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Friday, March 29, 2013

Mr. Builder, Show Me Your Money!

Don't Become a "Cash Cow" for a Builder.
Book a Flat Only in a Project Which Has Received "Project Finance"
from the Bank - Preferably, Nationalized Bank!

Instead of completing ongoing project,
why does a builder launch a new project?

Because, to finance the expansion of his business,
a builder is always in search of a new source of cheap funds.
Since, naive property buyers are 'easy kill',
a builder prefers to launch a new project at the new location or
a new phase of the ongoing project.

Plus, it's not that expensive to launch a new project.
What you need is 'an open plot' - on which, in a couple of days, a builder can construct 'a show flat', a couple of 'color ads' in the local news papers and 'a few hoardings' at prime locations in Pune.
Yes, of course, 'way to" boards, at every 10 feet, on the approach road (temporary), to the 'site office'!

Considering that your 'booking amount' and 'own contribution' is 'interest free fund' for a builder,
he doesn't mind spending - 1 to 2 crore - on the launch of a new project.

And you know what? Most of the time, whatever builder spends on launch is all his financial investment in the project! Certainly, besides the initial down payment the builder has made to the land lord.

After the launch, most of the builders know that you will 'finance' the project. Not only the one - in which you have booked the flat - but, all other 'on going' and 'up coming' projects too!

Your 20 per cent 'own contribution' and subsequent 'disbursements of your home loans' will pay the bills of the contractors, steel & cement suppliers and the installments of the landlord - not only of the project in which 'you have booked a flat', but all his other 'on going' and 'up coming' projects!

Some unscrupulous builders took this to the next level by launching 'pre-launch offers' and started collecting cheap funds even without procuring a plot of land and without spending on constructing 'show flat', 'site office' and 'advertising'.

Long ago, for a short period of time, when Pune real estate market was booming, this game worked for some builders as well as for a few property buyers. But, as soon as Pune real estate market slowed down, what we see around is thousands of prisoners of pre-launch offers, thousands of hostages of incomplete projects - waiting for months and years - for the possession of their flats.

Is there any safe way to book a flat on the day of launch?

Other day, when CA. Sujit Dhadphale, Director of Delpha Consultants Pvt. Ltd. asked me, "How is Pune real estate market?"

"Serious slow down - real estate - auto industry - the entire economy is going through slow down - isn't it?," I said.

"But still, only in Pune, new projects are launched, property rates are going up and people are booking!," said Sujit.

"Because builders in Pune know how to play the property buyers! Instead of running away from the fire, Pune builders make property buyers jump in the fire! Particularly, the property buyers from other cities, states and countries - who don't know the reality - are their soft targets!," I said and told him about the games builders play.

After hearing how property buyers are suffering, Sujit asked me, "What's the solution?"

"Simple solution - to avoid being exploited by the builders - is to change the way we buy a property. We should stop booking and start buying only ready for possession flats with completion certificate. Let the builder raise and invest his own funds for the construction. Why should we stake our life and risk our hard earned money?," I said.

"That's too radical! It may happen only when people will realize that there is no scarcity of houses. When the supply of houses will become abundant," said Sujit.

"Then what is the practical solution?," I asked.

"You know what? There are many young builders in Pune who are professionals. They look at real estate as an industry. Like any small scale - medium scale industrialists - they are entrepreneurs - not gold diggers or bounty hunters - or not old time 'Shethjis' - who believed that you can prosper only if you exploit others!," Sujit said.

"Are they doing anything different? Or to earn respectability - they are only corporatising criminal practices?," I asked.

"These builders are not dare devil adventurers or greedy gamblers. These builders are managers - financial managers. Whom nationalize banks are ready to give project finance. Funding for the construction of the project. Banks scrutinize the legal papers of the land. Banks confirm that the project has received required sanctions and approvals. Banks monitor the progress of construction. So, the property buyer is sure about legalities and completion of the project - even in the current slow down. The property buyer can be sure that his installments are used for the construction of his flat and he is not used - exploited - by the builder. So, booking a flat in a project which has received 'project finance' from the nationalized banks is safer - can be a practical solution to buying a ready possession flat," said Sujit.

"How can one know that the builder has received 'project finance' from the bank?," I asked.

"RBI expects that the builder should mention about the name of the bank which has given project finance in the ads, brochures and all promotional literature of the project!," said Sujit.

"What if the Bank is not mentioned?," I asked.

"Ask the builder! After visiting the sample flat - demand to see the builder and ask him - Show me your money!. Besides my installments - how much working capital do you have? As a paymaster - it's property buyer's right to know the financial health of the builder!," said Sujit.

"What about personal health of a builder? Should the property buyer ask the builder to remove his belt and take off his pants?," I asked.

"I am financial health expert. I help the builders to get the project finance from the bank! However, we all know that, as a 'paymaster' - property buyer can take a right decision - safe decision - informed decision - only when he knows all about the construction service provider - builder," said Sujit.

What say you?
Builders demand 'loan sanction letter from the bank'
before signing the flat agreement.
Same way, can you dare to ask your builder - "Show me your money!"
Please, share your views in the comments.


What happens if a lender takes over a housing project?

Last month, the State Bank of India took over a housing project in Kolkata because the developer had defaulted on repayment of dues to the tune of Rs 176 crore. The Teen Kanya project was promoted by the Bengal Shelter Housing Development, a joint venture in which the state housing board has 49% stake. Therefore, its repossession by the SBI has come as a shock for the 400-odd families that have invested in the project.

Most of the buyers had put money in the project because the state housing board was involved. The project is only half complete and the investors are now contemplating legal action to safeguard their investments.

The incident brings into focus the RBI's decision to stop builders from offering 80:20 schemes. Under these schemes, the buyer services only 20% of the loan for the property while the developer pays the interest on the balance till the property is ready. The RBI warned that if the developer defaults on the interest payment, the buyer would suffer because the loan was in his name.

What are the options available to a buyer if a lender repossesses a property due to default in payment? Legal experts and housing professionals contend that the lender does have first right over the project. Let us look at the issues involved. Read More

Related Stories:

1) Prisoners of Pre-Launch Offers - Earn Compensation & Freedom

2) How to Fight Against Builder

3) Owner or Tenant?

4) Baap ka maal

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  1. Buyers are in a race of buying and afraid of loosing a 'Good deal' that's why builders are using them as assets.

    1. Once booking is done, good deal turns to sour deal in no time.

  2. The whole article was good, except the last para where you say personal health of builder.. You are a professional and you sound better professionally.

    1. it's only a small prank...we need to see what message this post leaves on property buyers like us...i think this post is enough for a laymen to ask only one question from builder-"is the project- financed by any bank??"........if yes then ,most of the problems are taken care by the bank instead of us.

  3. Most of the builders do such kind of scams. At least there are few builders like KBD Group, Nandan Builders etc. who complete the project once launched. Mot of the builders suck out the money from the buyers even after the completion of the project under the name of some maintenance.

  4. Builders are not alone. Judiciary, politicians, police force is with them, earning some commission from their loot.

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