As per the data on Indian Government websites, returns from real estate in India have been averaging 10-15% for the last 5 years, depending on the city. The returns have also seen a steady uptrend during the period while equity returns have been highly volatile. No wonder the number of real estate projects in the country have increased over the years. However, there is an equal, if not higher, upsurge in the number of real estate frauds. Given the illiquid nature of the asset, it is highly impossible to exit the investment in a hurry. Also, it is tough to bring the offenders to book. Therefore, it is important to understand the frauds that take place and avoid them, in order to make the best out of this investment. Here are some of them.
Selling using another’s name – Here fraudsters make investors believe that they are promoting a particular brand of developers and try to sell the property of a developer who doesn’t even know of their existence. You can avoid this kind of fraud by doing some research on the promoters and also being directly in touch with the developers.
Assured returns – Understand that apart from deposits in banks and other financial institutions, there can be no assured or guaranteed returns from other financial products such as real estate. So be wary of developers who offer a minimum capital appreciation or rental income for the property.
Title scams – Here, the developer shows the prospective buyer a piece of land on which his project sign board is displayed. However, the land either doesn’t belong to him or he doesn’t have the official clearances for the land in question. It is best not to buy properties that have no foundation laid. But the best way is to check the developers’ previous projects and online reviews, talk to people and get the documents checked by a lawyer before purchasing a property.
Delayed projects – This is the most common type of fraud wherein the developer promises possession within a certain timeline and it never happens. In many cases, it drags on for years. Recently, a top developer in Delhi was found in an embarrassing position when buyers filed a case against the company when possession for one such project was delayed by more than 3 years.
Deviation from the plan – Many builders deviate from the original construction plan. This could include adding an additional floor without official clearances, using space for amenities such as the children’s play area for paid parking, including a commercial space in a residential project without approval and extending the building premises beyond the approved area.
The recent Real Estate Regulation & Development Bill 2016 passed in the parliament will help prevent many scams. One of the provisions in the bill states that developers now have to park 70% of project collections in project’s bank account and use it only for that project. Also, both buyers and developers will pay the same rate of interest on penalties for delays on their part. The best part is that the developers cannot deviate from the original construction plan without the consent of two thirds of the buyers.
However, understand that this may not be enough to eliminate fraud. So, it is important to be aware. Though real estate scams differ in several ways, almost all of them target the investor’s greed for returns. So, it is important to check whether the claims made by the real estate developer or agent are valid at all. If they are too good to be true, you know what to do – steer clear! Also, this is where a Home Loan helps. The titles and projects are given a thorough analysis using legal counsel by banks before approving loans for the same. So, a Home Loan can, in an indirect way, help you avoid real estate scams most of the times. Good enough reason to go for that Home Loan? You decide.