Better deal in offing for property buyers

An order by anti-trust regulator Competition Commission of India (CCI) against realty major DLF, amending its agreement with apartment buyers of three different projects and making it more equitable and fair, may well pave the way for a model pact for property sales to ensure fair play in transactions.

The regulator said in the order that the apartment buyers' agreement was amended to remove the abusive and unfair conditions present in the original 'one-sided' agreement. Though the order has sparked a legal debate on the jurisdiction and other matters concerning the real estate sector, the entire episode has once again opened up a pandora's box with regard to sale agreements of real estate companies.

It is an open fact that sale agreements are loaded heavily in favour of developers who put in one-sided clauses that give them discretion with regard to change in zoning plans, lay-out plan, floor plan, specifications, usage pattern, alteration of structure and hidden charges.

These skewed buyers agreements, which spell out terms and conditions with respect to sale and purchase of property, have many pitfalls. Quite often, the buyers complain that the developer did not deliver what he promised in terms of facilities and amenities.

There are also disputes over inferior quality of construction and poor specifications of material and accessories. It's not just the case of amenities; buyers also feel cheated in terms of space. In fact real estate developers exploit the carpet area-super area ambiguity to charge arbitrarily. What makes matters worse is that there is no fixed ratio of super built-up area to carpet area and no transparent and justified way of calculating it. And many a time developers do not even disclose the exact break-up of carpet and super area.

With the help of the biased sale agreement, developers also make property buyers shell out extra money (hidden charges) as these charges do not find mention in the builder-buyer agreement and even if these are there, these charges including external development charges (EDC), internal development Charges (IDC), preferential location charges (PLC), are not specified.

There are instances when super area is increased without increasing the carpet/built-up area. As a result of this, all other charges like PLC, EDC, IDC and maintenance fee get enhanced.

Home buyers are also short-changed on account of delayed delivery as they end up paying extra pre-EMIs for the period of delay which amount to higher interest payment and longer overall tenure.

In fact, for developers, it pays to delay, especially when the home buyers agreement has a price escalation clause. Moreover, as per the penalty clause in the agreement, developer only promises a meagre compensation of Rs.5 per square foot per month, whereas he charges 18 percent penal interest when the buyer defaults in his payments.

Against this backdrop, the order has come as a whiff of fresh air for the property buyers. And now the housing ministry's decision to introduce long-pending real estate regulatory bill in the coming Budget Session of parliament further renews their hopes.

As per the draft bill, real estate developers are required to register all projects before sale of property, disclose project details, contractual obligations and status of clearances. The regulator will also prevent developers from delaying projects and diverting funds by making it mandatory for them to deposit 70 percent of project funds in escrow account.

All this holds out hope of providing a fair deal to property consumers by ensuring transparent and ethical real estate transactions.

(03-01-2013-Vinod Behl is the editor of Realty Plus, a real estate monthly. He can be reached at 

Vinod Behl

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