How to Avoid Housing Project Delays: A homebuyer’s guide to due diligence

A recent analysis conducted by the data analytics company PropEquity indicates that close to 2000 under construction housing projects having more than 5 lakh units across 44 cities remain stalled. This situation is attributed to financial mismanagement by real estate developers and insufficient execution capabilities. Consequently, the investments of numerous consumers are jeopardized. Homebuyers are persistently seeking solutions to either reclaim their principal investments or secure possession of their desired residences.

With prices going up sharply over the couple of years and demand showing early signs of stagnating, the possibility of some more projects getting stalled in the near future cannot be ruled out. In such a scenario, experts suggest homebuyers should do a lot of due diligence, while choosing a right real estate development partner.

Due Diligence & Challenges

Cautioning the homebuyers about the myth surrounding the lucrative returns offered by real estate players, Certified Financial Planner, Lt Col (Retd) Rochak Bakshi, who is also the Founder and CEO of True North Financial Services, says, “Real estate looks lucrative because one tends to hold on to this asset class for long periods of time—often due to its illiquid nature. However, the long-term average returns from real estate tend to be subpar once detailed calculations are carried out. Although real estate might seem attractive, the truth is that it is a high-risk and low-return investment avenue for the average middle-class Indian.”

“Consequently, purchasing real estate for investment purposes may not be a highly-viable option. However, if individuals decide to proceed with a purchase, it is essential that they secure a property only after conducting thorough due diligence,” he adds.

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“Nevertheless, numerous homebuyers do not possess the appropriate approach, comprehension, and expertise necessary to conduct a thorough due diligence of properties,” says Venket Rao, Founder, Intygrat Law Offices.

“Homebuyers do not often possess the wherewithal to conduct a due-diligence before buying a home or during the under-construction stage of a project. There aren’t various means, except RERA, to ensure the authenticity of the developer and their financial & operational bandwidth. Stuck between the lack of compliance by developers and the inability of homebuyers to read through the maze of paperwork, the latter becomes a victim. The need of the hour is to rope in professionals who can help and guide homebuyers through their homebuying journey and for state RERA bodies to ensure stricter compliances by developers,” Rao adds.

The implementation of RERA has certainly brought some degree of transparency, but it still remains a work-in-progress.

The founder of a law firm, who has provided counsel to numerous homebuyers during the insolvency proceedings of Jaypee Infratech Ltd (JIL), highlighted, under conditions of anonymity, the significant challenge posed by the failure of real estate developers to comply with RERA orders. He stated, “We frequently encounter consumer cases where a designated RERA Authority has issued a ruling in favor of homebuyers, yet developers disregard these orders entirely. The enforcement capabilities of RERA Authorities are severely lacking.”

Some niche services

Nevertheless, homebuyers do have some options to undertake due diligence which is a must. Choosing reputed property consultants is one of the many ways.

Shiwang Suraj, Founder and Director of property consulting firm InfraMantra, says, “Homebuyers must choose reputed consultants because they have foot on the ground and are aware about the developers’ strength areas, their delivery record, financial position as well as the weaknesses that may lead to projects being stalled. They are equally versed about the prospects of micro markets. Reputed consultants also can advise homebuyers on how to financially allocate their funds while buying a home.”

To make due-diligence easy, NSE-listed data analytic firm PropEquity has recently started a new business vertical ‘PropAlert’ to provide regular updates to homebuyers about the progress of construction activities in housing projects. Services of ‘PropAlert’ will be offered to homebuyers on a subscription basis and will involve some annual payment.

Throwing light on the development, Samir Jasuja, Founder and CEO, PropEquity, said, “PropAlert is set to initiate a new phase of improved transparency, pertinent information, and real-time notifications for individuals purchasing under-construction properties. Aiming to safeguard the financial investments of homebuyers, PropAlert seeks to eliminate the knowledge gap that currently exists between homebuyers and real estate developers. This platform will enable not only homebuyers in India but also non-resident Indian investors to effortlessly track the development of their under-construction properties with just a click.”

Conclusion

It is, thus, essential for homebuyers to conduct thorough due diligence prior to selecting their ideal residence. This practice is crucial for safeguarding their hard-earned finances. Engaging a professional who closely monitors real estate trends or considering specialized service options could prove to be a wise decision.