Tag Archives: Builder Buyer Conflict

Miles to go for best practices in Indian real estate

Posted on by Track2Realty
Track2Realty Exclusive

Bottom Line: The understanding of best practices is very archaic in the Indian real estate. The intent is even more conservative and hence Track2Realty observes that the sector has miles to go before they can look forward to adopt some of the globally accepted best practices.

Best practices, Best practices in Indian real estate, Professional practices in Indian real estate, Cheating in real estate, Builders cheating buyers, Consumer complaints in Indian real estate, India real estate news, Indian realty news, Real estate news India, Indian property market news, Track2Realty, Track2Media Research“Once the customers become captive, the builders start fleecing them. I have already held in the case of DLF that this conduct is called ‘after market abuse’. This is a fit case of abuse of dominance by the opposite parties,” said CCI member R R Prasad in a dissenting order 

FIR against Vatika Group MD, three others on fraud, cheating charges 

Orbit Corp MD Pujit Aggarwal arrested by EOW in Rs 52 crore cheating case 

Manesar land scam blew lid off government nexus with private builders 

Mumbai’s ‘One Avighna Park’ builder Nish Developers booked in INR 2,000-crore fraud case 

ATS, Unitech, Amrapali among the biggest land defaulters to Noida Authority 

Supreme Court snubs Supertech asking the builder to “sink or die but pay back the buyers” 

Unitech mired in litigation in at least five forums—Company Law Board, NCDRC, Supreme Court, High Court and also state consumer forums 

CCI orders probe against Jaypee Group through majority orders in two separate cases involving real estate projects in the national capital region for alleged abuse of dominant market position and imposition of “unfair” conditions on buyers 

Noida builders flout norms, ‘use ground water for construction’ 

What would you make out of a business where the above headlines continue to haunt the home buyers on a routine basis? While the overt consumer activism, social media outcry, media trial and judicial intervention forced the sector to change its tune to Best Practices on the face value, there is a chasm between the lip service and the practices on ground. It seems the developers’ comfort zone lies in to operating in the dark age.

The developers are by and large living in denial. The deep rooted psyche is that once the market conditions improve the buyers have no choice but to run for an asset class that is not only need-based but also a business where the demand far exceeds the supply. This medieval thought process is in fact the biggest roadblock in the way of best practices gaining ground in the Indian real estate.

Best practice is something that the sector never bothered to adopt. But the slowdown and nose diving sales graph are clearly indicating that the developers have no choice but to stop sulking and blaming market conditions for poor sales and start accepting the hard truth.

The buyer today has lost all confidence in developers. The only way this can change is by simple changes the developers make in their business practices that will bring that confidence back. Before they expect market conditions to change, they have to change their own outlook first.

Privately some of the developers admit there is neither any incentive for developers to adopt best practices nor are there penalties for those who do not follow such practices.

A section of analysts also point to developers’ facing challenges in adopting the best practice in the sector. Issues like multi-partner projects; inability of the developer to execute large projects because of their organizational limitations; leverage on finance – personal equity versus project cost; delivering large projects without competent team of vendors; and huge finance cost are some of the issues that force the developers to compromise the professional integrity. 

Devina Ghildial, former MD, South Asia – RICS points out that the success or failure of any real estate and construction project can largely be attributed to money, material, manpower, machinery and management. The collaboration of these factors along with effective project management that encapsulates planning, scheduling and budgeting are critical to project delivery. However, the real estate and construction sector in India for long has been fraught with several long-standing issues such as adequate reforms, coupled with changing market dynamics that pose as bottlenecks in project execution. Liquidity concerns, rising costs and lack of specialized manpower are just some of the challenges that developers have continued to grapple with.

“With the evolution of a global marketplace, international property markets have become intrinsically linked and there are international consequences to consider. Then there are also local factors that affect the performance of the sector. The future success of the Indian real estate and construction sector lies in its ability to regulate its operations and professionals. It is also widely felt that awareness and introduction of internationally recognised and locally relevant best practices such as common area measurement and valuation standards can contribute towards uniform practices and lend quality assurance and credibility to the sector,” says Ghildial. 

By: Ravi Sinha

Next: Baggage of trust deficit & best practices

Supertech facility management a case study in conflict

Posted on by Track2Realty
Track2Realty Exclusive

Bottom Line: Supertech locking of facility management office one find morning and leaving maintenance services without proper handover to the RWA is a case study for all the wrong reasons. Track2Realty looks into the grey zones of maintenance of the housing societies. We speak to cross section of professionals to find a way out.

Supertech Sports Village. Sports Republik, Greater Noida West Property, Noida Extension property market, Greno West Real estate, RK Arora, Sports-themed housing projects, Indian real estate market, Indian property market, India real estate news, Track2Media Research, Track2RealtyThe residents of a housing society, Supertech Emerald Court, in Noida were taken aback one fine morning when they found the office of facility management locked. The builder had left the maintenance overnight after having tussle with the Residents’ Welfare Association (RWA) for quite some time over the maintenance, or rather the lack of it. The residents alleged that the builder had left them in the lurch as it was not a proper handover of maintenance to the RWA.

The incident yet again exposes the critical issue of facility management and the conflict between the builder and the buyers. It also highlights how the builders keep the buyers disconnected with the maintenance services even when the RWA is formed.

Track2Realty asked the following questions that Supertech failed to reply:

Q. Is it justified on part of Supertech to lock the facility office and leave maintenance all of a sudden?

Q. What is your reply to the allegations of the RWA that Supertech did not fulfill the obligations of a formal handed over?

Q. Has Supertech transferred the maintenance fund and the IFMS to the RWA? If not, why?

Q.  If there were long standing disputes with the homebuyers why did not Supertech hire a professional arbitrator for reconciliation? 

Relinquising maintenance responsibility without a proper handover and ensuring that the basic services like the water and electricity does not get affected is the responsibility of the builder. But in this case it appeared to be a blame game where the builder alleged that the residents had not paid the maintenance for months and the residents in turn were asking for the transfer of maintenance fund, including the IFMS (Interest Free Maintenance Security) and Sinking Fund.

Analysts point out that the handover of maintenance entails a formal process where various factors that come under maintenance, like power backup, water supply needs to be ironed out. A developer should ideally handover the facility management to the RWA within 12 months of obtaining Occupancy Certificate.

To smoothen out this handover process, the developer should ideally bring on a Facility Management Services Company once the project nears completion so that a systematic maintenance process can be established during the handover/possession phase, which will enable the RWA to take charge sooner and more efficiently.

Kunal Lala, Vice-President, SILA (a property consultant with Facility Management at its core) maintains that transparency & accountability on part of the developer is desired by every buyer, and the same can be easily showcased through facility management. A developer and the service provider need to involve the buyers with all facility management related decisions as early-on in the process as possible.

“A strategic partnership and clarity of guidelines of the processes to be followed as per the contract that has been mutually agreed upon will help with fewer conflicts between the buyer and the Facility Management Services Company. The contract between both should be drawn in a way that their interests are aligned and it is a win-win situation for the buyer as well as the service provider,” says Lala.

How to reduce conflict? 

Professional facility management company than builder’s in-house team should take over maintenance

Buyers should be made a part of decision making in facility services

Maintenance transfer to RWA must be process driven and not ad hoc

In case of conflict, a professional arbitrator should be appointed to take amicable decision

Most of the facility management professionals agree that the developer could have easily avoided this by hiring a facility management company. This would have eased the maintenance pressure on the developer as the facility management company would have put a ‘Transition Team’ on board to oversee the fit-out and flat handover process, reducing the burden on the developer.

In that case, the facility management company would be solely responsible for the maintenance of the property and would adopt a process-driven handover of the flats to the buyers, ensuring complete transparency and enhancing the value of the property as well as that of the developer’s brand name.

Nikhil Hawelia, Managing Director of Hawelia Group nevertheless feels the onus of having a seamless transition from builder to buyers’ association lies on either parties. Accoding to him, the lack of trust and understanding about each other should not be allowed to escalate to the extent of builder leaving the maintenance overnight.

“Yes, it is a loss of brand identity for the builder and being in maintenance office the first duty to reach reconciliation lies with him. However, there are situations when the builder finds it tough to deal with a group of vested interests whose only aim is to take over the facility management even when majority of buyers are against it. In such a case, the builder cannot afford to ruin his brand reputation and has no choice but to leave. But in this case also, the handover should be thorough process driven. If there is a need, the builder can hire a professional arbitrator for the same,” says Hawelia.

It is trus that whatever be the case, even if hostile buyers asking the builder to leeave the maintenance, the builder must act mature and professional. One can always hire a professional arbitrator to ensure an inclusive approach is adopted while dealing with buyers who refuse to pay monthly maintenance. They need to be encouraged to become a part of the maintenance process while the property is being handed over.

Such buyers usually have grievances which are unattended for a long time and this leads to resentment. A dialogue should be encouraged between the buyer, developer and the Facility Management Company maintaining the property, to arrive at a mutual understanding. The buyer should also be explained that paying the monthly maintenance will help maintain their property in an optimum manner, resulting in value enhancement for their asset.

By: Ravi Sinha

When consumer activism turns into blackmailing

Posted on by Track2Realty
Track2Realty Exclusive

Bottom Line: With the growing spate of consumer activism in real estate, element of consumer blackmailing has also made inroads.

Consumer Activism, Consumer blackmailing, Homebuyers protest, Grievances of homebuyers, India real estate news, Indian property market, NRIs worry in property market, Track2Realty, Track2Media ResearchA Ghaziabad-based developer was approached by 20 customers en block. Prima facie there was nothing to suspect. The developer was rather happy that in a slow moving market he had a bulk buyer deal walking up to his sales table. However, he was soon exposed to the unpleasant reality of organized consumer blackmailing.

These homebuyers started accusing, demanding, arm-twisting, protesting before media and threatening to drag him to the court. Taking at the face value of consumer grievance, he later got to know that this is the modus operandi of some of the local influential people to get together and put the developer in a spot.

“I was told by some other developers that these people have got good media connection. So, even if they cannot harm you legally, they are influential enough to create an ambience that is not good for the brand image or the sales channel. So, I did what some other developers had done in the vicinity. I gave them exit with lucrative buy-back offer to save the reputation of my company in a market where the collective consciousness and media will make it believe that the builder is at fault in any case,” admits the developer on condition of anonymity.

Indian real estate, of late, has woken up to the new reality of consumer blackmailing. While in most of the cases the grudge of the homebuyers has been genuine; it seems there is an organised mechanism emerging that want to encash upon the homebuyers’ acrimony with the developers.

There has also been instance when the victims suddenly turned out to be crusaders; of course the gains (monetary and otherwise) not withstanding. A classic case in point is when the Competition Commission of India (CCI) imposed penalty of Rs 630 crore on DLF, for ‘unfair trade practices’ and ‘abuse of market dominance’ with project Belaire. The Belaire Owners’ Association had then suddenly became self-styled crusaders against developers. They started openly advising several Residents’ Welfare Associations (RWAs) from Gurgaon to Greater Noida how to resolve their flat-related problems.

The moot point remains as to whether homebuyers’ legitimate grievances being addressed can empower a group of victims to suddenly emerge as de facto consumer courts overnight?

Qubrex, the real estate brokerage firm that presented an expert report to the CCI on the market share of DLF to establish its dominance in Gurgaon, also got its hands full, with various buyers seeking its help against developers.

Madhrendra Sharma, a Supreme Court lawyer points out that some of the homebuyers approach the court with such flimsy grievances that there is no ground for any legal case. He believes the problem lies in the way real estate business has grown; it has arm-twisted the homebuyers; and in the way some smart homebuyers’ are finding an opportunity in adversity.

“I advised a builder client to expose the racket of some organized pressure groups in his project. They were arm-twisting the developer with demands that were neither part of builder-buyer agreement nor part of industry practice at large. But the developer instead settled it with them out of court as the case might have affected his overall reputation,” says Sharma.

Raj Gala Shah, Partner, Zara Habitats tries to put up a brave face when he says that consumer activism can turn into blackmailing only if the developer has failed to provide correct information to the said consumer from day one.

“If no information has been concealed from the developers team while selling /marketing the property then there seems to be no cause of worry towards any instance of consumer blackmailing. It would be inappropriate to term a consumer’s demand for his right as consumer blackmail,” opines Shah.

Consumer blackmailing might have serious consequences for the grievances of the legitimate buyers. It might lead to a perception gaining ground that all the consumer activism is handwork of vested interests. This can defeat the homebuyers’ cause the way it has been with the PILs (Public Interest Litigations) where the respective courts started objecting to the locus standi, motive and objective of many of these cases.

Media might be a party in fuelling the fire with consumers’ aspirations but in the court of law only and only the evidences will stand to scrutiny. However, the perception of consumer blackmailing as a prevailing reality will definitely hurt the legitimate consumer activism in the long run. 

By: Ravi Sinha

Realty terms buyer needs to know

Posted on by Track2Realty

Carpet AreaTrack2Realty tries to simplify the real estate terminologies in practice that often confuses the buyers. There is no rocket science in real estate that buyers can’t adopt and understand for their own better understanding of the most valuable asset called house.

Carpet Area is the area within the walls of an apartment that is for the exclusive use of the buyer. While computing the carpet area, the terrace and balconies are usually considered as half the actual area. Normally in large societies with many common amenities, the carpet area could be as less as just 2/3rd of the built up area.

Built-up Area includes the carpet area and thickness of external walls, internal walls, lobbies and corridors, basements, atriums, in some places lift areas, staircases, generator & electricity rooms etc. Normally while purchasing a flat you will have to pay for the built up area where as you will get to occupy or use exclusively only the carpet area.It is typically 10-20 per cent more than the carpet area and is also sometimes known as the plinth area.

Super built-up Area includes common amenities, such as the area of lift shafts, lobby, and corridor, proportionately divided among all flats. The common usable areas, such as a swimming pool, garden and club house, may also be included in it. Per square foot rate quoted by the developer is typically applied on the super built up area to determine the value of the flat. This is the reason super built-up area is also sometimes referred to as the saleable area.

Floor Space Index (FSI) is the ratio between the total built-up area and plot area available allowed by the government for a particular locality. In plain English this means, the buildable area on a plot of land. An FSI of 1 means that the area of construction should be equal to the area of the plot—for example, a plot of 10,000 sq ft can only have a built-up area of 10,000 sq ft and no additional construction would be allowed.

Premium FSI refers to permission obtained to build extra floor space by paying a premium. For example, if the normal FSI in the area is 1.5 the builder can pay premium FSI charges (a certain per cent of the guideline value of land) and build area more than 1.5 times the plot area. This would help builders better utilise space where the price of land is prohibitively high, resulting in extra value for the buyer.

Guideline Value & Market Value Guideline Value of a land is the value of the land as determined by the government, based on the facilities and infrastructure growth in that locality. The stamp duty and registration charges for registering a property deal, is based upon this Guideline Value. The Guideline Values are revised periodically to have them in sync with the Market Value. Market value as the name denotes is determined by the demand and supply forces in the market and factors like type/age of property, quality of construction, location, infrastructure and amenities available, maintenance etc. Market Value of the property is the price that the property commands in the open market. This will invariably be the price, which you will pay for your property. Depending upon the location and the city the difference between guideline and market value can be low or high. In Indian cities the difference range is between 30-70 per cent.

Stamp Duty is the tax paid to obtain the stamp paper on which the sale deed is written and signed by both the parties prior to registering the same. The payment of proper Stamp Duty on instruments like Sale Deed bestows legality on them. Such instruments get evidentiary value and are admitted as evidence in the court of law. Stamp duty is payable usually by the transferee/purchaser, or if agreed by both the seller and buyer equally.

Registration Charge is the fees associated with getting the legal title registered in the buyer’s name. This legal activity is conducted in the sub-registrar’s office in the local court.

Common Area Maintenance (CAM) is a charge that is payable after possession of the property and is recurrent. Common area maintenance charges is the specified share of certain defined costs that include maintenance, repair, replacement, inspection, improvement, operation, and insurance of the common area shares by all the residents of the building together with any costs allocated to administration and overheads.