Don't let real estate developers spoil your home dream

Satish Menon, 68, and his wife Vijaya, 64, have been waiting for nearly 12 years to move into their new home. In 1999, they had booked a 2-BHK house in Navi Mumbai, measuring about 800 sq feet. Even though the building is almost ready, they haven't got possession of the house due to some legal issues.

"The property cost was about Rs 7 lakh then. Since we had some savings, we paid most of the money to the developer," says Menon. "Since the builder had not taken the requisite permission from the authorities, the building did not get any electricity or water connection. Then someone filed a claim suit and now, even though the structure is ready, the matter is in court and the developer has not yet given us possession to the property."

According to his wife, Vijaya, the developer has been assuring them that they would get the possession soon. He is, however, not willing to refund their money. "We won't be able to afford a 2-BHK at the prevailing rate. Some others who had booked a flat in the building are contemplating a legal case against the builder, but another case will only delay the possession," she says.

Do your homework

The story of the Menons is not an isolated case. Very often, home buyers are staring at a bleak future, with no light at the end of tunnel: legal issues, monetary problems... the reasons may vary. But many buyers, especially in upcoming projects, are often taken for a ride by developers, and only a lengthy legal battle ensures a refund of their money.

Home-buyers should first do some homework before signing a contract with a property developer, says Ravi Goenka, an advocate with Mumbai-based Goenka Law Associates. "It will be very difficult to get back your money once paid, as a lot will depend on the conditions mentioned in the agreement between you and the builder," he says.

A customer, after zeroing in on a property, has to pay a booking amount to block the property, and also sign an 'agreement for sale' with the builder, points out Goenka.

"Customers are liable for refunds on the cancellation of allotment, but many builders include a specific clause pertaining to refunds in the agreement, which may or may not favour a full refund. The percentage of amount deducted could vary from 5-10% to 20-25%, depending on the developer and prevailing market conditions," he says.

Clause and effect

Generally, big, reputed builders don't delay a refund as they have a reputation to protect, says Goenka. Buyers are entitled to withhold payment if the construction does not proceed satisfactorily or as per schedule.

Property buyers should check that all regulatory approvals pertaining to commencement and completion of the project are in place, says Sanjay Dutt, chief executive officer - business at Jones Lang LaSalle India. They should pay particular attention to provisions in the agreement that talk about compensating buyers for delays, he says.

"This clause strengthens the buyer's position and, in case of a premature exit from the project, any deductions can be negotiated more effectively. It is very advisable to check for any ambiguity in clauses specific to refunds at the time of booking, and, more importantly, prior to the allotment letter," Dutt says.

Payment through cheque

Customers should try and make all payments through cheques and avoid making cash payments. This way, they will have proof of payment in case the developer refuses to issue a receipt. While making the initial payments, the customer should also find out from the developer how much amount will be deducted in case the booking is to be cancelled. If there is a delay on the developer's part, then the customer is entitled to a complete refund with an interest component as well.

It is the developer's responsibility to ensure that the possession is given on or before the date mentioned in the contract agreement, says Atul Modak, Head - Kohinoor City.

"In case there is a delay from developer's side and this delay is not due to any circumstances beyond the developer's control, then, if the customer decides to cancel the agreement, the developer is liable to refund the entire amount received from the customer with a simple interest at 9% per annum," he says.

Delays ranging from four to six months are fairly common, so a customer should factor in such delays and not stretch his finances too much. A check on the developer's credentials is a must before investing money. Projects pre-approved by reputed banks are a good bet as banks would have conducted a fairly thorough due diligence of the property before endorsing it.

At times, a developer could go beyond the contract to help the buyer if the case is genuine, says Vicky Oswal, chairman and managing director of Oswal Realty. "The developer and the customer sign a contract, which stipulates that in case a customer delays payment, the developer can deduct some amount of money. If the case is genuine, say, for instance, some one has fallen ill in the family or has lost job, the developer may actually refund the whole sum," he says.

Get loan sanctioned before property hunt

A property deal may also get cancelled due to lack of funds when banks, based on a customer's eligibility, refuse to sanction a housing loan.

"Banks generally calculate the loan eligibility by taking into account the applicant's take-home salary," a senior official of Union Bank of India says. "A bank official may tell a customer that a loan has been approved in principle, but if documents submitted with a loan application show that the applicant does not meet the eligibility criteria, then the bank can refuse the loan," the official said not wanting to be named.

In such cases, the customer may be forced to cancel the deal, sometimes after registering the property by paying the stamp duty and the registration charges.

To avoid such a situation, a home-buyer should get the loan sanctioned before registering a property, says Goenka. "No refunds are possible of the stamp duty paid.

The developer, to free his property, will have to get a deed of cancellation of sale registered, to ensure that the earlier agreement is cancelled.

The developer may have to pay some nominal charge as stamp duty for this," he says. Once the cancellation deed is registered, the developer or seller can put the property back in the market for sale.

At times, the developer could also try to accommodate the buyer in some other project of his in the vicinity. "Also legal recourses in India are a long and lengthy process which may take years to be resolved. It is always better to resolve the case amicably," he says.

Source:-Economics Times