my point by doing so and I also realise that taking the issue to court will take several years to resolve. People need to be aware of such issues as many buyers don’t read their home documents carefully, especially on the formation of associations.”

As per Anarock Research, as of 2020-end, altogether 1,132 projects accounting for approx. 5.02 lakh units (launched in 2013 or before) are stuck in various stages of (non) completion in the top seven cities. “Project delays have been the bane of the real estate sector over the last decade. Even the implementation of the Real Estate Regulation and Development Act (RERA) has had only little impact. Among other factors, the liquidity crunch threw up roadblocks for developers, which is why the government intervened with the creation of the Alternate Investment Fund (AIF) in late 2019 with a corpus of ₹25,000 crore,” says Prashant Thakur, Director & Head – Research, Anarock Property Consultants. He says this last-mile capitalisation mechanism couched in the Special Window for Affordable and Mid-Income Housing (SWAMIH) fund has proved to be marginally effective in getting stuck projects going again.

Consumer sore points

Before the Act was implemented, the most common issue was builders deviating from plans, says Thakur. “Some developers duped buyers by building more floors than actually approved; some built clubhouses on the terrace (which is illegal), or built penthouses on the top-most floors in violation of the approved plan. Additionally, they pre-launch projects at lower prices to lure buyers while actually having no clear land titles or approvals in place,” he explains, adding that this was in addition to project delays, lack of clarity on actual carpet area, inferior quality of construction, etc. While most of these issues have more or less been addressed by the reformatory changes brought into the sector, it’s imperative that buyers remain cautious and vigilant, warns Thakur.

Common areas of dispute
  • 1. Violation/deviation from approved building plans: Conversion of stilt car parking space into apartments, construction of additional floors in an unauthorised manner, encroaching setback spaces, creating structures on the terrace for the exclusive use of any one occupant, etc.
  • 2. Defective construction: Primarily in plumbing and electrical works where most of the pipelines are concealed and it takes a few years for the defects to show up, secondhand fittings, faulty walls, cheap construction material
  • 3. Mismatch of Undivided Share of land (UDS): UDS needs to be in proportion to the built-up area of the apartment based on the FSI permitted in the approved building plan. Since there is no clear law or rule on this, certain builders convey less than what ought to be conveyed. The surplus UDS is either factored in for unauthorised construction or kept in reserve in the hope that some additional construction may be possible in the future. Today, when most flat complexes are more than 30 years old and the residents seek redevelopment, this shortfall in UDS creates a major stumbling block. In many instances, neither builder nor original landowners are traceable, and this puts the present owners in a fix.
  • 4. Random loading of common areas: For marketing convenience, a few builders offer a lower price per sq.ft. but increase the super built-up area without any basis and make an unlawful gain by this artificial hike
  • 5. Charging for car parking space: Any non-FSI area cannot be sold for consideration. Earlier, common areas including car parks would come under the purview of the association. Now, as per Tamil Nadu RERA rules, the builder is permitted to allocate exclusive right of usage of a reserved car park to the allottee and such right shall form an indivisible part of the apartment and shall be transferable along with the apartment.
  • 6. Revising the Agreement during construction: Under some pretext (infrastructure charges, services connection charges, etc.) certain builders make additional demands just before the handover.
  • Source: Rank Associates

While many experts may argue that instances of such issues have come down after the implementation of RERA, that isn’t the case on-ground. Last month, a Mumbai-based builder was arrested for cheating 59 homebuyers of ₹30 crore. In December 2020, a builder was booked for cheating a client of ₹16.45 lakh in Pune. A 2019 report in Hindustan Times states that ‘more than 5,000 homebuyers have been cheated of ₹3,683 crore in 123 mass housing frauds in Mumbai in the past three years’. “There were no laws governing real estate transactions,” says S.C. Raghuram of Chennai-based Rank Associates. “Since the Court process was also lengthy, customers were struggling to cope with the unreasonable attitudes and demands of many of the builders.” He explains that while RERA has covered many of the gaps and ensured that future transactions are structured and transparent, the calculation of undivided share (UDS) remains unaddressed by any Act.

R. Saravanan in Chennai bought a flat for ₹32 lakh (with a legal agreement and a registered bank loan) in December 2016 (RERA came into force in May that year). Of the ₹32 lakh, he paid ₹28.5 lakh at the time of registration. Of seven flats, six were completed and handed over, while his unit remains pending. “I approached the consumer court and filed a case in June 2018. The matter is still pending for the past three years and I have faced heavy financial losses,” writes Saravanan in a letter to The Hindu.

RERA’s slow pace

The implementation of the Act has been slow and uneven across the country. A report by Moneylife Foundation and HDFC titled ‘Efficacy of RERA From the Consumer Perspective 2020’ addresses how, though several States have implemented RERA, it hasn’t led to a boost in buyer confidence nationwide. The slow pace of the Act’s implementation in some States, including project and agent registrations, is one of the reasons. “Ensuring that the regulation is followed in both letter and spirit is essential to securing consumer trust. Additionally, RERA covers only projects after 2016 but there is a sizeable chunk of projects facing issues that were launched prior to that. It will help to have a one-time settlement of these issues,” says Saurabh Garg, Co-Founder & CBO, NoBroker.

The HDFC report highlights how several RERA authorities are mute spectators to the non-execution of their own orders. ‘Most confirmed that they have no authority to recover assets themselves but can only forward the details to the Deputy Commissioner. Our research also points out that people have complaints about getting the RERA orders executed,’ states the report. For instance, the model sale agreement is not being implemented/ enforced by any State RERA authority and developers continue to have their own versions; most of them continue with one-sided agreements even now.

Cracking down on builders

While the Act calls for synchronisation with other legislations, ‘several inconsistencies have remained, partly due to insufficient dialogue amongst stakeholders and partly the lack of political will to resolve them’. Thakur explains how plan deviations and project delays continue to be issues even today. “Certain smaller developers still try to operate outside the purview of RERA. Customers who deal with them may or may not be aware of the dangers. However, with huge expense involved, it is every buyer’s responsibility to be as fully informed as possible.”

Getting redress

For projects registered under RERA, any dispute can be tried by the authority constituted under the Act, says Raghuram. However, the jurisdiction of the consumer forum and civil court are also available for affected customers, but simultaneous proceedings cannot be initiated (i.e., they can use only one forum). “What the average customer needs right now is more customer education around his/ her rights. A campaign by RERA - on the lines of what the consumer forum ‘Jaago Grahak Jago’ and IRDA did - is required. The government can take over or fund projects that are stuck and complete them,” says Garg of NoBroker.

The one common advice that all experts share is that buyers need to remain vigilant and aware. Maintaining a checklist helps. For instance, a buyer needs to check the builder’s track record and get feedback from previous customers; check building plans; insist on an architect’s certificate regarding common areas; ensure original documents of title are handed over to the association on completion of the project;, and check that the UDS is proportionately conveyed in their favour as per the FSI mentioned in the approved plan.

Buyers should also take independent legal opinion, says Raghuram. “He/she should go through the terms of the agreements with a fine eye and ensure that no demand for an additional payment can be raised at a later date, and that the timelines for completion and compensation for delay are clearly mentioned,” he says.

Specifications of construction and the brand/make of components can also be specified in the annexures to the said agreements. Also, it is advised that buyers frequently visit the site to ensure usage of quality materials and in case of any discrepancy, it should be communicated to the builder via email. “This will help as a record/evidence if the matter goes to courts or a consumer forum at a later date,” he says.


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Printable version | Jan 23, 2022 2:04:36 PM | https://www.thehindu.com/real-estate/cracking-down-on-fraudulent-builders/article34280021.ece

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