Bottom Line: Some reports suggest India has improved in global rankings in terms of transparency in real estate sector in Asia Pacific. The homebuyers on the ground maintain that their experience has been no better. Track2Realty takes a look at the paradox.
A study titled ‘Global Real Estate Transparency Index (GRETI) 2016’, by property consultant Jones Lang LaSalle suggests India has improved in overall transparency scores across all markets and has achieved higher ranks for its Tier-I and Tier-II cities. Tier-I cities in India ranked 36th, vis-à-vis transparency levels, followed by Tier-II and Tier-III cities at 39th and 52nd positions, respectively. The index measures transparency by looking at factors including data availability, governance, transaction processes and the regulatory and legal environment.
According to JLL, the country’s rankings is likely to improve further in the GRETI 2018 index, owing to the implementation of the Real Estate (Regulation and Development) Act, 2016, which is likely to be fully functional in all states by then.
However, this overt optimism does not go well with the homebuyers on the ground. The buyers in the market maintain that it is the developer’s obligation to disclose all relevant issues, approvals etc, which they more often than not deny.
Transparency challenges in Indian real estate
Reports suggest Indian realty catching up on transparency index; ground realities challenge
Disclosure norms missing in the property market and builders even don’t show Builder-Buyers Agreements before booking amount is paid
Courts have questioned the legality of Builder-Buyer Agreements, calling it not sacrosanct
Majority of developers don’t carry Builder-Buyer Agreements on their website
Developers continue to use misleading terms in marketing brochures
Subvention scheme invites speculators; buyers caught in lurch if the project is delayed
Selling on carpet area has the potential to reduce litigations to a greater extent
Buyers expect straight marketing discounts and not discounts & freebies
Disclosure statements, which can come in a variety of forms, are the buyer’s opportunity to learn as much as they can about the property and the builder’s experience, approvals & risk factors in it. Potential seller disclosures range from knowledge of not only the property but also infrastructure issues in the vicinity. Not only do disclosure documents serve to inform buyers, they can protect the sellers from future legal action. It is the developer’s chance to lay out anything that can negatively affect the value, usefulness or enjoyment of the property.
It is the lack of proper disclosure that often results in litigations. Across the world, disclosure laws vary from state to state, even down to the city and local governance level. Though disclosure norms are very poor in India, the developers who conceal relevant information about the housing project can still be taken to courts for failure to disclose.
In some other matured markets the seller (both developer as well as reseller) can be sentenced for for up to ten years. In India the BBAs (Builder Buyer Agreements) are so one-sided in favour of the builders that, forget disclosure statements, even the legal validity of the BBAs have been challenged by the buyers and the developers could not defend their documents.
Some common disclosures that should ideally be there include the legal titles, approvals, delivery timelines, risk elements, financial liability of the developer with regard to the property, whether property already mortgaged, neighborhood nuisances, carpet area, loading percentage, any history of property line disputes, and amenities that would be part of the housing project.
A disclosure is something given to the buyer by the seller documenting their knowledge of the property. In most of the global markets, disclosure documents are provided to buyers once the developer has accepted their offer. In addition to their inspections or loan contingency, the buyer has an opportunity to review the seller’s disclosures.
If the buyer discovers something negative about the property through disclosure, he can usually back out of the offer without losing his deposit. In some matured markets, developers provide these disclosures to the buyers even before they receive an offer. Buyers are then required to sign off on disclosure documents and reports.
In some ways, providing full disclosure is not just a step towards best practices but also can actually help the developer. It shows that the developer is thoroughly transparent and upfront.
Even the National Consumer Disputes Redressal Commission (NCDRC) has rejected the arguments of a real estate company that provisions mutually agreed upon in a BBA are sacrosanct.
Developers continue to mislead
The developers continue to mislead the buyers with fancy jargons like project to be strategically located with 10 minutes distance to airport or 20 minutes distance to railway station. However, what the brochure does not tell you is that this distance is subject to your over-speeding drive with no traffic at all on the road. In the absence of this luxury, the distance of 20 minutes can also be one hour and 20 minutes.
Social infra is another area where the gullible buyers are duped with the promise of having very many good quality schools, hospitals and restaurants coming up near the project.
Façade of area that promises green zone around the project, that looks so very beautiful in the brochure, can also be drainage area with green bushes around. The artistically create project elevation or the sample flat pictures on the brochure are more often than not misleading to the homebuyers.
80 per cent green area with landscaping is what is an ideal answer to urban living. However, even with the permissible FAR of 2 that is allowed in most of the cities, this seems highly improbable. Moreover, the marketing brochure simultaneously also says that the developer will apply for more structures subject to permission. There have been cases of the developer later converting the green zone to raise another tower.
State-of-the-art amenities are probably the most over-used and abused claim in the marketing brochure of respective developers. Yes, there would be a gym, a swimming pool and a tennis court etc. But the question that is not answered is that will it be sufficient to serve the entire housing project. In most cases it is not.
Amidst all the misleading claims and marketing exaggerations, location mapping is the most glaring one. Generally maps are not to scale and give the wrong perception of the location of the project. For example, the brochure will say 10 minutes from the airport or commercial district; it does not state distance in kilometers.
Straight marketing package needed
When Archana Dalmiya bought her first apartment in the year 2011 she was quite tempted with the various marketing offers that were available in the market. She had then booked her apartment that was packaged with loads of discounts & freebies, though the developer had refused to give any straight discount. A novice in the housing market she was also rather looking for the maximum freebies. As a matter of fact, the freebies became one of the major differentiator in making her a final decision between the identical projects.
Not anymore! This year when she is planning to buy her second apartment it seems she has matured a lot. She understands the dynamics of housing market and difference between freebies and straight discounts. As a result, her negotiation is more on the lines of price point and straight jacket marketing offers that could lower the price burden.
“I think I have learnt some valuable lessons with my first home purchase. There is absolutely no gain in getting tempted for free air conditioners or free holidays. What I am interested in is the price point and to what extent the developer can offer me the price discount. It works much better for a home buyer than fancy symbolic offerings,” says Archana.
Requesting anonymity, the marketing head of a leading Mumbai-based developer admits that their research has made them understand that today’s buyer is very value conscious across the segment. Moreover, he can evaluate the cost & benefit of any marketing offer. He is not the one who would be tempted with the freebies anymore.
“It is no more home furnishing, holidays or gold coins that can translate a prospective client to book the deal. It used to be popular marketing tool for good number of years. Today, most of the developers also understand this change in buyers’ outlook and hence housing market is now very realistic in terms of its marketing offerings. Price cut is what seals the deal in most of the cases,” says the person above mentioned.
The housing market of major Indian cities have also changed over the years. No one is interested in offers like free air conditioner, holidays or other fancy attractions. Price point and usable carpet area is the focus of all the buyers today.
The game in the housing market has turned out to be on the price point and hence most of the developers and home buyers are evaluating what could be termed as substantive negotiation on price point than symbolic gesture of freebies.