Back to basics

Chopra is not the only one to be caught in a bind following the developer’s decision to alter the project. The developer had to realign the project because it could manage to do only 300-odd bookings,far less than the target of around 5,000 luxurious villas. Despite repeated attempts to contact,Unitech did not respond.

CRISIS FORCED THEIR HANDS

Because of cash shortage,developers are failing to complete their projects on schedule. The problem is not confined to just a few developers facing a liquidity crunch; it’s an across-the-board phenomenon.

The ongoing crisis in real estate has forced many to either stall their projects or offload stakes in them. A few developers such as Unitech are re-strategising their focus and altering their original plans,moving from luxury projects to affordable housing.

Burdened by a debt of over Rs 8,900 crore,Unitech is restructuring its projects. The group recently announced that it would sell residential plots at Unitech Grande under the project name ‘The Willows’ at a cost of Rs 51,000 per sq yd.

Besides selling off land,developers are also adopting other desperate measures to raise cash — selling their stakes in their hotel projects (this includes Unitech and DLF).

REALIGNING PROJECTS

Since sales have stalled,developers are re-planning their projects,shifting from the high-end to the affordable segment. Buyers who invested in the original luxury projects of these developers now find themselves high and dry.

These buyers have not taken the developers to court yet. Perhaps they are daunted at the prospect of long-drawn legal battles.

“Some of the developers are even shifting the site of the project,from where it was initially planned to a new location,” says Devinder Gupta of Century 21,a property consulting agency.

Pawan Swamy,a managing director at Jones Lang LaSalle Meghraj,says,“The current market dynamics do not favour luxury housing projects. Such projects were conceived and launched in the boom phase,when demand for them was high. There are few takers for luxury housing today.” Swamy adds that it makes good business for developers to re-invent their projects,where possible,to cater to the mid-income housing segment,where a lot of demand still exists.

BUYERS’ SUFFERINGS

Two years back,when there was a lot of buoyancy in the real-estate sector,developers launched project after project and enthusiastic buyers lapped them up. Then in 2008,as inflation raged,the Reserve Bank of India (RBI) hiked interest rates to bring inflation under control. As rates soared,demand plummeted across the board,but most notably in sectors such as housing and automobiles,where a large number of customers depend on loans to buy products.

The global financial crisis intensified in September 2008. This was followed by a severe liquidity crisis. Banks became wary of lending. They tightened the screws on lending particularly to the real-estate sector,which was seen to be highly risky. The result: falling real-estate prices,and developers unable to complete projects because of to shortage of funds.

Now,buyers are banding together to fight against developers. Lately,buyers in many projects have formed online and offline groups to get developers to address their grievances. In the case of the three leading developers — Vatika,Unitech and DLF — aggrieved buyers have formed redressal forums and have been negotiating with them to either refund the booking amount or to bring down prices of property to current market rates. “From a business perspective,many of these builders have no choice but to realign their formats to dovetail them into the new demand profile. However,they do not have the option of disregarding the terms mentioned in the allotment letter given to a genuine buyer at the time of booking,” says Swamy.

He adds that in cases where the entire project has been changed,builders are making refunds to buyers. “Where a builder had sold the now re-invented project through a soft launch,the monies involved had come mostly from investors and personal relations — genuine buyers are not involved,” he says. Investors who bought into such a property would,in fact,appreciate the fact that the builder is making his undertaking a better business proposition,he says.

There has been some action on the dispute redressal front. In order to solve the growing number of disputes arising between buyers and developers,Confederation of Real Estate Developers Associations of India (Credai),a national body of organised real-estate developers ,has formed an organisation that arbitrates in these disputes. Lalit Kumar Jain of Kumar Builders,an executive member of Credai,says,“In most part of southern India,including Maharashtra and Andhra Paradesh,there’s zero waiting period for redressal.” He adds that in the northern states the number of grievances of property buyers against developers is higher than that in the southern states.

THE WAY OUT

Before purchasing a property,a buyer needs to be alert whether the developer has obtained all the approvals required for project development. In case any sanction is pending,he should try to find out the time required to obtain it. In case the time involved is too long,he should refrain from investing in such projects.

Two,buyers should also read the buyers’ agreement carefully and understand fully what they have been promised. In case a project is re-invented,the buyer should press for a refund.

“In cases where genuine buyers are involved in a re-invented project,and they are unable to obtain a refund,legal recourse on the basis of the issued allotment letter is the only option,” says Swamy.

With distressed buyers taking recourse to consumer forums,courts and online groups,the fight is getting messier. As a slowing economy forces cash-starved developers to halt,delay or re-invent projects,the level of dissatisfaction among buyers is likely to mount. All this once again underlines the need for a regulator for the real-estate sector. l

praveen.singh@expressindia.com

GUIDELINES FOR PROPERTY BUYERS

• In order to safeguard themselves,before purchasing a property,buyers need to be alert regarding whether the developer has obtained all the approvals required for project development.

• In case any sanction is pending,he should try to find out the time that will be required to obtain it. In case the timeline involved is too long,he should refrain from investing in such projects.

• The buyers should also read all agreement papers carefully and understand fully what they have been promised. In case a project is re-invented,the buyer should press for a refund.