??|?? July 28, 2012 ?? 07:01pm ??|
When Lalita booked her first flat at the age of 35, after painstakingly saving for almost ten years to meet the down payment in an upcoming project in Greater Noida five years ago, she was elated that finally she would have a home that she could proudly call her own.
That journey has been a nightmare for her, as her dream home is nowhere near completion, even though the developer promised delivery more than two years ago. Lalita can seek solace from the fact that her plight is shared by many other prospective homeowners.
According to a recent report by real estate analytics firm PropEquity, on an average, 45 per cent of housing projects have been delayed, often by more than a year. The National Capital Region has the worst record with a delay of nearly 75 per cent, followed by the Mumbai Metropolitan Region and Bangalore.
WHY THE DELAY?
There are number of reasons for delay in delivery. Let us examine the case of a developer who has acquired the land and is about to start construction. There are numerous challenges to be surmounted.
To begin with, the approvals process is tedious. A residential project requires anywhere between 30-70 permissions from a range of government agencies, which takes up to three years to have all of them in place.
The tendency of developers is to obtain some to get the project started and then obtain the rest as the project progresses. However, over the last couple of years, particularly after high profile land and housing scams, the process has slowed down in major markets.
Next, there are a number of project implementation-related challenges that the industry is facing. Rising material costs, lack of formal finance for the sector in general, and shortage of labour.
There is then, the mala fide intentions of some developers, which assumes forms such as changes in design, incomplete submission of documents to the authorities and in some cases, wilful delays caused on account of siphoning funds.
REGULATORY ATTEMPTS
Even as the draft Real Estate Regulatory Bill is being debated, the Maharashtra government has introduced the Housing (Regulation and Development) Bill, 2012 that has been passed by the Legislative Assembly, the first state government to take a step in introducing a regulator for the sector.
The Bill requires developers to make full and true disclosure of land title; provide complete details of their enterprise, architects, structural engineers, contractors and also the project plan. They have to also disclose time schedule of completion of each phase of the project and the date for giving possession of the flat with all amenities. Developers will not be able to market the project until they have got regulatory approval.
To keep speculators at bay, any sale transaction which requires a buyer to put in an advance of more than 20 per cent has to be registered under the Registration Act, 1908.
Developers are required to maintain separate account of sums taken as advance and have to utilise the amount for the purpose for which it has been taken. Once disclosed, plans cannot be altered without their consent. In case of delays, there is a provision for refund of amount paid with interest. Developers would also be held liable for any defects in building and material noticed within three years of handing over possession.
The key question is will the Bill, which is well-intentioned, be a game changer for the industry?
The Bill addresses buyers? concerns in an academic way. However, the malaise in a development project begins much before marketing it. Having observed the industry for long, in my opinion, there are two major areas where maximum graft happens ? land acquisition and construction.
THE GROUND REALITY
Developers acquire land through land aggregators or brokers. The modus operandi is simple ? given the complexities surrounding land titles and lack of finance for buying land, instead of outright purchase, developers enter into a joint development arrangement with land owners.
Here, the landowner provides land with clean title on a power of attorney basis and the developer puts the project together and gets all the necessary permissions. For this, landowner gets an upfront cash payment and the rest is in the form of built up space in the project after construction is complete.
Developers still need cash for getting the project running. They approach high net worth individuals or investors and they lend cash for built-up space through an agreement with the developer. This is not an open market process and is done through private deals.
The land aggregation process itself, which besides land acquisition involves change of land use enhances the value of land by as much as ten times in some cases. Moreover, many of the land sale transactions are cash based, which are not easily accountable. Developers can easily inflate cost of land, which results in high brokerage for land aggregators, who may be one of the developer?s group concerns.
After land is acquired and approvals obtained, construction activity starts. The process appears simple as it should involve only labour and materials for which, there should be a competitive market now that we live in a liberalised economy. Given that the construction industry is huge, it would be unthinkable that developers do not get into forward contracts with material suppliers to hedge against price escalation.
The reality is that the vendor selection process is opaque, which sometimes leads to payments for services not rendered or have been supplied at inflated costs. It is quite common for developers to use one of their group concerns for supplying goods and provide loans to these group companies and thereby divert funds.
In addition, any change in plan or design could lead to major cost escalation.
The problem of the last five years has been that developers have spread themselves too thin as the upswing of property cycle has lasted long and there has been no way to put a check on them as most of the financing was happening through investors in private deals or from buyers.
Consequently many projects got stuck and in many cases after buyers have paid almost the full agreed amount. While the Maharashtra Housing Bill, 2012 addresses the consumer side of the housing market, it addresses the regulatory needs in the real estate sector only partially.
What should buyers do? Be more vigilant. Demand certified copies of all approvals, titles, construction schedule and monitor the progress.
Until a regulator is in place, the best forum appears to be the consumer courts and the National Consumer Redressal Commission (NCDRC) that, within its constraints, has managed to give home buyers their due.
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Source: http://www.indianrealtynews.com/real-estate-india/the-mirage-called-a-dream-home.html
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