project is left in the lurch.
Factoring in these risks, the odds are loaded heavily against the buyer. Further, there is no legal document such as an agreement of sale, but only a receipt, which has no legal strength. In case the project does not take off, the buyer may get back the token amount, but after a while, but investors should factor in the opportunity cost of this deal.
There is another aspect, often overlooked. Once the project attracts significant interest at the market price, developers do try and offload the pre-launch buyer through some inducement so as to resell the 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 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