Consumer activism: Buoyed by social media and pro consumer courts, homebuyers take on errant builders
There is a rising demand by the purchaser for enforcement of contracts by the developer
Oct 22, 2014
Source : The Economic Times
Housing Projects

 

MUMBAI | NEW DELHI | KOLKATA: There was a time when anyone buying a home was at the mercy of the developer. Delays, shoddy construction, unjustified price increases — all had to be swallowed without protest. That seems to be changing, with at least some consumers who have sunk their life savings into buying a home succeeding in getting builders to behave better.

"The real estate industry is no more a 'seller's market' and is in fact a 'buyer's market'," said veteran property lawyer Parimal Shroff of Parimal K Shroff & Co. "It is no more possible for a purchaser to rely upon the whims and fancies of the developer in terms of receiving delivery of his premises. There is a rising demand by the purchaser for enforcement of contracts by the developer."

The competition watchdog's finding against the country's largest developer DLF, on the grounds that it had abused its dominant position in Gurgaon, is a landmark in this battle. This has persuaded others to take on an activist role where once they might have been apprehensive that such a strategy would somehow taint their property and lead to a decline in its value.

The explosive growth of social media and the largely pro-consumer approach adopted by courts and regulatory authorities so far has emboldened consumers to take their grievances public in an effort to secure their rights. A decade or two ago, since the industry was small, segmented and unregulated, unscrupulous builders could act with impunity. But laws in states such as Maharashtra are making things easier for distressed buyers.

A rising tide of consumer anger is poised to hit the sector hard.

India's housing market boomed in 2003-2007, delivering more houses to its burgeoning, upwardly mobile middle class than at any time since independence. But the slump that followed the global financial crisis, accompanied by rising inflation, meant disaster for builders. They have also been hit by rising prices of cement and other materials, an acute shortage of workers that has driven up wages, considerable delays in approvals and a tepid equity and loan market making access to capital difficult and cumbersome.

The numbers tell the story. Real estate consultant Jones Lang La-Salle India has said that more than 55% of homes are behind schedule. Delays are worst in the NCR, where only 13% of projects launched in 2010-11 have been delivered or will be finished by end 2014. The delivery rate in Pune and Mumbai is much better -- above 60%. The problem for builders is accentuated by inventory levels approaching 2008-9 levels, so they are being squeezed from both sides, unable to sell houses that have been built and struggling to complete the ones where work has begun.

With novel methods of protest being deployed, consumer grievances are getting publicity. For instance, in August about 150 people turned up at a project being built by Unitech in Gurgaon's Sector 33 with shovels and other tools to finish 'constructing' their apartments. Work at the rubble-strewn site had come to a standstill. Buyers who had been waiting to move in since 2011, the original schedule given by the company, are looking to approach the Competition Commission of India (CCI), blamed Unitech for repeatedly reneging on deadlines.

"We have written to Unitech several times but got no response. We don't see labourers working on the site. How will they keep any commitments?" said Vikram Bishnoi, president of the Unitech Residences Apartments Buyers Association. "They have been giving us deadlines but not sticking to them. When we agitated in August, the builder told us that one block will be delivered in December 2014. Now they are saying that block will be delivered only by March 2015. This means all other commitments will also get delayed."

Unitech said the process of handing over 224 flats is on. "We are paying penalty to our allottees as per buyer's agreement for any delay in handing over the flats," a spokesperson said.

Across the country, angry buyers are approaching the courts and regulatory authorities besides launching online agitations to push for timely delivery. In some cases, they are winning.

In July, a state consumer disputes redressal commission bench in Chennai ordered Sahara Prime City to compensate home buyers for the delay of its township project in the city. The case was fought by the Tamil Nadu Consumer Protection Organisation, a voluntary group.

Buyers of homes in DLF's Capital Greens project in Delhi's Moti Nagar area have protested twice this year against the developer for delays in completion, for increasing the size of the apartments and demanding more money midway through construction. The project of about 3,000 apartments was launched in April 2009 and was supposed to be delivered in 33 months by 2012. Construction is still going on.

"We have protested twice and have met their officials seven-eight times but to no avail," said Ashok Chitkara, president of the Capital Greens Flat Buyers Association. DLF has increased the size of the apartments and people have got demands for additional payments ranging from Rs 2 lakh to Rs 30 lakh. In some cases, people have got different demands for apartments on the same floor. "We don't know how it can change midway through the project. They have not given any calculation when they sent demand letters," said Chitkara.

A DLF spokesperson said the company had always honoured its commitments.

"The first phase of the project under reference was launched in 2009 and construction of the project is being done by one of India's most respected companies -- L&T. The delay has been due to various levels of approvals and also due to unforeseen events," the company said. This "had resulted in the suspension of work under directions of the Delhi government. Our contractor L&T has restarted work at the site."

Buyers in an HDIL project in Mumbai are planning to move court after the company declined to hand over possession, citing non-payment of interest on installments.

According to the developer, the amendment in Development Control Regulations (DCR) and subsequent addition of fungible floor space index (FSI), delays in approvals from the Brihanmumbai Municipal Corporation (BMC) and other relevant authorities and the lack of a single-window clearance system were the primary reasons for construction being held up.

"After receiving all the requisite approvals, HDIL have already handed over possession of approximately 1,200 flats at Premier Residences project, Kurla (West), and is in the process of handing over another 800 flats this financial year," said Sarang Wadhawan, vicechairman and MD of HDIL.
 
Around 80 buyers of a Sheth Developers' project in Borivali in Mumbai are also planning to go to court as the builder has given no indication of when the project will be completed. "The builder has been proposing that we can take 9% interest for our money deposited so far and cancel the bookings.

Why should we do that? Will we get anything at price levels of 2009 when most of us booked an apartment here?" said Preet Bhagwanani, a senior marketing manager at a multinational company. There was no response to text messages and calls to developer Ashwin Sheth.

Consumer activism helped the owners of flats in Noida's Sector 107 take on builder Great Value India that had been refusing to provide any information regarding its stalled project or commit to any timeline. Following their persistent efforts, it agreed that two directors of the company will be available for meetings every fortnight to brief buyers on the progress of construction. The builder has also agreed to provide details on the proposed increase in area including what was approved in plans. Observers point out that, apart from approval delays, the diversion of funds or sales proceeds is another key reason for delays in completing projects.

Before 2005, funding for real estate was limited and the cash flow of developers was mostly dependent on customer advances and even bank disbursements linked to construction, said Pankaj Kapoor, managing director of property research firm Liases Foras. "So to meet their cash-flow requirement, developers would focus on construction. There was an efficiency in the system."

Since then, foreign direct investment, private equity and investors have pumped money into real estate. With this cash flooding in, developers got into the habit of diverting the funds generated from sales into buying more land rather than focusing on executing projects, Kapoor said.

Builders defend the delays and blame regulatory approvals and stop-work notices given by corporations and other authorities for some infringement or the other.

"Achieving the project deadline is a big task especially when there are over 40 approvals required from various government authorities depending on the type of land the developer has," said Gaurav Shah, director of marketing at Ravi Group, a real estate firm that says it delivers most of its projects on time. Shah expects the number of delayed projects to drop with the implementation of single-window clearances. To overcome the regulatory uncertainty that looms large over projects, the MCHI-CREDAI developers' lobby group has directed members to launch projects only after receiving permissions.

 

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