Personal Finance

Borrowing to build a home? Pick a developer wisely

Rashi Kapoor Mehta | Updated on August 04, 2019 Published on August 04, 2019

The developer must deliver on time and not add to your debt burden

Buying a house can be both a happy and a stressful experience. We spend years collecting a down payment to be able to get a loan to afford a place where we would like to live.

We have been witness to a new phenomenon over the last few decades. Developers have been coming up with schemes where properties “under construction” are purchased. This could mean that the plot of land where the property is to be built has just been bought or some amount of construction has already started. This seemed to benefit all parties.

For the builder, the venture is financed by consumers who have already committed to paying for the property, so there is lower financing costs, less risk with unsold inventory, and business risk.

This has become the standard practice as it proved to be favourable for everyone involved. However, not all developers stick to deadlines. Projects are often held up for a variety of reasons, including failure to receive timely government approvals, having to approach different statutory authorities for myriad permissions, changes to regulatory environment, shortage of materials, force majeure events, liquidity crunches and diversion of funds to other projects.

In this context, non-delivery by a property developer can be financially stressful for a consumer. Often, there are cases of home buyers deciding to stop paying the EMI to “punish” the developer. This action only ends up harming the consumer with no impact on the developer. Why?

When the draw down is made by the consumer, the entire money for the particular phase is paid to the developer and the consumer now owes the debt to the lender. Stopping the EMIs has a direct impact on your credit score and report. Missed payments lower your credit score and will make it difficult for you to secure loan approvals in the future. 780 is a good credit score (650 for Equifax, 700 for CRIF, 750 at CIBIL).

Hence, defaulting on EMIs is not an ideal strategy. Here are some suggestions on how to pick a property developer, followed by some consumer-friendly legal remedies that have been recently implemented by the government.

Identifying a developer

While identifying builders, it is important to look at their track record. Have they historically delivered on time; what has been their quality of construction; have they delivered what was promised?

Once a developer has been identified, ensure that the project has been properly registered under the Real Estate (Regulation and Development) Act, 2016.

Apart from building permissions, check the basic title documents and the title certificate issued by a practising advocate for the land.

Before booking

Ensure that the building plans reflected on the RERA website correspond with what has been presented to you by the builder.

Builders are now obligated to disclose the actual carpet area of the flat. The cost sheet should also reflect miscellaneous expenses you may incur subsequently, such as society formation charges, initial maintenance fees etc.

Ensure that the letter of allotment mentions the proposed date of completion of the project, and make note of the exceptions that the builders provide for delays.

Legal recourse

Under RERA, civil courts no longer have the jurisdiction to entertain disputes between home buyers and builders; all such disputes must be referred to RERA tribunals, which dispenses and orders faster than civil courts.

If there has been an unjustified delay in delivery, you can seek interest or compensation on the money already paid, or a full refund.

The writers are Country Manager - India, ClearScore; Partner, Universal Legal ® Advocates

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Published on August 04, 2019
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