Real Estate Investment- Understanding Scope of Delivery
We all have read those scathing reviews online which basically complaining about how developer has not done certain things which the buyers expect. Developer has not completed road to our site, Developer has not given us drinking water, Developer has not ensured 24/7 electricity supply, crack on the walls constructed and many more. Certain grievances are within the scope of work of Developer and certain are not. Understanding which is which, is important to make the right investment and picking the right apartment. I have said this before and I will say this again, if online reviews are followed not even a single developer across India is worth Investing in.
Lets understand what is within the scope of the Developers works:-
Title and Legal Ownership
This is one of the most important responsibility of the Developer. Title flow means the events that have occured in the past to ensure ownership of your apartment can be legally passed to you on purchase. The most important aspect that one should check before purchase is Title of the Project. Most buyers ignore basic legal due deligence. Over reliance on bank legal counsel assuming that they have done detailed due deligence is like buying a car by looking at online reviews. Title is a continuing responsibility of the Developer and even after possession if the Flat owners face any challenge on legal title it is for the Developer to defend it, clear it at his own cost and ensure the title of the flat owners is not disturbed.
Sanctioned, Approved and Properly Constructed Flat
Flats, Apartments, Offices, Shops and Showrooms are to be constructed strictly according to approved norms and Sanction plans approved by the designated authority. There are a plethora of certifications and approvals that the Developer has to acquire before he can designate his project as completed. Environment Clearance, Sewage NOC, Water NOC, Drainage NOC, Garden NOC, Tree Cutting NOC, Plan Sanction, Fire NOC are just few of many approvals that the Developer has to acquire. The Developer is expected to acquire all the approvals required before handing over possession of apartments to the buyer. The buyer should ensure that majority of these are acquired before he purchases the unit. Most bankers before giving a loan against developer unit do a primary check on the approvals. There is a misconception that these checks fall within the scope of a lawyer when he is approving a purchase for you as a client but that is not true. You may want to engage an independent technical valuer or architect who can give you a report on clearance of these issues. Not doing a through check pertaining to approvals has landed many buyers in a soup in the past as unapproved floors have been sold by unscrupulous developers which are then later demolished by the authorities with no respite from the government and the developer absconding.
I can list soo many steps you need to check like actually measuring the carpet of final delivered flat, checking quality reports, final approved sanction and completion certificate on possession and the like. but the best thing to do is employ a technical consultant who can do a pre purchase and pre possession report for you so that you can take an informed call.
Provisioning for Water and Electricity
This is one of the most controversial topic in flat purchasing. Most buyers have a misconception that the Developer is legally obligated to provide you water and electricity 24/7. However the legal position is that the developer is only responsible to make a provision for the same i.e there should be transformers ,substations, pumping apparatus and water tanks in your society that enable the Local Authority or municipal corporation to provide you water and electricity. This fundamental understanding can change your purchase decision as mere provisioning cannot suffice and if you see no plans of local government to provide water connection in near future or piped supply then you know you will have a tough time staying in your apartment. Demanding the developer to provide drinking water is barking up the wrong tree. Try pushing the local authority more by submitting written requests and also showing up for municipal or panchayat elections. That will be more helpful
The above are only indicative list and there are many more things in developer scope but i wanted to venture only in key aspects that my readers need to know and what i saw are most relevant complaints from buyers online.
Now lets understand what's not in scope of Developer delivery:-
Road to the Site
Most developers launch projects in and around areas where there are good roads or proposed good roads. This information is public as government shares its detailed plans every two years of where it wants to construct roads, how much width they will be etc. Now municipal roads are always subject to major change but roads proposed in Development Plans (D.P Plans) or Regional Plans (R.P Plans) are more permanent in nature. The construction, execution and delivery of the road is entirely within the scope of your municipal authority. The only thing the developer can do is handover the land in its ownership to the authority to enable the authority to build the road. While buying an apartment in a project make sure you confirm the status of the road not only with the developer but also with the local authority. Value of your apartment is directly proportional to the infrastructure and development in the area you purchase.
Upkeep of Swimming Pool and Gyms in Society
The Developer is only responsible to deliver a functioning swimming pool or gym in your society. Most buyers complain online that swimming pool does not have water. Gym has less equiment and its not maintained and the like. If you buy an apartment in a new project after delivery of these specifications the upkeep falls within the scope of the society. If its not maintained as per the terms and conditions mandated by the Developer it further dilutes the responsibility of the Developer and releases the Developer from any defect demands
Access to Site
Sometimes the access to your site may be from roads that are not owned either by Developer or the Local authorities. They may be private roads from lands owned by farmers or other landowners. This being a private access it can be stopped anytime by the owner rendering you incapable of accessing your project. Knowing the approach road and its ownership is the responisbility of the buyer. Claims that the developer has closed the road etc are filled on online portals. The only thing I can suggest here is to either ensure that there is a solid agreement between the developer and owners of access roads to ensure uninterrupted access or that roads are within control of local authority. Cribbing later on this topic can render you incapacitated and dejected and cause great loss in value to your investment too.
Rental and Interest you pay for Delayed Possession
Legally speaking, it is the choice of the buyer to take a home by borrowing and subscribing to a home loan. Staying in rental premises is also a buyers personal choice. The only claim you have under Rera or consumer protection law is either cancellation of your apartment and refund of amounts paid to the developer with interest or claims of interest. Both remedies are detrimental to your investment value as you do not get refund of taxes paid by developer on your behalf and even stamp duty refund in most cases is rejected by authority. So atleast 12-18% of your amounts paid is lost in such deductibles. Plus claiming and recovering refund from a developer may be cumbersome and delayed beyond reasonable time. Buyers claiming loss in form of rental payments is also beyond scope of developer. Hence being sensible about your buying choice is more important than thinking about legal remedies. Subvention schemes in their fine print have a end date. Incase if the developer does not give possession till such end date you end up paying interest even though the developer claimed no interest till possession. Please read the fine print on your subvention scheme document signed between you and your banker. It will never claim that interest is to be paid by developer till possession but only till a certain date. Now that subvention schemes are put on hold by the authority new schemes are proping up in the market and reading the fine print is now more important than ever.
This is Part 3 of the real estate series. You can read more about real estate in my blog at below links
For types of investment and key aspects of investing in Real estate you may also watch this video
I would love to hear your thoughts on this. Next one I plan to write on rera and important caselaws in it. Do let me know
written by:
Saransh Dey
reach me at saransh.s.dey@gmail.com
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