What should I do if the builder has delayed the housing project or the delivery is not as stated in the builder buyer agreement?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Hello, and very warm greetings for Diwali. During the past one week, our team spent time meeting with some of the customers, readers, real estate consultants. During our interaction with customers, we noticed that most of them were frustrated with the construction progress of their homes which they have booked with real estate developers. Recently, a study published by PropEquity also showed the fact that construction progress is slow and many a residential projects will be delayed considerably.

As we write this on Diwali, a festival of light and happiness, we believe, there is no point in getting frustrated with housing project delays or any other housing related issues. In fact, you should take solid steps to overcome your housing related challenges. We list few of them here:

1. Read the document carefully:
That’s right, even though you should have read the document carefully before signing the builder buyer agreement. You can still do it, read it now carefully. And look for penalty clauses which are stated in the agreement. Approach your developer and ask for the compensation as stated in the builder buyer agreement. Even though, this compensation will be pittance relative to what you would be paying to banks in form of EMIs. Still, claim it.

Also do not forget to check if there are any deviations in the project layout, project plan, size of the apartment, specifications, amenities, etc. If there are any deviations in any of these from what was stated in the builder buyer agreement then approach your builder and discuss the things in detail. Ask for compensation wherever applicable. If possible, take the help of your legal associates.

2. Form a group with other buyers:
Yes, you read it right. You are not the only one sailing in this boat. Visit the construction site on a regular basis and interact with other buyers who are visiting the site. Make a group and discuss the common issues and approach the builder. There is no better way of putting pressure on the developer than a group of buyers coming together. As a group, you can explore various options such as cancellation, shifting to other housing projects by the same developer which is nearing completion, legal action, etc.

3. Rate and review the project:
Now that you have thorough understanding of the real estate sector and ways of working of the property developers, share this with prospective buyers. You can easily rate and review your project at www.nirrtigo.com and alert the prospective buyers of the positives and negatives of a particular developer. Just like, you would like to read reviews for things such as cars, phones, etc. others are also interested in taking tips from you about the housing projects, real estate developers, etc. So, go for it.

4. Use social media:
Social media has enabled all of us in voicing our opinions and most brands whether big or small are always conscious of the fact that social media can make or break their position in the industry. Whatever you do, from forming groups to reviewing projects, keep sharing it on popular social media such as Facebook, Twitter, blog, and LinkedIn. In fact, you can always look to form groups on these social media channels as well.

5. Approach the relevant authority:
Once, you have a group of people who are facing the similar set of challenges as you. It makes sense to approach the relevant government authority. And recently, government of India has set up a Real Estate Regulatory Authority to protect consumer interests. Approach the authority for speedy adjudication of your disputes with the real estate developer.


Above all, be calm and keep discussing the issues within the group. With so many avenues for you to take recourse to, we are quite sure that you will be able to resolve your housing issues. Good luck!

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What could be the causes of Realty Project delays? And what can real estate developers do to correct this issue?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Take any newspaper, or online forum, or discussions among stakeholders within the property circle, one would notice that project delays have become the endless talking point with no solution to it. There seems to be no dawn for this darkness which has engulfed the entire real estate spectrum. Mumbai, Pune, Chennai, Bangalore, Kochi, Hyderabad, Gurgaon, Noida, Greater Noida, Kolkata, Chandigarh, and other parts of the country continuously witness rising cases of project delays by real estate developers. A middle class home buyer suffers the double whammy of paying the rent as well as EMI (Equated Monthly Installment). On top of that, a home buyer whose energies should have gone towards his/her career progress or personal fulfillments is now consumed by this endless struggle to get the dream home. What a pity? People are nation’s best asset and when those assets are put to use in unproductive ways, then it certainly hampers growth and creativity.

Recently, buyers of ‘Unitech The Residences Project in Gurgaon’ were at the project site to protest against the delay.

“We are exploring the option of moving the High Court and approaching the CCI, apart from writing letters to the Prime Minister, the promoters of Unitech and agencies such as SEBI for intervention and investigation in the matter,” Vikram Bishnoi, President of the Unitech Residences Apartment Buyers’ Association, told BusinessLine.

Similarly, buyers of ‘Emaar MGF’s Palm Drive project in Gurgaon’ were seen demonstrating against the project delay. This project was launched in end of 2007 and delivery was supposed to be made in December 2010. However, the project has not been delivered yet. Builder says they will start delivering the project this year.

Similar cases have been witnessed across the country and as per the CCI (Competition Commission of India) records, biased builder-buyer agreement topped the list of complaints to CCI followed by complaints for project delays.

So, what could be the reasons for realty project delays? Let’s look at from the builder’s point of view as well:

• Multiple approvals

First thing first, real estate development is a detailed and long process. A builder has to seek various permissions and approvals from the relevant authorities to launch, develop, and complete the project.

To name a few, a real estate developer has to seek approvals/permissions from National Highway Authority of India (NHAI), fire department, pollution department, ministry of environment, electricity department, Airports Authority of India, Ministry of Labor, Ministry of Mines, Central Ground Water Board, Directorate General Civil Aviation among many other sub-departments. It is widely believed that all in all, a builder has to seek a minimum of 40 to 60 approvals depending on the state he/she is operating in.

And it takes time to seek these many approvals, sometimes 2-3 years. Is it an ideal scenario? No, certainly not, and that is why builders are demanding for a single window clearance system. With single window clearance system, costs of projects can be brought down by whopping 20%.

• Manpower shortages

Real estate is a capital and labor intensive business. Labor shortage is one major issue which impacts the timely delivery of a housing project. In recent times, labor wages have gone up and despite that there is paucity of skilled labor in the market. To counter this, many builders have incorporated pre-fabricated construction technologies. However, this has been restricted to large developers with access to funds and resources to set up such facilities.

• Lack of funds

Lack of funds is also a major issue in timely completion of a project. With tight monetary policy, cost of funds go up and therefore, a builder explores various options to raise funds by way of underwriting, loans, customer payments, Private Equity money, etc.

• Lack of demand for the project

Sometimes, demand for the project is rather lackluster. Last 2 years have witnessed low demand for housing and therefore a builder who launched the project 2 years ago is stuck in no man’s land because on one hand monetary policy is tight and on another hand home sales have dropped. This has dried up the funds for the development of the project.

• Funds diversion to other projects or land deals

Not all of these projects are delayed because of external factors. Many a times, builders divert customer payments to acquire new land parcels for future expansion. To overcome this, Government of India has come up with Real Estate Regulatory Bill which will ensure that 70% of funds received from customers will go in the development of the project.

What can builders do to correct this issue?

Even though, home buyers are the one who suffer the most in cases of project delays, there is very little that they can do apart from protests and litigations. Read more about what can home buyers do if a realty project has been delayed.

The problem has to be fixed by builders themselves.

1. Builders and their associations can indulge in talks/consultations with government officials to make way for single window clearance system.
2. After the Budget 2014, real estate sector can breathe a sigh of relief. FDI norms have been relaxed and a builder can take benefits of that.
3. Budget 2014 also provides incentives for Real Estate Investment Trusts (REIT). And builders can now float a REIT to generate funds for their commercial projects, which will ease out the liquidity crunch.
4. Even though, Government of India has brought in Real Estate Regulatory Act, the Builder bodies should also come up with a model ‘builder buyer agreement’ which will protect consumer interests.
5. Implement fair marketing practices. There is no point in making a commitment that project will be delivered in 36 months from the date of purchase when it is fairly evident that project development will take about 5 years. Builders Bodies should also make sure that communication between a builder and the customer is fair and transparent.

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Due - Diligence: A must do exercise before investing in a property

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta
 

Sumit Sharma was ecstatic having done renting vs. owning and home loan analysis and was now all set and ready to go for his dream home. All of a sudden he got to know from various sources such as newspapers, radio and his colleagues about some cases where builders have failed to deliver the project on time, or there were litigation issues and deviations in homes from what was promised. That was a cause of concern and since, buying a home is a lifelong decision and therefore nothing should be left to luck. He decided to go for a comprehensive check with the help of a real estate agency. The agency adopted the L BID (Lets Break It Down) approach and came out with following verification:

Verification of the Project:

1. The agency got the copy of most important documents in verification of a new project such as Copy of intimation of disapproval (IOD) and commencement certificate (CC) from builders. Only after complete verification, they recommended the client.
2. They asked for and studied the copy of approved drawings of the project for an under construction project and recommendations were made accordingly.
3. Land title verification is crucial in a sense that land should be free of litigation and any kind of associated debt. The agency with a team of legal professionals verified the land documents.
4. They also checked the copy of functional water connection, electricity connection, and occupation certificate in order to make sure that deal was hassle free and transparent.
5. The agency also checked if the property to be bought is mortgaged with the lender (such as bank, or housing finance companies). If that was the case, they asked for a NOC (no objection certificate) from the lender.

Verification of the price of home:

1. In addition to the base selling price, there are other additional costs associated with the project. The agency hired by Sumit Sharma also verified the total cost of home in addition to project verification.
2. Stamp duty verification: to check if the rates quoted by builder are on the super built up area or carpet area.
3. Registration Fee: to check if the rates quoted by builder are on super built up area or carpet area.
4. Floor rise: to check for the prices with the builder
5. PLC charges: to check for the prices with the builder
6. Infrastructure development cost (IDC): to check for the prices with the builder
7. External development charges (EDC): to check for the prices with the builder
8. Car parking charges: to check for the prices with the builder
9. Society and club membership: to check for the prices with the builder
10.Electricity and water charges: to check for the prices with the builder
11.Power Backup charges: to check for the prices with the builder
12.Lease Rent one time: to check for the prices with the builder
13.Interest Free Maintenance Security (IFMS): to check for the prices with the builder
14.Fire Fighting Charges (FFC): to check for the prices with the builder
15.EEC: to check for the prices with the builder
16.Extra space in storage rooms and lawns: to check the prices with the builder

The agency verified all these charges with the builder and asked for them to be included in the builder buyer agreement in order to avoid future escalation of the price.

Verification of other important elements:

1. Monthly maintenance charges
2. Ratio of carpet area to super area
3. Delivery date and what are the penalties if project is delayed?
4. Penalties for deviation in size of the house
5. Who is the supervisory authority and legal dispute authority?
6. Possibility and ratio of loan availability.

The bottom-line is to carry out property & builder assessment, verify the charges, legal terms and get them included in the sale agreement.

So friends, have a look at this checklist and if need be take the services of a professional real estate agency or lending institutions in order to make sure that your lifelong savings are being invested in the right property.

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Unitech Project Delays in Gurgaon

Project delays in Gurgaon. Many buyers are left in lurch. Home buyers had invested their hard earned money in some of the Unitech Projects; however, project delays have taken its toll on these buyers. Many are paying EMIs as well as monthly rents. What is the solution?

Will falling Rupee lead to investment in real estate sector in India by Non Resident Indians? How can property developers tap this?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Data Source: Reserve Bank of India, Ministry of overseas affairs

The Indian Rupee has fallen substantially against US dollar, and other international currencies. The value of one US dollar was Rupees 53.289 in Jan-2013, whereas in Jan-2014 it stood at 62.4768. It’s a fall of whooping 17.24% in one year, reaching a low of Rs. 69 odd.

During the course of this one year, at one point of time in August 2013, the rupee stood at 66.5742 against 1 US $. If not for the measures taken by RBI and finance ministry, the free fall of rupee would have continued. Exporters were happy but importers were crying and this had an adverse impact on current account deficit because of India being a net importer country.

Here is the sharp fall of rupee against US dollar in last 6 years.

Now, the question to be asked is if the fall of rupee results in increase in NRI remittances to India? And the answer is resounding ‘YES’. According to World Bank report, in 2013 international migrants (NRIs) will remit $71 billion of their earnings back to India, highest among all developing countries. "With the weakening of the Indian rupee, a surge in remittances is expected as nonresident Indians take advantage of the cheaper goods, services and assets back home.

Here is a look at what NRIs are remitting back to India on a yearly basis:

Now, the second question to be asked is, where is all this money going to? Is an NRI buying Property in India, or investing in NRE/NRO accounts, or investing in capital markets, or bond market, or in entrepreneurial activities? Although, there is little segmented data with regards to the share of each asset class, a quick look at the RBI database highlights that NRE/NRO accounts are the preferred choice by Non Resident Indians.

As per the RBI definition, Non-Resident Ordinary Rupee Account (NRO Account) may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts. NRI/PIO may remit from the balances held in NRO account an amount not exceeding USD one million per financial year, subject to payment of applicable taxes. The limit of USD 1 million per financial year includes sale proceeds of immovable properties held by NRIs/PIOs. NRO (current/savings) account can also be opened by a foreign national of non-Indian origin visiting India, with funds remitted from outside India through banking channel or by sale of foreign exchange brought by him to India. Whereas Non-Resident (External) Rupee Account (NRE Account) may be in the form of savings, current, recurring or fixed deposit accounts. Such accounts can be opened only by the non-resident himself and not through the holder of the power of attorney. Accrued interest income and balances held in NRE accounts are exempt from Income tax and Wealth tax, respectively.

Whereas as per RBI definition; Foreign Currency Non Resident (Bank) Account – FCNR (B) Accounts are only in the form of term deposits of 1 to 5 years. All debits / credits permissible in respect of NRE accounts, including credit of sale proceeds of FDI investments, are permissible in FCNR (B) accounts also. Account can be in any freely convertible currency. Loans up to Rs.100 lakh can be extended against security of funds held in FCNR (B) deposit either to the depositors or third parties. The interest rates are stipulated by the Department of Banking Operations and Development, Reserve Bank of India. When an account holder becomes a person resident in India, deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by him.

There could be various reasons for preference of NRE/NRO accounts by NRIs ranging from volatility in stock markets, risks involved with entrepreneurial activities, low yield on bond market, relative safe nature of NRE/NRO accounts, and poor execution by real estate developers of their projects.

Why is real estate market in India not being able to attract NRI money to ease the current liquidity pressure? Our team debated on this issue and came out with 4Cs.

Cost - No Escalations – costs escalations during the course of the project construction has been a key detriment for NRIs wherein it has been noted that real estate developers escalate the cost of the project arbitrarily on account on various parameters such as rising labor cost, regulatory cost, and raw material cost. Why do we still observe a builder asking for additional funds from buyers for parking slots, development charges, and so on when those were not included in the builder buyer agreement at the time of selling of the project inventory? Why can’t there be transparency as far as project pricing is concerned? There needs to be more transparency in builder-buyer agreements.

Commitment to timeline – It is a common practice that developers sell their projects by claiming that they will deliver the housing units in 36 months at the time of agreement between them and the buyer. And yet, we have noticed umpteen numbers of cases where projects have been delayed by not just by 1 year but by more than 2-3 years. And in some cases, project delays have stretched to 4 years. Why can’t developers stick to their promise which they had made at the time of agreement? Or else, simply state the time it will take to develop the project (say 5 years). This matter needs to be addressed directly in contractual terms or through legislation.

Construction quality – With NRIs living in different parts of the world, it becomes difficult for them to verify the construction quality of the project? What are the construction materials being used? Will the specifications and amenities be as per the builder buyer agreement? To overcome this, a 3rd party periodic construction quality check can be brought in.

Carpet area to sale-able area ratios – maintain a transparent mechanism to calculate carpet area and sale-able area. This is a regulatory function, that authorities need to address. 

Along with the 4 'C', An NRI also worries about who will manage or take care of his/her Property? Sumit Bhargava bought a 3 BHK in Gurgaon, but he had to relocate permanently to UK for his work. Since, there were no Professional Property Management Company in Gurgaon, Sumit eventually sold his apartment at lower rates.

It is widely believed that if real estate developers can focus on these 4Cs, then there is absolute certainty that NRI money will flow in property sector in India at a scale unprecedented in real estate history of India and eventually it can ease the pressure of liquidity on real estate developers, and for that matter speculators, investors, banks, and other financial institutions that finance this huge economic activity.

Are the developers listening??? Real estate developers can reach our team of professionals for advisory at nirrtigo@nirrtigo.com

Data Source: Reserve Bank of India, Ministry of overseas affairs

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Appendix – I
As per the May 2012 estimates by Ministry of Overseas Indian Affairs, the population of Indians living abroad is 21.91 million. However, more than 50% of them live in high income countries and have been the major contributor to NRI money flowing in India. We present below the overall break-up of population of Indians living in high income countries:

• United States of America (USA) – 2.25 million
• United Kingdom (UK) – 1.5 million
• United Arab Emirates (UAE) – 1.75 million
• Singapore – 0.67 million
• Saudi Arabia – 1.79 million
• Malaysia – 2.05 million
• Canada – 1 million
• Australia – 0.45 million
• And in other countries across the globe – 10.45 million

Total Population of Indians living abroad– 21.91 million

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