Easy payment plans promising the assured returns in the real estate sector is now a thing of the past. To lure investors into investing in real estate projects, till now developers were offering assured returns schemes to them. In the commercial segment, investors were often promised to get the assured returns of up to 12 percent.
It has been seen that many real estate companies have been running Ponzi schemes to lure investors which is basically a financial scam in which investors are promised very high returns. Under the scheme, the money being invested by the second set of investors is used to pay off the first set.
The investment made by the third set of investors is used to pay off the second set and so on. Such Ponzi scheme runs until the money being invested in the scheme is greater than the money that is going to redeem the investment of the early investors.
The moment it reverses, the scheme collapses and the hard earned money of people gets stuck in the projects which actually never get delivered. The issue ranges from approval process to the sanctions and as well as in the execution of the project.
"When an Indian looks for an option to invest his money expecting maximum return out of it, he turns to real estate sector and in that case assured returns schemes have attracted many investors. In the past decade, there are many evident cases of fraudulent as well where investors have been cheated under such schemes," said Legal Expert, founder and CEO, Sutredhar Associates, Parimal Tripathy.
Recent Amendments to the SEBI Act pertaining to the definition of "Collective Investment Scheme" prevents the real state sector from launching projects with assured returns. These schemes typically encourage investors to deposit 100 percent of the payment and then receive assured returns over the life of the project. Such schemes now are prohibited by SEBI and need to be registered with SEBI.
In addition, a bill banning such schemes named as "The Banning of Unregulated Deposit Schemes Bill, 2018 (unregulated deposit schemes such as assured returns shall be banned)" has been tabled in July of this year after receiving the Prime Minister's assent. This will also reinforce SEBI's Rules and will prevent investors from subscribing such schemes.
He said, "We believe that this is an excellent move taken by the government which will ensure a framework to protect the interest of investors. However, we have also noticed that despite these notifications and changes, such schemes are still prevalent in the industry which is largely managed by property dealers and brokers under different scheme names like assured returns."
"As per SEBI's guidelines, these schemes are illegal hence, we would suggest investors to refrain themselves to fall prey to these schemes and report such incidents to the designated authority so that the strict actions can be taken against those property developers or brokers," he concluded.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)