Cancellation imbroglio

In the case of both the projects,over 90 per cent bookings have already been done. DLF’s project has booked over 3,300 flats and Vatika Group in its township project has made bookings for over 5,000 flats.

After facing the ire of groups of disgruntled buyers,the developers have in both the cases agreed to allow the exit option to buyers.

DLF and Vatika Group’s cases are the most well-known. The problem is by no means confined only to their projects. A large number of developers who made bookings in their upcoming projects are unable to execute them for a variety of reasons — the most common being diversion of funds to other projects. And now disgruntled buyers across the country are cancelling their bookings.

DEVELOPERS’ DEFENCE

Most developers depend extensively on advance payments to fund the development of their projects. Kumar Gera,chairman,Confederation of Real Estate Developers Associations of India (CREDAI),explains,“The progress of any project depends on the bookings it has received. Thereafter,the project also moves forward based on the advance payments received from buyers.”

Pointing to the other side of the coin,Sunil Jindal,CEO,SVP Builders points out while many projects are getting delayed due to shortage of funds,payment defaults by buyers have also increased. Many investors,who were actually speculators,entered projects hoping to exit at a profit after paying just a couple of instalments. This strategy backfired once property prices began falling. “When buyers find that they will not be able to sustain in a project,they start delaying or defaulting on their payment. This phenomenon has picked up in the last few years. Development of projects does depend on buyers’ money too,and delays and defaults in payments affect its progress.”

Some property experts believe that developers’ inability to complete projects is not the sole reason for the increasing number of requests for cancellations. Other factors are also at play. Shobhit Agarwal,joint managing director-capital markets,Jones Lang LaSalle Meghraj,says,“The fact that property rates are correcting and buyers wish to conserve finances is equally,if not more,responsible for cancellation requests.” He adds that cancellation requests are not specific to only certain developer groups but a pan-India phenomenon.

BUYERS UNITE

After waiting for over a year and paying over 42.5 per cent of the flats’ cost,when buyers were unable to see any progress in construction,around 400 of them formed an online group called New Town Heights Yahoo Group.

Kumar,the buyer who invested in DLF’s property,raises a question: “Under which account does the money paid so far for this project exist? Or has it been invested in some other project? If it is still in the bank,then how much interest is DLF earning on the money,since the money has not been utilised towards the delivery of the project?”

Five months ago when Kumar had enquired about when the project would begin,he was told that it would start in two-three weeks. “If environment approval required to start the project was not in place,then under what clause of the agreement does the deal remain valid?” he asks.

In response to the hue and cry raised by buyers,the developer has agreed to allow all disgruntled buyers to exit from the project. “We proposed a package for existing customers in New Town Heights and have also deferred future instalments for their benefit,” says a DLF executive.

DLF has offered buyers a discount of 20 per cent in addition to the facility of constructionlinked payment plan coupled with advance payment rebates. It has also doubled the compensation payable for any delay beyond the committed handing-over date.

According to a member of the New Town Heights Yahoo Group,“Around 71 per cent of investors plan to exit from the project. Another 24 per cent want to continue in the project based on the revised payment plan. And 5 per cent want to switch to another DLF project.”

According to Agarwal,in any of these groups,the largest part of those demanding refund appears to be of investors who prefer liquidity to property holdings at the present time. There are also genuine buyers who now have the option to buy ready-to-move-in properties at price levels that are on a par with under-construction properties and wish to take advantage of this fact.

REFUND: EASIER SAID THAN DONE

Obtaining a refund from the developer is not easy. “As there is a sale agreement signed between the buyer and the seller,it is never possible to refund the money at once. However,these allottees are free to apply for refund,” says a DLF spokesperson.

Legal experts think that full refund is never possible as a number of charges are incurred by the developer at the start of the project. “Any approval or licence fee paid by the developer will have to be passed proportionally to buyers too,” explains a legal expert.

Talking about developers’ plight,Agarwal says: “Developers are generally asking for sufficient time to make the requested refunds,which is understandable,since these are running business concerns and not financial institutions. It is obvious that there is no value in withholding refunds,since doing so would result in non-payment of future instalments at the least,and also legal wrangles that are in nobody’s interest.”

All of this points to the need for buyers to evaluate very clearly whether all the permissions required to start a project have been obtained,and whether the developer has adequate financial strength to complete the project (though it must be added that if the biggest players are today unable to complete their projects,what is the poor buyer to do?) The situation also points to the need for a regulator for the sector with the powers to make developers fall in line. l

praveen.singh@expressindia.com