Property marketing traps: How to make safe investments

New Delhi: 

For a first-time buyer scouting for the best property in town, it is easy to get overwhelmed by the deluge of marketing offers.

With offers like 'No EMI till possession', 'sure-shot returns', or other discounts or freebies, developers leave no trick in the book to charm you into buying their property.

Even if you manage to escape the developers, there are still pushy brokers - who claim to have your best interest, promising you the best deal - to avoid.

"Typically the brokerage industry is linked to single developers. So, brokers will always take you to the developer he is associated with, and that's where the buyer gets waylaid," says Bhaskar Bagchi, COO of IndiaHomes.

Here is a survival guide to help make safe investments in the real estate sector without getting swayed by marketing gimmicks.

EMI sharing schemes: The most popular bait used by many developers these days is the Equated Monthly Installment-sharing scheme.

Mouthwatering as they may seem, these schemes aren't that profitable once you do the math. Developers charge an 8-10 per cent premium for properties sold under such schemes. So, the base price goes up, the down-payment increases and so does the loan amount along with other associated costs like stamp duty.

Moreover, the developer is merely paying the interest portion of the EMI for the agreed period. There is still the principal amount to be paid.

Assured returns: The guarantee of assured returns is another trap that needs to be watched out for.
Developers who offer sure-shot returns are typically those who are in need of quick and easy cash without borrowing at high rates from banks. For a completed commercial property, the developer will offer rental returns.

For under construction projects, he will promise a certain percentage of returns for an agreed period. It seems like a win-win, but experts caution that such schemes are a dangerous game.

"What the builders have figured out is that they can approach the retail customer directly. Get them to invest that kind of money with the temptation of these assured returns and use a part of the money themselves. They've just kept a part to pay you as interest. The problem comes in when they run out of the interest money, which they've kept aside. And now there is no return coming in for the project whether it is a commercial, office, retail project. So the assured returns game is a very very dangerous game, especially if it is an under-construction property," says Sanjay Sharma, MD of QuBREX.

A stopgap measure would be to have a recourse plan mentioned in the agreement in case the developer stops paying the assured returns or is unable to attract tenants for the commercial property.

Another important fact to remember is that any assured returns earned will be regarded as interest income under the I-T Act. A 30 per cent deduction, prescribed under the Act, cannot be availed on this amount.

Layouts and maps: Property experts reveal that project layouts and maps are another potential trap. The project layouts play on the confusion between carpet area and super area.

Agreements usually state the super built-up area, which includes common spaces. But the carpet area, which is the actual living space, would be much lower than that.

"We have seen that even after the plans get approved, the builders have allotted units - some builders go ahead and change the towers. They change the facing of the units. So there is nothing that a buyer can really do later. There's no place to complain. So, the plan should be taken with a grain of salt. They might change," says Mr Sharma. According to Mr Sharma, what matters about a plan is not what is shown, but rather, what is hidden.

"Firstly, they might not show a location close to the railway line. Secondly, the maps are never to scale," says Mr Sharma.

Sample flats: When it comes to sample flats, appearances can be deceptive. Buyers should look for the available space and its usage/utility, rather than the fancy furnishings. It would also be better to actually look at an empty flat alongside the furnished one.

Golf course properties: A home-buyer generally pays 20-30 per cent premium on a golf-course property. However, what the buyer does not realise is that none of the golf courses developed within a residential project are recognised by the apex governing body of the sport - Indian Golf Union - or even qualify the basic quality-standards.

Other points:
Maintenance cost is a huge recurring expense for the residents. It is important to clarify the amount beforehand.

You must conduct a thorough check on the builder's track record before making a decision.

Look out for important documentation like environmental clearances, licences from the Town Planning Department and building plan approvals from relevant authorities.

It is also of utmost import to check for certified copies of the title deed of the land on which the project is being made and an encumbrance certificate to ensure that there are no liabilities from any land transfers. Available at the sub-registrar's office, an encumbrance certificate clarifies that the property under question is neither mortgaged nor has any legal dues.

Small print of the penalty clause in the agreement states the amount you will be charged if you miss an installment. Usually a builders' penalty is much lighter, but the buyer is charged an interest of 18 to 24 per cent per annum on missing an installment.


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