Real estate is a lucrative asset class in India, thanks to great returns over the past decade. Nevertheless, it’s important to watch out for frauds.
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 has increased over the years and so has the number of people taking Home Loans.
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.
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Selling using another’s name
Here fraudsters make investors believe that they are promoting a particular brand of developers. They 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. You could also be directly in touch with the developers.
You must 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 for many years.
Here, the developer will show you, the prospective buyer, a piece of land on which his project signboard 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 read online reviews, talk to people and get the documents checked by a lawyer before purchasing a property.
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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 or 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 are also deviations from the plan.
What Will Help?
The law will help you fight these frauds. The Real Estate Regulation & Development Act helps take action against fraudulent developers. What are the provisions that you should know?
One of the provisions in the Act states that developers have to park 70% of project collections in the 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.
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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, you should 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. Banks give the titles and projects a thorough analysis using legal counsel before approving loans for housing projects. 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.