How a developer conned buyers with pre-launch booking

The longstanding suffering of home buyers at the hands of the builders may be a common occurrence. This is the story of how three of us fought to get our due from the builder. It has been a long battle for my fellow buyers Kartikey Khanna, an RTI activist, and MS Shamasundara, an armed forces employee, and me.

We had put our hard-earned, lifetime’s savings in what we thought would be our dream house. Like so many others, we were impressed with the lofty promises of world class living standards and amenities and quick possession (within 36 months of signing the agreement), But destiny had other things in store for the poor buyers who had unwittingly fallen into the trap.

The project was located in south-eastern Bangalore, a few kilometers away from the famous Bannerghatta National Park, and was supposed to start construction in 2009.

The trigger

Things were hunky dory till the end of the first 36 months, ie, till June 2012. The builder claimed that 95% of the construction was over and had already charged the customers 95% of the total sale price. It was all downhill from there onwards.

The first tactic adopted by the builder was simply not to share any updates. They even refused to even meet customers visiting their office. When finally some residents managed to get through, the staff there feigned ignorance about the whole matter.

In the month of July 2013, came the next shocker. The builder sent a Tax Demand Note (to the tune of Rs 2-2.5 lakhs per flat owner). On questioning, they said that these were due to the new tax components added by the government and they had no control over them. Also, their project was on track for completion shortly, and there has been no delay.

Changes to plan

Balconies were arbitrarily added to the apartments without informing the customers (till this date they have not formally informed customers who are still waiting for possession).

In a SEBI annual filing in 2013, the builder claimed that the project was started in 2011 and would be completed by 2015. In addition, the builder reduced the project cost from Rs. 536 Crores to 264 Crores (as per report submitted to State Environmental Impact assessment Authority in October 2013), and reduced the no. of flats to 1833. Apparently the builder started construction before taking environmental clearance.

Unfair penalty clause

The builder was supposed to pay delay penalty at Rs 5/sq ft per month to buyers (which comes to around 1.5% of total amount paid). But an interest of 18% was placed on the buyer, for delayed payment, and the customer lost the right to claim delay penalty. The one-sided agreement allowed for this.

The builder justified their demands for additional payments under clause 1.10 of their Buyer’s Agreement that outlines taxes to be paid by the buyer. However, the agreement did not mention VAT and any other taxes arising out of engaging contractors and/or material costs escalating due to delay (more than the promised 36 months for possession as exclusively mentioned in the Agreement) by the builder. Also, nowhere did the agreement mention that buyers are liable to pay for penalties imposed on the builder by the government due to any reason.

Extra taxes, extra charges

Buyers were asked to pay 12.36 % Service Tax, on Value Added Tax, Property tax, labour cess, BBMP betterment charges, deposit, fees, Govt. charges, etc. in the name of BESCOM and BWSSB, and funnily on Service tax itself!

They also collected service tax on fire station charge, (which was supposed to be a corporate social responsibility activity by the company, but was brazenly passed on to buyers) but finally the builder decided to reverse it. However, Service Tax reversal hasn’t been committed yet.

On asking for logic and proof of payment of taxes to the Government, the builder showed their CA Certificate and claimed the demands were justified.

In September 2014, hapless customers desperately waiting to get possession of their flats were again slapped with numerous other additional, unplanned charges to the extent of Rs. 4,00,000 – 6,00,000 in the name of various government taxes and charges! In addition to that, the customers have been made to sign on documents with various indemnity clauses in return for getting possession for their own flats for which they had already paid about 120% of the original costs!

No Apartment Owners Association formed as per KAOA

In 2010 the builder registered a society including their own employees as the members of the association and demanded lakhs of rupees under the pretext of maintenance. All buyers were indirectly arm twisted to sign and become members of this society if they wanted to get their apartment registered.

To execute this plan and for extracting more money, Rs 1.8 – 2.5 lakhs for 1900 owners, which adds up to about Rs. 38 crores was collected.

The builder created new address proofs and submitted the same for registration of society. They have created a bank account by using this registered certificate of the Society and had given an ultimatum to all the complainants to become the members of this society. Whoever is unwilling to become a member will not get the apartment registered in their name. This society was formed under the Societies Act with 10 benami members who cannot represent 1900 apartment owners. This is being undertaken in an organised manner by the builder, and everyone, right from the topmost echelons in Delhi, to the officials of the real estate firm in Bangalore are involved.

The builder charged the buyers twice for essential amenities such as infrastructure for power and water connections, fire -fighting equipment and other Common Area development. In spite of Apartment Buyers Agreement (ABA) including cost of electric wiring and fire-fighting systems approved by Karnataka Fire Service Department, the builder charged Rs. 1.5 Lakhs per flat towards electricity, water connection and incidental charges (EWCI) as mentioned in schedule of payments of ABA. This charge should cater for all expenditures incurred by the builder towards electricity connection, water connection and any other incidental charges towards utilities of electricity and water.

After this, the builder again demanded charges of Rs 127.96 per sq ft. during possession, for the same EWCI amenities.

Modus operandi for conning the buyers

There was an uncanny similarity in the malpractices performed by this builder and their modus operandi across all their pan India projects. The modus operandi was this:

  1. Pre-launch the project at the lowest price in the prevailing market compared to other builders.

  2. Use only the customer’s money for the initial fund requirements needed for obtaining approvals, NOCs, etc.

  3. Take more time to make payments to the authorities and get the NOCs and approvals, delaying the project

  4. Get publicity by word-of-mouth, thus saving money on advertising costs.

  5. As the pre-launch stage gets optimally stretched (around 12 – 15 months) the builder revises prices in the pre-launch stage itself. Yet the buyer is manipulated psychologically to feel that he is lucky to book a unit at lower pre-launch price.

  6. Keep enough inventories in each phase of pre-launch with the builder and channel partners who block units in bulk that offsets the slightly lower market price and rather gives them profit after launch.

  7. In case of any litigation and road-blocks, the customers’ money would be at risk and/or blocked indefinitely.

  8. Make the projects as big size townships that differentiate from competitors. Amenities are verbally promised by the sales team during the prelaunch phase and some of them are just mentioned in the pre-launch brochures with a disclaimer that all these are indicative only, which means, these amenities can be altered or removed at their own will.

  9. An one-sided Apartment Buyer’s Agreement (ABA) that the buyers are persuaded to sign – most inexperienced buyers don’t understand and oblige – a few understand but give up, knowing that it’s not possible to get it changed and the investment has appreciated after the launch and will further appreciate.

  10. Complete the slabs for all floors in 2-3 years so that 95% of the money can be collected promptly

  11. Compromise on the qualities of the fittings and fixtures to offset the inflation and maintain the target margin

  12. Alter/remove the amenities at will, based on the current situation as the exact specification and dimensions was never committed on.

  13. Collect as much as possible in the name of Taxes and Levies, using the shield of TPR (Timely Payment Rebates), DP (Delay Penalty), etc. However only a 5-10 % of the buyers only get the benefit of this. This fund is also generated from the project in the form of DLI (Interest on Delayed Payments) from the buyers who delay in payments (there would always be many for various reasons of their own as well as created by the builder).

  14. Huge unexpected final installment demand so that most of the buyers would give it thinking that it is the last one and they could enjoy their long awaited dream home by paying this; at the same time most of them would miss the deadline to arrange the extra unexpected bucks, further losing benefits from penalties.

  15. Prolonged delay in completion of the project induces a lot of re-sales because of many reasons – people migrate to different cities/countries, people change office, school, etc. and move to different parts of the city. People sell and buy some ready to move-in properties, and so on. Thus the builder doesn’t have to pay TPR, EPR (Early Payment Rebates), DP, etc.

With a builder so well-versed in conning the buyers, the buyers really had a tough time. What did they do? Coming up in the next part.

Note: Name of the builder has been withheld in the story because the legal proceedings are in progress. Citizen Matters is in possession of the related documents for this story and has got legal inputs before publishing the story.

About Soumya Nayak 0 Articles
Soumya Nayak is a manager in an IT firm, and a resident of Bengaluru.

2 Comments

  1. Builders have to include part of BESCOM deposit, BWSSB deposit, NOC charges, BBMP charges for plan sanction, overheads, etc according to the area of the flat and quote the selling rate. No other charges should be collected from the buyers. Builders do not sell all the flats in the Apartment in the beginning itself. They keep some flats for sale later when the rates increase. They make additional returns this way.
    Many well to do private people book several flats to sell later when the rates increase. The builders encourage such investors as he gets funds for completion of the apartment project. It is reported in Times of India newspaper dated 2.1.2017 that 13 lakh flats out of 87.67 lakh flats are owned by investors (speculators) and remain vacant according to 2011 census. People who need affordable flats will have to go farther and farther to get the flats. Government should curb this investor activity and should allow only flats for personal use. By this it is possible to control increase in sale prices.

    -Dr. A. Kodanda Pani,
    Urban Planner & Civic Analyst

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