Booking your flat in Under construction Vs Ready to move in; former is now very risky

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By Staff Reporter

Home buyers usually prefer to book apartments in under construction residential projects to get some respite in payment schedule. As per the Schedule of Payment in Agreement for Sale, home buyer is suppose to pay as and when the work progress and ask release of payments to builders from the housing finance availed.

Risk of Builder stall / abandon the project:

Hundreds of and thousands of projects in India are abandoned or stalled for various reasons. Amongst the fly by night operators, many reputed names are in the list. In Maha RERA alone, there are more than 700 such projects which are abandon or stalled for want of either builder is absconding / arrested / NCLT / Liquidation / Compliance/ and so on and so forth. Booking in under construction and asking the housing financier to pay as per builder’s demand is most risky because builders hand in glove with the staff of financier get released payments which are not due as per the schedule of payment.

Subvention Schemes:

Often builder offer you an easy to pay scheme and book the flat. Usual practice is you pay 10% and rest 90% at the time of possession. You think that I am just paying 10% and my risk is just 10%. It is not. Builder and housing finance companies make you sign a tripartite agreement wherein, builder accepts to pay all pre EMI till occupation. Now, read between the lines. The Financier will put a condition in fine lines that in case the builder fails to pay pre EMI, you are responsible to pay 100% loan availed by builder. Basically you are availing a loan of 90% wherein builder stand guarantee to pay all pre EMI till occupation / OC. The moment builder stops to pay the Pre EMI, housing finance company will demand the EMI or full loan from you irrespective of builder completed the project or no as you stood guarantee to pay the EMI on 90% loan availed. Financier will spoil your CIBIL, file case against you and recover the 90% loan which you have never asked for. On face of it, it seems that builder is just taking 10% and your risk is just 10% but actually builder is taking 10% from you and 90% from the financiers before the construction starts on your guarantee to pay that 90% if he fails. Under construction projects stopped by the builder will not stop your liabilities.

Taken over by Financiers / NCLT auctions etc:

Best way is to launch a residential project and default paying loan from financiers. The financier go into NCLT and take over the project, auction in the open market while you either get a lesser claim amount in the process (Hair Cut) or the new applicant ask you to pay an escalated price which will be decided by the Committee of Creditors (CoC) of the NCLT appointed Liquidator / Resolution Professional. In the entire process, you don’t have any say as the majority of voting rights are with the Financial Creditor in CoC. Besides this, the project is jeopardized and God alone know how and who will complete it.

In case of taken over by the Financier, for example DHFL is taken over by the Piramal Capital / finance company, the future of the project is in the hands of new financiers who funded construction finance while builder mortgaged the entire project.

Justice delayed is Justice denied

RERA was enacted with specific provisions to dispose of real estate related complaints within 60 days. Various RERAs are over burdened and usual dates for hearing comes much after two years and further Appellate Tribunal take usual practice of courts in India which further delays to a year and half. Further it is for the parties to approach High Courts and Supreme Court.

Cost of GST enhances the purchase price by 12%

Most of the time, builder take 12% GST on under construction projects and booking via-a-vis when you buy a ready to move in flats, there is no GST which saves you 12% of the total purchase price.

What you see What you get:

Ready to move in homes will give you fair idea of carpet area. In spite of RERA norms, real estate still has the concept of super built up area and confuse the buyer by adding FSI which is suppose to be excluded. Hence when you buy a ready flat, you understand and measure for your self the exact carpet area, orientation of flat, construction quality etc.

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