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Homebuyers victims or villains?

Posted on by Track2Realty
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News Point: The clause of jail term to erring homebuyers in regulator bill is prone to be misused by the builder lobby.

Jail, Imprisonment, Jail to homebuyers, Regulator in Real Estate, Defaulting homebuyers, India real estate news, Indian property market, Track2Realty, Builders exploiting homebuyersTabassum Khan bought an apartment in 2007 with the promise of the builder that she will get the house in the next 18 months. As a matter of fact, she even paid the 90 per cent amount upfront on developer’s verbal promise that down payment is the best payment plan and linked to the possession of the given tower in first phase.

It is nine long years now and she is yet to get the possession of her near completed apartment. Every time she approached the builder she was given an assurance that she will get the apartment in next six months if she pays the remaining 10 per cent due; an amount that was supposed to be paid on offer of possession.

Finally she filed a case with district consumer court in 2012. It has been four long years since she filed the case and yet there is no clarity as to when will she get the judgment in her favour. The media reports after the recent Real Estate (Development and Regulation) Bill was passed make her quite apprehensive. What if the builder makes her culprit for not paying the rest 10 per cent amount? Will she have to go to jail for not paying the due amount to the builder?

“The builder obviously has got more financial clout and legal resources to pursue the case than me. This provision to jail to homebuyers is really harsh and prone to be misused by the developers even in case of a genuine reason for buyer not paying money when demanded. No homebuyer will ever challenge the builder with such clauses,” says Tabassum.

It is not just one homebuyer who has this apprehension today. As a matter of fact, the provision to defaulting the homebuyers sent to jail with the real estate regulator in office has not gone down well with the collective consciousness of majority of the homebuyers. There is an atmosphere of apprehension and fear of the law being misused by the developers.

Quick bytes

  • Jail term to homebuyers was not there in 2013 Bill and hence apprehension with the newly introduced provision
  • Homebuyers believe there may be genuine reasons of non-payment, including the developer missing the construction timelines
  • No clarity over the exit option of homebuyers in case of inability to pay due to financial constraints
  • Appellate Tribunal will find it tough to differentiate between the distressed homebuyers and organized blackmailers in housing market

Jail term new addition

As per the new regulatory regime, homebuyers who fail to ‘comply with’ or ‘contravene’ any of the orders of the Real Estate Appellate Tribunal will not only imposed a penalty of up to 10 per cent of the apartment cost but also get a jail term of one year.

The Union Urban Development Minister Venkaiah Naidu informed the Lok Sabha that, “The bill will not only make the consumer king but also bring in much-needed regulation and transparency for people involved in the sector. It seeks to create a set of rights and obligations for consumers as well as developers.” 

The original version of the Bill that was introduced in Parliament by the previous UPA government in 2013 did not prescribe imprisonment for buyers who fail to comply with the Appellate Tribunal’s order. Under the 2013 Bill, such buyers were ‘liable to a penalty for the period during which such default continues, which may cumulatively extend up to 10 per cent of the plot, apartment or building cost, as the case may be, as determined by the Appellate Tribunal”.

Different voices

Rakesh Kadam, another homebuyer in Dadar also questions the intent of the regulation. According to him, if the very purpose of the regulator was to streamline the defaulting builders then what is the logic of mooting out a provision to homebuyers? Any financial burden on defaulting homebuyers is itself a harsh remedial measure. Now the new provision clearly gives a window of opportunity to the developers to arm twist.

“If the buyer has the genuine reasons to stop the payment, like the developer defaulting on promises, delayed construction timelines, or his own inability in case of job loss or any emergency, then he should be given a window for exiting the project and definitely not the jail term. I do not see any reason why a homebuyer will willingly default. The jail term provision for homebuyers will only be deterrent for the victim buyers to file cases against the builders,” says Kadam.

The developers have their own reasons to feel the regulatory mechanism should provide equal opportunity to both the developers as well as the homebuyers. They maintain that failing this the regulator will be a tool in the hands of the unscrupulous elements posing as buyers to arm-twist the developer.

Requesting anonymity, a Thane-based developer says, “I have been privy to a group of buyers booking together in many projects and then arm twisting the developers. Since they come across as independent buyers, no one understands their modality of grouping together and then stopping payment of due amount under one pretext or the other. Over and above their demands are unreasonable in the name of consumer activism,” says the developer.

Clarity needed

Supreme Court lawyer, Madhurendra Sharma says that in the absence of clarity over the circumstances under which the homebuyers will be sent to jail, there is a whole lot of confusion with the regulatory bill. According to him, once the dust settles down may be the homebuyers will also understand that the jail term is only a deterrent for the organized blackmailers and not the bonafide homebuyers.

“A thorough clarity is needed to make all the parties concerned understand that Appellate Tribunal sending a homebuyer to jail is not the first remedial measure. As a matter of fact, it is the final and extreme measure when all the other possible options are closed and the buyer is still rigid with his stand of non-payment. The non-payment of a few buyers affects the construction timelines and possession for majority of the buyers. But then someone needs to spell it out to the larger audience,” says Sharma.

Till the time a regulatory mechanism is rolled out in letter and spirit, certain apprehensions will continue to bother the homebuyers. Since the subject has not been deliberated upon in public discourse and jail term to the homebuyers is a new, and unexpected addition, hence there are more questions than answer as of now.

Moving forward, the homebuyers may or may not like this provision, subject to what kind of buyers are taken to task by the Appellate Tribunal. Since then the perception has gained ground that the builders would be powerful enough to arm-twist the buyers, even when the homebuyers will have valid reasons to not pay the due amount.  The regulatory regime has many questions as of now, with only limited answers available.

By: Ravi Sinha