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Builder`s Scam in India

Real estate scams run the entire gamut, from legal frauds and fly-by-night operators to false promises and buy-one-get-something-free offers. Potential buyers have to navigate a maze of cheats, legal loopholes and the risk of losing their life's savings just to own a flat. 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. 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 and known delays in India’s judiciary, who seem to get guided by prominent but costly Lawyer’s arguments without appreciating the plight of common men. The absence of an industry watchdog compounds the matter further.

1) Projects getting delayed beyond reasonable time: Earlier the project used to get delayed and there was no security for consumers about their investments until RERA. However, even after RERA, Builders have deep pockets and go to courts to obtain stay on any proceedings. One remedy available is to go to consumer forums. Which have lot of pending cases and on an average a consumer case takes 4–5 years that means 4–5 years is easily granted to these builders plus if builder loses, he again can appeal at higher forums, citing hidden clauses in agreement’s fine print. Even the penalty clauses are one sided and even if the consumer wins and spending 10 years in litigation he is still a loser as he would get petty compensation which he has already lost as interest of whatever he has invested and builder in 10 years has gained 1000’s of customers like the consumer who has won the case. Plus cost and time in approaching RERA, Consumer Courts, High Courts & Supreme Court.

2) Stalled Projects: There are $63 billion of stalled residential projects across the country and their developers have become locked in a downward spiral with Banks & NBFCs, besides private financers with deep pocket. As lenders stop new credit, builders are forced to offload properties. Due to sudden rush of supplies, prices fall, causing more real estate loans to turn sour, pushing more shadow banks toward default. Real Estate Investors & the industry can’t service interest, new interest, additional interest, penal interest because there is no cash flow stream to support such demand.

3) 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.

4) Title Frauds: This happens regularly with individual buyers. 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, enjoying their ill-gotten wealth he has made in some legal heavens like UK. 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. Many times, title related disputes crops up after launch of project (sometimes by another developer, who had also signed a deal with the owner or by relatives of Land Owners not receiving their fair share etc.) and it takes long time to see finality of the matter with speed of judiciary in India.

5) Imperfect Title: For a buyer, it is significant to ensure that the seller has a clean title and can transfer the ownership rights in the property to the buyer. The title should be free from defects & encumbrances. The imperfect title means there is any encumbrance on the property or the property is disputed.

6) Fake Documents: There is also a practice of preparing fake title deeds. Either the signatures are forged or the document (property document) is not valid i.e. proper stamp duty not paid or document not registered as required.

7) Misuse of power of attorney: Sometimes, a POA is given by the land owner to seek all approvals or to execute a sale deed can be misused. It is better to get the same verified from an expert lawyer to avoid any dispute later.

8) Fraud by Impersonation: The person presenting himself as the owner of the property is not the actual owner. The documents are signed forging the signatures of the actual owner.

9) Multiple mortgages: The seller has mortgaged the house to different banks before selling the same.

10) Assured Rental Return Fraud: Many builders market their projects by assuring a fixed rental income from properties. Some builders even publish fake rental listings of various projects. Once the purchase is over, rentals are hard to come by, leaving the investor in a lurch. The Builder vanishes without leaving behind a mud trail leaving the Investor in the lurch.

11) 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.

12) Deviation from Approved Plans: Builders launch project before obtaining necessary approvals necessary to start the project. Many projects when completed take several deviations from the approved plan in terms of common areas. This puts 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.

13) Delayed Approvals from local authorities: 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. are 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 approvals and title registration. Approvals like CC & OC get delayed because of these violations and in many projects, Buyers were forced to complete the transactions without these approvals and sometimes, they go ahead and occupy the flat, without valid approvals.

14) Forced cancellations: While forcing cancellations, a Builder would try to unnecessary delay the project that was previously sold at low rates, only to re-sell them at higher prices. This also happens in the case of delayed installment/s by the buyer. Section 11(5) of RERA clearly states that though a promoter has the rights to cancel the agreement, it should only be done in accordance with the terms and clauses as stipulated in the agreement and the allottee can approach the authority for relief in case he or she is not satisfied with the cancellation.

15) Nexus of Builders with Local Authorities, Police, Politicians & Gangsters: Due to this, the customer suffers as he doesn’t get cooperation from local authorities or even Police as Builders have influence with them. Many Politicians are also Builders or partners, and customers of these projects have very few avenues open to complain. The police are often reluctant to file cases against big builders, and the media, which depends on these companies for advertisements, holds back such bad news as well.

16) Builders demand extra money before handing over Possession: Before handing over possession, Builders demand extra money for many things, which was not disclosed or indicated at the time of booking such as Deposits for Electricity, Municipality, Water meter by saying these deposits are refundable when you surrender these facilities.

17) Menace of water mafia: Many localities have issue of regular supply of water and hence customers have to incur regular cost for obtaining water. Water Tankers are cornered by Mafias and hence customers have to incur huge recurring cost. Water issue was not disclosed by Builders at the stage of booking or even in their advertisements. Classical case is that of Vasai-Virar belt near Mumbai. While sanctioning the building plan, local authorities asks the developer Builder to submit an affidavit that if there’s water shortage in the area, it is the builder's responsibility to provide water and the prospective buyers should not ask the corporation to supply water. A big apartment complex needs 10-20 water tankers a day — more in summer — and the buyers are usually overcharged for the water.

18) Using low-quality materials for construction: Inferior quality of construction materials leads to recurring issues for buyers once they take possession, like water leakage, shoddy sanitary fittings, and poorly designed treatment plants for waste, sewage, and water.

19) Selling of Parking Space: As per DP & even as per SC judgment, providing Car Parking is mandatory without any extra cost but Builders resort to selling of parking slots. Later on, when the Society is formed, they do not recognise this and allots parking as per Co Operative rules.

20) By diverting the funds of one real estate project for another, the Builder thereby hampers the execution and completion of the first project, which in turn delays the completion of the project. This is rampant in case of Non-listed Builders where governance standard is minimal.

21) Deviation from the approved plan: Deviation from the approved layout is one of the major issues faced by the homebuyers in many cases. While a little deviation is permissible due to unavoidable technical or architectural difficulties, a buyer needs to know that this limit is reasonable like only up to +5 or -5 % of the approved layout. This is termed as an unintentional deviation. However, in case the deviation is more than the permissible limits, the project faces difficulty in obtaining the occupancy or the completion certificate. Moreover, in case the deviation has not been approved by the development authority, the developer is under a constant threat with regards to the demolition of the property.

22) Many times, Builders purposely delays the conveyance deed which transfers the right of ownership of the plot to the buyer or their Society. Later on Builder demands extra money for the Conveyance.

23) Many times, the brochure of the building will have an approach road, like a driveway to the building. However, the constructed building won’t have an approach road.

24) Issuing sales deeds and agreements that are disadvantageous to the buyer, and then using them as leverage if there is a court case: For example, the agreement might include a force majeure clause specifying that “unforeseeable circumstances” could prevent the fulfillment of the contract. This is widely used to delay projects.

25) Selling the same flat to multiple buyers is a widely used trick by Builder.

26) Taking exorbitant maintenance fees from the buyer, many times as high as Rs 5 per square foot for years without doing any maintenance work or forming the Society and handover the management to the Committee of Residents.

27) Height: The space between the floor and ceiling of a flat is usually 10 feet. Some builders reduce it to 9.25 feet. This allows them to construct extra floors in the building to earn more money.


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