The biggest worry of any buyer in Under Construction Project is delay in Possession of flat. Lets take the case of one of my reader Mr. Rupesh Shah from Ahmedabad who sought my advice in this regard. He booked a flat in 2008 from very reputed builder in Ahmedabad. Builder promised possession of flat by 2010, when Mr. Shah was planning to get married with his childhood love. The couple wanted to start their new life in new house. In 2014, the couple is blessed with 2nd child but still they are awaiting possession of their dream house. Mr. Shah’s case is not an isolated case but very common problem these days.
Majority of Real Estate sale in India is through Home Loan. Buyers pay Pre-EMI on amount disbursed for under construction property till they get possession of flat. The cost advantage of booking in advance vanish with the delay in Possession due to increased outflow of interest. It upset entire financial calculations of buyer and increase the overall cost of property. Almost 90% under construction projects in India are delayed thus there are enough and more reasons to get worried on possession. I highlighted this issue in one of my previous posts Resale Flat or Under Construction Flat – which is Better? Let’s understand 3 main reasons why under construction projects get delayed.
Launch of Multiple Under Construction Projects
Have you ever wondered why builders keep launching new project even if previous projects are under construction. Answer is very simple, builder fund penultimate project from new project to hedge his risk completely. Assume builder launched Project A in Jan, 2013. In May, 2013 builder launched Project B even when Project A is still under construction. Now builder will use the proceeds of Project B to complete Project A. The risk of builder is NIL as its all public money. Builder is not investing his money in under construction Project A. Now in Dec, 2013 builder will launch Project C to fund Project B and this chain continues like Ponzi Scheme. To substantiate my point, please check financials of Real Estate companies. They are bleeding to core but still surviving and not shutting down despite slowdown.
90% funding for Super Structure
Almost 95% purchase in under construction projects is through Home Loan. All Home Loan providers disburse 85% to 90% of Home Loan amount by the time Super-Structure is ready under Construction Linked Payment Plan. Almost 80% “under construction” projects start getting delayed from this point. At this stage builder start funding other projects from this specific project to keep buyers of other projects in good humor. The interiors and final finishing may take upto 1 year to complete depending on the size of complex and commitment to buyer on interiors. Instead of 1 year this last leg of interiors and finishing take 2-4 years as in the case of Mr. Shah. With 90% money in pocket builder is not in a hurry to complete the project.
Offload inventory in Under Construction project
Inventory offloading is another major headache for builder due to slowdown. If inventory is unsold after completion of construction than it harms the reputation of builder and may impact builders return. The buyers don’t prefer unsold inventory in newly constructed property. It is in the interest of builder to keep project under construction till inventory is offloaded.
Now you must be wondering, there is always penalty clause in agreement for delay in possession. My answer is if any of my reader gives me proof of receiving compensation as mentioned in the agreement for delayed possession than i will give one surprise gift from my end & its a deal. This clause is loaded with so many ifs and buts that no one is able to break this legal tangle to claim compensation from the builder.
Now you must be wondering what is the solution to this problem. Answer is that it is not feasible to fix this problem completely but through following solutions, it is feasible to reduce the risk of delay to large extend
1. By revising Construction Linked Payment Plan & hold back 20%-25% Home Loan payment of builder for last leg i.e. “interiors and finishing” after the construction of super structure.
2. Buy property under “Possession Linked Payment Plan” which i will discuss in detail in my next post
Hope you liked the post. You may leave your feedback or share your experience through following comments section.
Copyright © Nitin Bhatia. All Rights Reserved.
Hello,
In case the flat under construction is not delivered as committed by the builder in the sale agreement, is there nay means that we can exit from the purchase?
In your agreement with builder, there must be clause related to delay of project i.e. what can be done..Normally it is penalty clause. You may check this clause and If this clause permits you to exit than you can exit else you may act according to this clause
Thanks for the reply. In the sale agreement, there is only mention about handing over the possession on a certain date. There is no specific penalty clause mentioned or any other clause for delay in hand over of the possession. What can be done in such case?
Unfortunately, you cannot do anything in this regard. All the terms and conditions will be governed by agreement signed between you and builder. At max, you may approach consumer court and seek damages on account of delay in possession as it is deficiency in providing service.
i m planning to purchase a clu school land which is 5 acre land in which i m plan to 1500 sq yard for play school purpose but the issue is land of 5 acre is clu land only if he sell 1500 sq yard without constuction clu is cancelled. so kindly guide me wht is best way to purchse this 1500 plot
seller give me wht type of document i m safe.
For commercial property, it is advisable to hire a competent property lawyer.
1)This is my second time to ask question sir , I am living in the flat system there is one ad-joint building the people in that building using space in our premises they have no separate space are we take any legal action on It? .
2) Our builder has put holding on the building mentioning the Car Parking ,Lift with backup,& CCD camera etc. but those are not reflected in anybody’s agreement so what will done action to get the same legally.
1. You can file police complaint of trespassing in private property
2. If it is not mentioned in agreement then builder is legally not bound to provide all these facilities. You need to discuss with builder before taking any action.
Dear Sir,
I purchase a 2nd flat on bank loan, EMI are deducting regularly.
I book the flat in under construction property in 2010.
Still I didnt get the possession. Should I claim for the compensation.
Please advice.
You may check relevant clause in your agreement with builder. If compensation clause is included in agreement then you can claim compensation from builder.
Sir,
What are the hidden charges that builder may ask during possession ?
After following your blog , I went thorough my BBA and found these issues:-
1. No carpet area mentioned , only super build up area .
2.car parking amount not mentioned
3.80%payment till super structure
Kindly explain any worry point ?
As i have not seen all documents therefore cannot comment on other charges.
1. In agreement only Super Built up area is mentioned.
2. Builder cannot sell car parking therefore it is not mentioned.
3. It is normal practice in construction linked plan to seek 80% disbursement when super structure is ready.
Sir , if a builder cannot sell the car parking ,how to reply when builder asks to pay for it during possession ?
Builder charge it under different heads and issue car allotment letter. Builder is not obliged to provide car park therefore depending on your requirement, you can decide to pay or not to pay.
Sir , does builders always increases super build area after BB agrrement ? Please explain IFMS and maintainance charges.
Super Built up area is fixed and should be in accordance with approved layout plan. Any change in Super Built up area mean builder has changed the layout plan. You need to clarify with builder regarding same as this change can be in either in common area or in your flat.
IFMS is interest free maintenance security. It is charged by builder towards maintenance of society till the association is formed. Normally 2 years maintenance is charged in advance by the builder and any unused amount is transferred to association.
The mentioned points are very true. Specially the super structure part. I have seen such cases in with a Delhi based buyer who waited for 1.5 years.
Apart from these things if we talk about approvals, On an average there are 57 approvals required to start a project and our Govt. does not have any single window point to link
all those documents. It takes a very long time to obtain them. You can read a good article on this topic shared by one of
my friend familiar to the industry.
propertyclubindia/Project deviation, delays and other customer woes!
Sir, I have booked a flat under the Pre-EMI scheme unfortunately from Mantri in Bangalore and they have started to delay the interest to be paid evey month for a period up to 3 months now. Although I understand that there is no use in lamenting now, please let me know if there is a way to make the builder pay this in time? The agreement or may in one of their communucation it says that the EMI will be credited into my account (from where it will be deducted by the bank) on any day of the month. Added to that they have now sent a mail that the pocession will be delayed by 6 months. Actually my stomach is burning :-) Did a mistake..what to do.. Any idea if I can get out of this purchase with minimal loss if any?
You can sell this property through assignment/transfer deed. Secondly, any delay in payment on Pre-EMI can impact your CIBIL score. As a 1st step you can submit written complaint with Mantri regarding delay in Pre-EMI disbursement. Take acknowledgement of same. In future, you may explore legal options if they still delay
I purchased a flat with Lodha CasaRio in Dombivali, Thane, Maharashtra. I booked it in 2011 and now, the builder has moved the possession date till 2016 May. I know for sure this will be delayed. The agreement is one-sided and has no provision for the buyer to claim compensation. I would like your feedback on the following questions
1. We only get to see the agreement during the registration at the registration office and it is practically impossible for us to read through all the clauses during that short period of time. Why cant the builder give us the agreement copy in advance?
2. Is there any way to claim compensation by going to consumer court
3. Why does the govt turn a blind eye to all the new projects announced by the builder even when the existing projects have been delayed by years.
1. A builder cannot deny copy of agreement. You can demand the same through email.
2. You may approach consumer court
3. Govt is proposing real estate regulator through real estate bill and it will fix all these issues.
I have purchased duplex (subvention scheme for 2.5 years ) in Bhopal which is about to ready within in 2 month for possession but the builder is not willing to pay any penalty even though the possession is delayed more than 2.5 years.
In agreement they have smartly written for no penalty in delay.
At Present i am Paying Rent, EMI of housing loan and not able to take tax benefit for the same.
I am seeking legal advice. Should I take possession or not? I have to pay around 4 lakhs at the time of possession so I am wondering I should pay that now or should I file a complaint about it. Thanks
Nothing much can be done. Pay the balance amount and take possession.
Naresh Patel
Naresh Patel
I have purchased Apartment in Tanvi Eminence Phase-I, Kashimira, Mira road, Thane , Maharashtra. in jun-2011. but unfortunately building not ready even 50% right now. also i was sold my small flat to pay the amount to builder and i am staying in Rental flat right now. also i had registered my agreement in dec-2012 with stamp duty , VAT , Serv.Tax. Still building going construction very slow and builder ask possession in march-2017 . Right now i am lossing Interest and Rent. So please give me the proper guidence to recover interest and Rent.
It depends on penalty clause in your agreement with the builder. If there is no such clause then you cannot claim interest and rent as compensation for delay in possession.
A K Gulati
It is quite unfortunate that builders are taking senior citizens for a ride. In my opinion, you request for cancellation of your booking on grounds of delay in project and seek 100% refund along with penal interest of 18%. If builder does not respond then approach consumer forum. Also demand any other compensation mentioned in your agreement for delay in project.
Many thanks, Shri Nitin Bhatia for your advice. I shall act on it.
Hello Mr. Nithin, I have recently booked a 2BHK in Dhaisar through Oyester Living. It is a SRA project, they claim that they have got 80% agreement from the local residence. They have promised possesion in 2020. They have mentioned in the agreement that if the construction dosent start in 2 years they will give interest of 15%. Also they have an EMI scheme wherein we can pay installments to them directly without any interest and complete payment of total value of the property before possession. In this scheme we do not pay bank and incur interest, rather pay them at no interest. Is there any marketing gimmick linked to this? do sense any risk?
Pooja Singh
There are lot of conditions and of course with so many conditions there will be lot of ifs and buts. You may check/study the agreement with the builder. The risk can ascertained only after going through the agreement.
Dear Nitin ji,
आपकी जितना भी सराहना किया जाये काम है, मैंने Dec2010 में Noida में flat ख़रीदा था, possession देने का time oct2013 था लेकिन अभी तक नहीं मिला है, हमने 95% पेमेंट कर दिया है 2013 तक.
मेरा प्रश्न है की क्या मैं 12% late fee demand कर सकता हूँ , agreement letter मैं late fee rs. 5 per sqr feet लिखा है,
You can demand/seek penalty for delay in construction but it will depend on the terms and conditions in the agreement. Normally, builder exclude certain scenarios like delay in permission from govt authorities, non availability of labor etc. Based on these scenarios he can reject your demand for the penalty.
thank you so much Nitin ji