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Delayed Possession: How RERA Or New Real Estate Act Can Protect Home Buyers

Developer will have to pay the interest on the buyers' bank loans if flats are not delivered on time.
Developer will have to pay the interest on the buyers' bank loans if flats are not delivered on time.

In 2010, Neena Nagpal and her husband spent their life savings on a flat outside Delhi that was never built. Now, a new law seeks to protect thousands of home buyers like her from unscrupulous property developers.

"The entire experience has been painful," says the 54-year-old, whose husband recently died, leaving her to take care of their partially deaf son alone in a two-room house in a run-down part of the Indian capital.

"When you don't walk what you talk, it really hurts us."

From the mid-2000s onward, millions of middle class Indians eager to own their own homes poured cash into new building projects on the outskirts of major cities as a property boom took hold across the country.

Many were young workers in the burgeoning IT sector eager to break away from the traditional joint family set-up.

But the industry was riddled with problems and buyers were almost always the victims.

"What was shown and what was delivered was always different," said Gulam Zia, executive director at real estate consultancy Knight Frank India.

"Developers got away with whatever they wanted and consumers always got a raw deal. Now a developer can't hide anything and he can't go back to his old habit of taking the consumer for a ride."

Developers could face jail sentences of up to three years and substantial fines under the new law, which took effect on May 1 and applies to ongoing as well as new projects.

State governments will be responsible for keeping tabs on developers' progress and ensuring they stick to their plans for everything from the number and size of apartments to the construction schedule.

Buyers' money will have to be deposited in an escrow-like account and can only be used for the property they are investing in -- not to launch the developer's next project.

If the flats are not delivered on time, the developer will have to pay the monthly interest on the buyers' bank loans.

The Confederation of Real Estate Developers' Associations of India, a trade body, welcomed the new law saying it had been calling for better regulation.

"This will go a long way in restoring consumer faith in the real estate sector," said its president Jaxay Shah.

Thousands of cases

The road from Delhi to the satellite city of Noida provides ample evidence of the problems, lined as it is with half-built apartment buildings, most behind schedule.

Among them is Lotus Panache, where Nagpal and her family were hoping to make a home.

The 3C Company sold the development as "an enviable blend of sheer luxury and suburban lifestyle", touting ambitious plans for a creche and 135,000 square-foot (12,500 square-metre) sports and leisure centre.

The reality -- rows of unfinished shells -- is a far cry from that.

Although every buyer has paid at least 90 per cent of the price, only about 800 of the 4,200 promised apartments have been delivered so far and the project is nearly four years behind schedule.

The promised sports and leisure facilities amount to some workout equipment in one of the empty flats, a small swimming pool and some swings for kids on a brown patch of land.

About 600 buyers have filed a case against the developer in a consumer court demanding the homes they paid for and fair compensation for the delay.

But the slow pace of India's overburdened judicial system means they are still waiting.

One couple borrowed two million rupees ($44,000) to buy an apartment on the 19th floor of a development being built on the outskirts of Delhi by Supertech.

It was not until they had paid 95 percent of the purchase price that they discovered the company only had permission to build 12 storeys.

They have taken the company to court, but are still having to repay the loan at Rs 20,000 a month as the case continues.

"In the past, contracts signed were typically in favour of the developer and they could wriggle out of them. Those things will be fixed now," said Ramesh Nair, chief executive of JLL India, a real estate company.

"Today with this act in place there's more accountability."