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Checklist To Keep In Mind While Buying The Property

At the time RERA was drafted one of the key problems addressed by the law was that developers would take money from one project and divert the funds to other projects.




The real estate sector has been through tremendous change in the past few years.

The introduction of RERA has been a major factor in pushing the sector to be more consumer centric. However, the successive blows to the sector (starting with demonetization, GST, RERA, the financial crisis and the lastest being Covid-19), have led to many developers facing cashflow issues.

While developers are doing everything they can to avert financial crises, the reality is that many projects will find challenges in reaching completion. There are still tremendous risks for home buyers even though RERA has been introduced.  

At the time RERA was drafted one of the key problems addressed by the law was that developers would take money from one project and divert the funds to other projects. As a result, the law stipulates that 70% of the sales proceeds received from customers must go into the project for direct expenses. 

This provision works perfectly when there are adequate sales but the sales proceeds are being diverted. Unfortunately, today’s market condition is such that for a variety of reasons, many projects are unable to find customers to buy the apartments. In this situation, the escrow clause of RERA serves no purpose to protect the consumer. If there is no money coming in, there is nothing to put into the account for the project costs. 

The protection for the home buyer then comes from the developer needing to pay compensation in case of a delay at the end of the duration defined to complete the project. However, this is painful for the home buyer and no one really wants to buy a home with a potential litigation at the end of the tunnel. 

Fortunately, there is a solution but this solution is not provided in the law. It requires some degree of due diligence from the home buyer.  

It is essential to check the amount of homes sold in the project. If enough sales have taken place, then the project is assured off adequate cash flow to ensure that the project does not get stalled on account of a lack of funds. In case the project is just in the process of being launched it is advisable to ask the developer the source of funds to complete the construction. Normally these funds come in the form of term loans as construction finance for the project.  

Getting a level of comfort about the source of funds is not something which is extremely difficult and this simple due diligence can help reduce the risk for the home buyer substantially. 

It is also advisable to ask the sales people to share progress photographs along with dates to ascertain for oneself that the construction of the project is moving along at a satisfactory pace. So for example, if the project sales are low and the progress is slow, it is important to exercise extreme caution in such a scenario. 

This is a very good time to buy a home for a multitude of reasons but it is important to exercise caution and not get carried away with a very good deal being offered by a developer.

DISCLAIMER: The views expressed are solely of the author and does not necessarily subscribe to it. shall not be responsible for any damage caused to any person/organisation directly or indirectly.

ALSO READ: How Green Rating Systems Can Impact The Health And Wellness Aspects In A Building During COVID-19


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