Indian Property Scams and How New Home Buyers Can Avoid Them
The Indian real estate sector is growing, and so are the scams and frauds associated with it. Consumers now-a-days are more informed, but ironically are still susceptible to scams. Real estate scams run the entire gamut, from legal frauds and fly-by-night operators to false promises and untenable buy-one-get-something-free offers.
“It is a double whammy for gullible real estate investors because justice for fraud victims is long drawn and uncertain, due to the complex nature of disputes in this sector. The absence of an industry watchdog compounds the matter further,” informs BankBazaar, a multi-brand financial product comparison platform.
Here is a rundown of scams typically plaguing the Indian real estate market that investors need to keep an eye out for:
False Promises: With increasing competition in real estate, builders are trying to lure as many buyers in the initial phase of a project to meet their funding requirements. Advertisements with false promises are part of it. A Gurgaon-based real estate developer was recently accused by over 700 investors of embezzling more than Rs 1,000 crore in a real estate project. The developer had assured investors of 12% returns on the invested money until possession, but the cheques given by the company bounced. To worsen matters, investors faced inordinate project delays, grinding their property investment dreams into dust.
Assured Rental Returns: Many builders market their projects by assuring a fixed rental income from properties. Some builders even publish fake rental listings of various projects over the internet. If the prospective buyer does not conduct his own research, he may actually believe that the property once bought can be easily rented out for a fixed monthly income. But, in all reality, once the purchase is over, rentals are hard to come by, leaving the investor in a lurch. As for the builder, the unscrupulous variety vanishes without leaving behind a mud trail.
Title Frauds: This happens with both individual sellers and developers. There have been cases where scammers have duplicated title deeds of vacant or disputed projects and sold them to innocent buyers. “By the time the fraud is detected, the scammer is far out of sight, counting the wads of money he has made. A related genre of real estate fraud is where buyers purchase their dream home only to later come to know that the project does not include that part of land the builder had specified as theirs when they booked it,” observes BankBazaar.
Deliberate Delays: Project delays and disappearing builders are another common occurrence in real estate fraud. One strategy unscrupulous builders resort to is to delay project completion deliberately until they get requisite number of buyers. Yet others divert the money pooled from one project to another, delaying both projects in the process. Many new and existing builders have left a trail of gullible buyers who have just purchase agreements to show and are kept on wait while they pay huge rentals.
Deviation from Approved Plans: Many projects when completed take several deviations from the approved plan in terms of common areas. This possesses a huge challenge for many buyers who have to compromise on common amenities, spaces, promised luxuries and even on core project amenities like dedicated parking space despite having made additional payments for the same.
Delayed Aprovals: There are many cases reported where buyers are left wringing their hands in despair even after possession, since several sanctions for utilities like electricity connection, water connection, etc. were pending. Issues like plot in unauthorized layout or sub-divided land, building with land use violation, setback violations, floor area violations, etc. detected after agreement formalities and construction have commenced could lead to delay in other downstream ap provals and title registration.
Top Tips for Real Estate Buyers
For property purchasers, who invest their personal savings in any realty project, no amount of caution is too much. Here are certain precautions you must take while purchasing property:
Hire services of a legal advisor: It is imperative to hire the services of a legal advisor and discuss all property-related documents with him before signing on the dotted line with the builder. “With the advisor’s help, ensure that all government approvals are in place. If the builder fails to show you the complete set of approvals or only has partial approvals in place, think twice before investing in such a project,” advises BankBazaar.
Check builder’s background: Make sure you do your own background check and research on the builder and their credibility. Use the power of the internet and social media to your advantage. Check their completed projects list, track records and ensure that they are members of real estate bodies like CREDAI.
Seek personal references: Reputation management of builders is so aggressive that they are quick to circumvent any negative opinion online, or even threaten consumers who are forming pressure groups against them. Seeking personal recommendations is a good way of separating the wheat from the chaff.
Choose bank-approved projects: If any leading banks have approved the project, chances of fraud are relatively lower since banks perform their own background check and due diligence before coming on board as home financing partners.
Get assurances in black and white: There is a sea of difference between builder advertisements and legally enforceable assurances when it comes to ensuring you are getting what you are paying for. “Many builders actually include disclaimers on their marketing brochures to the effect that all projected amenities and images are only indicative and may or may not represent the builders’ actual obligations to the buyer. So, if your builder is promising something, get the assurance communicated in black and white,” according to BankBazaar.
Delay clauses: Before signing the sale agreement with the builder, ensure that there is a delay clause in the agreement and that the construction stages with timeframes are clearly included in it, along with a copy of the approved plan. Keep a regular tab on the progress of the project.
In current times, many developers have built goodwill from a fistful of good projects initially, only to default on projects launched later. Some are even known to use browbeating tactics by intimidating investors or by inserting a clause in their agreement forbidding them from publishing anything unfavorable about them. Thus, a healthy dose of caution can go a long way in protecting your property investment from frauds and scams that proliferate in the real estate industry today.