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Builders' delaying tactics force flat buyers to take legal action

With dissatisfied apartment buyers increasingly seeking legal redress for possession delays, real estate companies are being forced to take heed

Aparna Kalra  |  New Delhi 

Front view of DLF Aralia

On the morning of August 30 this year, around 200 buyers of a DLF apartment complex in South Delhi gathered outside the builder's office in Connaught Place, carrying black flags and placards. They shouted slogans and demanded answers from DLF, the country's biggest and most valuable builder. These were irate buyers of flats in Capital Greens, a residential complex that was supposed to come up in Delhi in June 2012 but still hasn't been completed.

These apartments cost the buyers anywhere between Rs 1 crore and Rs 4 crore. Many had taken loans to make the payments. But even after the EMI meter started ticking, there was no word on when the apartments would be delivered. "I am paying Rs 40,000 a month as instalment, paying through my nose for it," said Jagdish Kumar, who retired as an employee of a nationalised bank. Another buyer, Suchitra Sharma, a flat owner who works in the army.said "I was planning to leave my job and settle down in Delhi." Those plans are now on hold.

DLF issued a statement later in the day, explaining the delay: "Due to an unfortunate incident at the site, the Delhi government's labour department had passed a prohibitory order till a safety audit was conducted. We are pleased to inform that the site has been found to be compliant. However, we are still awaiting requisite permissions for resumption of construction work from the department and we are in constant touch with the authorities to expedite the clearances."

The agitated buyers, who have come together under the Capital Greens Flat Buyers' Association, were aware that a couple of days earlier, the Supreme Court had asked DLF to deposit Rs 630 crore as penalty in a much publicised-case filed with the in the Competition Commission of India (CCI) by three groups of buyers, including the Belaire Owners Association. They contended that a delay in the delivery of flats and increase in the height of towers without the buyers' consent was an abuse of DLF's dominant position.

A month earlier, the Supreme Court had asked Supertech, another builder, to return the principal amount to buyers of Emerald Court in Noida along with 14% interest. The Residents' Welfare Association (RWA) of Emerald Court had moved the courts alleging that the builder had raised the towers from 24 floors to 40 floors "without maintaining the mandatory distance of 16 metres from the adjoining block", which had made it unsafe and also blocked air and light. It has been reported that associations of other apartment complexes have now approached the Emerald Court Residents' Welfare Association for lessions in how to bring errant builders to book.

While it might be premature to conclude that residents' and flat-owners' activism has taken deep roots in the housing sector, there is no denying that buyers are a dissatisfied lot. They continue to fall victim to the shenanigans of builders with little recourse to justice. Many builders launch projects without all the necessary clearances in place. Money raised from buyers of one project is diverted unscrupulously to other projects. Delays have become the norm. Definitions of built-up area, super area and carpet area are changed with impunity to suit the interests of the developers. Not for nothing did a 2013 survey by Ernst & Young and Ficci say infrastructure and real estate is perceived as the most corrupt sector of the economy.

The corruption affects the entire supply chain. One ploy many builders use is to build more floors than originally specified. This can have dire consequences. Think of a buyer who has bought an apartment in a 10-floor block. His decision is based on the assumption that he will share the common infrastructure with residents from 10 floors. Midway, the builder decides to add 10 more floors. The buyer now has to share the infrastructure with twice the number of people. This is patently unfair. Look at it from another perspective: when the builder builds a 10-floor block, he digs the foundation to a certain depth; when the additional floors are added, this puts a strain on the foundation. The authorities not only turn a blind eye to this safety hazard but are often found to be hand-in-glove with the builders.

This is what seems to have happened in the Campa Cola Compound at Worli in Mumbai. In the early 1980s, Pure Drinks, which used to make the aerated beverage Campa Cola, gave the rights to three builders to build residential flats on the land. The builders constructed more flats than they were permitted to and sold them to unsuspecting buyers. Most of the buyers didn't realise anything was amiss. Those who raised questions were told that that sanction from the Brihanmumbai Municipal Corporation, or BMC, would come shortly with the payment of a nominal fine. The BMC did issue stop-work notices to the builders; in return, they paid penalties and resumed work. When the flats were constructed, nobody from BMC or any other arm of the government prevented the buyers from occupying these flats. After a protracted legal battle, the Supreme Court in June 2014 sanctioned the demolition of the extra constructions. About 100 flat owners were affected.

In order to regulate the sector, the United Progressive Alliance government had introduced the Real Estate (Regulation and Development) Bill in the Rajya Sabha last year. The view of the current National Democratic Alliance government on this is not clear. Meanwhile, Maharashtra is all set to become the first state in the country to have a regulator for the housing sector -- the rather obviously-named Housing Regulatory Authority. It has put up a draft of the Maharashtra Housing (Development & Regulation) Rules for public comment till October 10, after which its provisions are likely to come into force. Thus, all developers will have to register their projects with the regulator and disclose the status of the various clearances they are required to get, along with details of the construction costs, land records, deadlines and registration application. These will be verified by the regulator.

A developer will not be allowed to advertise a project unless it has registered the project with the regulator. In case the regulator is convinced that the developer cannot complete the project, the buyers can form a legal entity and complete it. All real estate agents will be required to register themselves with the regulator. This is significant because in most cases, the buyer interacts with the agent who acts as the conduit for all the misinformation.

While this might help the situation in Maharashtra, buyers in the rest of the country have no option but to move against the builders on their own. The lesson buyers have learnt from the verdict against DLF is that collective power is better than a single person filing a complaint. Accordingly, recent complaints have all been filed by groups of residents. "One or two people cannot do anything, so we have formed an association," says Suchitra Sharma, the demonstrator outside DLF. Sanjay Sharma of Qubrex, who is both an activist and a real estate consultant, says there is definitely a change in the attitude of buyers. "There is something good happening. There is a limit to which you can take people for a ride," he says. "Big builders have to answer for deficiency of service."

Lawyers such as Vaibhav Gaggar, who represented the Belaire Owners' Association in the courts, feel more money will flow into real estate if builders are made answerable. Apart from CCI, lawyers are approaching the consumer redressal forums. M L Lahoty, the Supreme Court lawyer who represented the Belaire Owners' Association in CCI has in the last two to three months filed four cases on behalf of consumers.

Builders, on their part, say theirs in not an easy task. Permissions from government departments take years to come rather than months. In a market like Gurgaon, builders say speed money -- a genteel name for bribes -- adds 10-20% to the land cost. And since land accounts for 30-50% of the project cost, speed money escalates overall cost by 3-10%. The builder has no choice but to recover this money from the buyers. Some now give more reasonable completion deadlines to the buyers; changing them from the norm of 36 months, or three years, to a more realistic five-year timetable. such as Raheja Developers and BPTP, in their responses to specific project delays, point out that in several instances, infrastructure around plots, or an apartment block, is not developed despite their regularly following it up with state authorities such as the Haryana Urban Development Authority. The builders, on their own initiative, have sometimes got roads built or even get temporary water and electricity connections from state authorities. These do not form part of their mandate, but they do it anyway to hasten completion of their projects.

With buyers more conscious of their rights now and with builders more responsive, under legal duress, to the needs of the consumers, the instinctive act of buying a home might perhaps prove easier in the days to come.

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First Published: Sat, September 13 2014. 20:50 IST