Markets: Eerie calm

Markets: Eerie calm

it is not clear when market sentiment can change; as in the past, it can be quite sudden.
At a turn and yet not

At a turn and yet not

RBI could be tempted to cut policy rate to support growth at its bi-monthly review.

Real estate: Soft launches can lead to a hard landing

Dec 14 2013, 14:44 IST
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Home buyers are flocking towards 'pre-launch' schemes, unaware that the risks are greater than the discounts dangled before them. Home buyers are flocking towards 'pre-launch' schemes, unaware that the risks are greater than the discounts dangled before them.
SummaryCash-strapped developers are resorting to pre-launch sales to lure buyers with discounted prices.

flat to a new buyer at a higher price.

This can take several forms: giving a smaller unit than that promised, inferior placement (floor, wing or view), lower quality of amenities, extra charges for additional facilities or demand for market price for committed quality, simply terminating the agreement on a lame technicality by refunding the token sum or even without it, or entering into a legal battle with the buyer to make him give up to the developer’s terms. There are several cases of developers who have trapped buyers through such methods.

“Investing in pre-launches is, generally speaking, not a route that end users are advised to take, unless there is a high degree of certainty implied in the builder’s brand and track record,” says Ahuja.

The Remedy

The Real Estate Regulatory Bill is currently with a Standing Committee of the Parliament, and there are expectations it could become an Act sometime next year. Once enacted, most of these ills would be taken care of under its provisions, as it will ban pre-launch offers, restrict diversion of funds, and mandate a model agreement between the developer and the buyer.

Although the Maharashtra Ownership Flats Act, 1963 has specific provisions prohibiting pre-launch and there is a clause that a developer has to execute the agreement before accepting any advance from the flat buyer, it has become an open trend. This indicates the lack of adequate checks from the authorities.

Haryana government has already cautioned buyers against this trend, and has advised buyers to contact the Department of Town and Country Planning to verify the licence given to the developer.

Buyers should insist on entering into an agreement for sale on the payment of the token sum. The agreement should contain all the details of the project. If the developer refuses or evades, it would be better to walk away.

Another route is to take the help of a lawyer to generate a search report of the project that includes the legal status of the property and detail of the owners and legality of its ownership along with any loans or obligations on it. Buyers can form a group and engage a lawyer to save on legal fees.

“Investing in pre-launched projects is a high-risk undertaking which can pay off as long as one has factored in all possible variables. It makes most sense to investors who have a high risk appetite and the ability to weather an eventual setback,”

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