On September 12, seven-year-old Sreenandana just couldn’t stop talking about the new home she had moved into. Her parents didn’t have the heart to stop her.
Her father, Binukuttan VM, was more relieved than joyous. After all, he had waited five years for this day.
Five long years.
“I have lost nearly Rs 5-6 lakh because of the delay in getting possession of the house,” the 36-year-old IT professional said after settling in the new apartment in suburban Thane. "I just can’t tell you what this means for us."
Binukuttan booked the 450-square feet, one bedroom-hall-kitchen apartment in August 2011, impressed by the township that the Lodha Group, one of India’s biggest construction companies, was building some 50 kilometres northeast of Mumbai, India’s financial capital. While the payment was to be made in 15 phases, the company kept postponing construction after he paid the first 35% of the total cost of Rs 24 lakh.
“They (the builder) had the standard wordings in every e-mail informing me of the delay: shortage of labour, material, and other things,” Binukuttan said. It was one of the most harrowing periods for the family. But theirs was not an isolated case.
Another IT professional, Sreebesh Sreedharan, moved into his 580-square-feet flat in the same Lodha township in February this year after waiting for six years and burning over Rs 4 lakh. “I was paying the interest on my housing loan as well as rent,” the 36-year-old said. "It was frustrating."
In an email, a Lodha Group spokesperson said that initially the timelines were “pushed back” due to a “severe shortage of sand.” The spokesperson said: “Additionally, there are factors such as sheer scale of the project and its complexities and external factors such as supply chain, approvals and labour causing delays."
Warped Indian realty
Buying a home in Indian metros was never easy, and it isn’t just about astronomical prices. Buyers rarely know when they will get possession of homes they have already paid for – partially or fully.
Binukuttan and Sreedharan are not rare examples of home buyers left hanging by Indian realty developers. They are unlikely to be the last.
And things could get worse.
Of the 6,74,824 apartments that were supposed to be ready for possession by the end of 2016, only 1,80,716 were completed until June, the Economic Times reported on September 13, citing data from PropEquity, a real estate research and data provider. The firm analysed eight cities: Thane, Mumbai, Chennai, Bengaluru, Pune, Greater Noida, Gurgaon, and Noida.
Completion of over half of these would be pushed to 2017, Samir Jasuja, PropEquity’s managing director told the newspaper.
The reasons are many, but mostly, it is just the builders’ doing.
“Many developers intentionally undertake a slower pace of construction if sales in their projects are sluggish or a larger part of the project is unsold," explained Anuj Puri, chairman at JLL India, a real estate consultancy. "They may have diverted a sizeable chunk of the revenue generated from pre-launch sales to another project, or utilized it to pay off a pressing bank debt. At other times, the authorities can be blamed for not granting timely approvals.”
Besides, such delays are not restricted to private players. Abhishekar Chandrashekhar, another IT professional, realised this the hard way.
In 2011, 34-year-old Chandrashekhar booked a 1,000-square feet apartment being built by the state-run Tamil Nadu Housing Board in Chennai.
Yet, five years later, Chandrashekhar has no clue about the status of his apartment.
“I have rarely received any communication from them about the delay. Whenever I visit their office to enquire, they are rude to me and make me run from pillar to post. They cite reasons like change in government, change in contractor, and a shortage of funding,” Chandrashekhar said.
He has already spent at least Rs 4 lakh due to the delay and does not expect the harassment to end anytime soon.
In situations such as these, home-buyers are left with few options, because agreements between developers and home-buyers almost always favour the former.
Consumer rights
“Apartment buyers’ contracts are one-sided and full of smart clauses. The late delivery penalty is peanuts (2% per annum) when the rate of bank interest is at least 9%. So what’s the hurry for completing the projects? Additionally, court cases can take years and both buyers and builders know it. So builders are not worried about the judiciary,” explained Ritesh Kumar Singh, a corporate economist.
However, Singh said home buyers are now gradually opening up to the idea of approaching consumer courts.
For instance, in August, a group of 50 home-buyers lodged a complaint with the Maharashtra State Consumer Redressal Commission against DB Realty. Around 3,500 home-buyers are currently awaiting the handing over of possession of their apartments despite paying 90% of the cost.
A real estate regulator could help solve the problem. The Real Estate (Regulation and Development) Act 2016 has mandated all states to appoint a regulator by April 30, 2017. Its main objective is to safeguard the interests of homebuyers. However, many states are yet to start the procedure.
“The real estate regulator is an excellent idea to balance the battlefield between buyers and sellers. But that’s exactly why state governments are not bringing it into implementation,” Singh said.
Apart from the regulator, the Act also has clauses to safeguard buyers against delays in home possession. According to the Act, “both builders and buyers will have to pay the same rate of interest in case of any delay on each other’s part,” credit ratings agency CRISIL said in March.
Some other clauses include launching projects only after getting all approvals, disclosing the project implementation schedule, and updating the status of the land on which the project is to developed.
These are likely to make home buyers more aware and developers more cautious about their claims and schedules.
Meanwhile, the uncertainty over under-construction homes is forcing customers to look for ready-to-move-in apartments. On an average, such apartments command a premium of 5%, according to MagicBricks, an online property listing portal.
“The price change would not hold for such a long period if there was no underlying preference from consumers,” Rohit Vats, chief manager – research, MagicBricks, told Quartz in March.
Evidently, Indian home buyers are desperate, just to get home.
This article first appeared on Quartz.