Unregistered housing project: Know risks and exit options before booking

Buying into an unregistered housing project can expose homebuyers to legal, financial and construction risks. Here's how to verify a project and seek redress

The Haryana Real Estate Regulatory Authority (Rera) recently cautioned homebuyers against investing in unregistered real estate projects and asked them to verify essential project details on its portal before buying. The warning is particularly relevant to buyers considering pre-launch offers.  

Why buyers take the risk 

Buyers are often drawn to the perceived financial benefit of entering a project at the pre-launch stage. “Developers often offer lower rates to buyers who book at the pre-launch stage,” says Pradeep Mishra, chairman and managing director, ORAM Developments. 

Past experience can reinforce this behaviour. “Buyers who have benefited from pre-launch purchases in the past expect similar gains again,” says Mishra. Such calculations can, however, go awry if the market slows down. 

 

Financial and legal risks 

An unregistered project comes with a variety of risks. “The project may not be able to get the necessary approvals,” says Santhosh Kumar, vice chairman, ANAROCK Group. 

A project may also fail to take off if the developer is not able to raise enough money from bookings. “In such a scenario, the initial investors’ money could get stuck,” says Mishra. 

Construction delays or outright stalling are another concern. “That is because there is no mandatory escrow to ensure that funds are used only for that project,” says Kumar. 

Problems can extend beyond construction. Kumar points out that the land title could be defective.  

Check whether exemption is valid 

The absence of a Rera registration number does not automatically make a project illegal. The Real Estate (Regulation and Development) Act, 2016 (Rera) provides limited exemptions from mandatory registration. “Certain small projects falling below the statutory thresholds may be exempt from mandatory registration,” says Anupam Rastogi, co-founder and chief business officer, Square Yards. 

Projects that received the required completion certificate before Rera came into force may also be exempt. Certain repair or redevelopment projects with no new marketing or sale of units can also fall outside mandatory registration. 

“A buyer should ask the developer to state clearly why registration is not required and provide documents that support that position,” says Rastogi. 

Protections available in registered projects  

Rera registration places a project within a statutory framework that requires disclosure, financial discipline and accountability from the promoter.  

Buyers get the assurance that a Rera-registered project has received the necessary approvals. The agreement for sale sets out the contractual obligations of both sides. “It includes the promoter’s commitments concerning possession and the buyer’s payment obligations,” says Rastogi. 

Registration also gives buyers greater visibility into a project. “At registration, the promoter must upload the sanctioned layout, approved plans, land title, government approvals, construction timeline and promoter details onto the Rera portal,” says Adnan Siddiqui, partner, King Stubb & Kasiva, Advocates and Attorneys. 

Buyers’ funds are less susceptible to diversion. Rera requires 70 per cent of amounts collected from allottees for a project to be maintained in a separate bank account and used for the land and construction costs of that project. “The requirement is designed to stop diversion of payments by buyers in one project to another project,” says Siddiqui. 

Promoters must also adhere to sanctioned plans. “A promoter cannot alter the sanctioned plans, layout or specifications of an apartment, plot or building without the written consent of at least two-thirds of the allottees. They can also not add new structures or common areas without similar consent,” says Siddiqui. 

Remedies when a project fails 

Rera gives buyers a forum for grievance redress when a promoter fails to meet its obligations. “They have a regulatory forum to approach if possession is delayed, progress of construction is slow, the developer does not fulfil its obligations or there are deficiencies in services,” says Mishra. 

While registering, the promoter has to commit to a specific completion or possession date. If the promoter fails to hand over possession by that date, the buyer can withdraw and claim a full refund of the amount paid along with interest. “A buyer who stays invested can claim interest for every month of delay until the promoter hands over possession,” says Siddiqui. 

If structural or quality defects in workmanship arise within five years of possession, the buyer can require the promoter to rectify them without extra cost. The buyer can claim compensation if the promoter fails to rectify qualifying defects within a reasonable time. 

An allottee can seek relief if the promoter makes unauthorised material changes to sanctioned plans or specifications. “Material alteration without the required consent can open the door to compensation claims and, where relevant, cancellation and refund,” says Siddiqui. 

In serious cases involving project failure or regulatory action against the promoter, the authority can investigate, issue directions and take other measures under the Act. Outright abandonment of a project can lead to compensation claims and, where relevant, cancellation and refund.  

Already booked? Act quickly 

First, establish why the project is unregistered. Determine whether it is genuinely exempt, required to be registered but not registered, or subject to a changed regulatory status. 

Preserve the entire paper and digital trail of the transaction: Booking and application forms, allotment letters, agreements, receipts, bank statements and Unified Payments Interface (UPI) records, demand letters, brochures and advertisements. Also retain project layouts and specifications, correspondence with the developer, communications with the broker, and documents or representations concerning approvals, possession or Rera registration. “Nothing should be deleted or surrendered merely because the promoter promises to resolve the matter,” says Rastogi. 

Do not rely on verbal assurances. Obtain appropriate legal advice before you make further commitments. Also, do not make additional payments or sign revised agreements until you independently establish the project’s legal status. 

If the project required registration but the promoter marketed or sold it without registration, file a complaint with Rera.  “Marketing, advertising, booking or selling units in a project that should be registered but is not registered is a punishable offence by the promoter under Section 59(2) of the Act,” says Siddiqui. 

Buyers can also approach a consumer forum for deficiency-in-service or unfair-trade-practice claims. “Consumer proceedings can run alongside a Rera complaint,” says Siddiqui. 

If the facts suggest more serious wrongdoing, additional action may be necessary. “Where there are indicators of outright fraud, forged approvals or a promoter who has vanished with funds, the police or economic offences wing should also be involved,” says Siddiqui. 

Also check the registration status of the agents involved in the transaction. Buyers can complain against the intermediary or agent along with the promoter. “Agents facilitating the sale of unregistered projects are separately liable under Section 9 and can face daily penalties for continuing violations,” says Siddiqui.

 

Checks to run on Rera portal before booking

•    Ensure project has active Rera registration on state Rera portal before paying the booking amount

•    Match registration number with brochures, advertisements and draft agreement

•    Match promoter or entity name with brochures, advertisements and draft agreement

•    Match exact project name and sanctioned location with brochures and draft agreement

•    Check registration validity period against project documents

•    Treat promoter name mismatches or expired registration as red flag

Source: ANAROCK Group