MUMBAI: Without any construction permissions in place and sometimes even when land titles are not clear, builders in the city have been enticing clients to book flats early at discounted rates although it is illegal under the law.
In fact, by luring investors to book flats by paying just 10 per cent to 20 per cent before the first brick is laid, developers manage to sell 200 to 300 flats even before the project is publicly announced in some cases.
Property experts say this is now a common practice in the real estate industry. In a big Thane project, the builder sold 500 apartments although the title of the land is still not clear and no sanctions have been procured.
Laws are stringent about what are called pre-sales and soft launches of flats. The Maharashtra Ownership of Flats Act says no flat can be sold unless building plans are submitted to the civic body and are approved. "It is illegal to sell apartments this way," advocate Vinod Sampat said.
According to HDFCBSE -1.56 % chairman Deepak Parekh, it is the consumer who suffers in case the project is delayed or violations are later discovered by the authorities.
"Without the municipal intimation of disapproval (IOD) and commencement certificate, a builder cannot advertise a project," he said, adding, "But if they invite close associates, friends and investors to book flats privately, it should not be a problem."
Solicitor Parimal K Shroff said buyers should avoid builders who flash brochures showing buildings and detailed floor plans when the land title itself is under dispute. It could be reserved for a public amenity, or the building plans may not even have been submitted to the municipal corporation.
Then there are developers who have clear land titles and IOD, but are awaiting the commencement certificate. They may have submitted their building proposals and may be waiting for BMC approvals. "It would not be illegal if a developer offers an option to a client to book a flat and accept a deposit at this stage despite an element of uncertainty," Shroff said. "If the permissions don't come through, the developer returns the money with interest." Shroff, however, warned that any sale agreement without a sanctioned building plan or commencement certificate would be deemed illegal.
Recently, TOI exposed how rogue builders demand more money or coerce purchasers into cancelling bookings so that they can re-launch projects at a higher cost when property prices increase. The article led to a flood of calls from people who claimed they were similarly duped by builders.
In case of "pre-sales", buyers make a down payment, which could be just 20% or almost half the cost of the flat, in return for a discounted price offered by the developer.
"Many builders indulge in pre-sale the moment they buy the land and mortgage it to the bank," said a property expert. The BMC now charges builders who want to avail of extra construction rights called fungible FSI and transfer of development rights (TDR) a premium. "They require funds to pay for this premium, hence they start selling even before the project begins. These funds are raised because approvals can take over a year," he pointed out.
Usually, buyers are helpless in the face of violations by developers. Under the Maharashtra Ownership of Flats Act, builders usually enter into sale agreements based on initial permission required for any construction (even before the commencement certificate) from the civic authorities, and though the law mandates that further amendments may be made with approval from the buyers, the provision is routinely flouted.