Project delays: Why they occur and how to counter them?
Authored by Amar Pandit, CFA, Founder of Happyness Factory on union budget
While fighting the might of a developer may seem like a David versus Goliath battle, many buyer groups have proven that one can successfully win redress.
Today, in India, a delay in the completion of a housing project is not an oddity. Accompanying this delay is the routine fight buyer groups must put up with the developers to avoid losses and get possession as soon as possible. While the financial toll this takes on buyers/investors is quite substantial, the emotional toll is sizeable in its own right.
On the financial front, in case the person is living on rent and is looking forward to shifting into his own home, the delay means that he/she will have to bear the burden of both rent and EMI simultaneously for a longer time. If he/she has bought this house primarily as an investment and was hoping that the rent would take care of a part of the EMI, that hope is dashed as well. Buyers can’t even avail of the tax deduction offered on interest repaid on a home loan until they have received possession of the house.
As for the emotional effects, the impact is even more severe because it is felt not just by the individual but also by his/her family. People who had invested in a developer’s project hoping that their children would grow in more salubrious surroundings see their hopes belied. Those who bought a bigger house expecting that their aged parents would be able to live with them are also denied that joy. Thus, the anxiousness and stress felt by buyers when a ‘Housing Project Delayed’ notice is sent to buyers keeps getting compounded.
Causes of delay in housing projects
Though there could be many causes of delay, either genuine or completely farcical, the most typical ones include:
- The primary reason for project delays is that the developer may be facing a cash crunch. Until a developer manages to sell at least half of the apartments in a project, he can’t begin construction and hence there’s a delay in customer’s getting possession. On a related note, many developers are over-leveraged. A large part of their cash flow goes into servicing debt instead of completing projects.
- For a developer, multiple projects run at the same time. Thus, he might divert the money raised from buyers in one project either to buy another piece of land or to complete another project.
- Sometimes, the title of the land on which the developer is planning to develop the project is disputed. Hence, if litigation continues, construction remains at a standstill.
- An inexperienced developer, lacking management skills essential for timely completion can also stretch the housing project indefinitely.
- Governmental authority interference is highly prevalent in the present-day housing development sector. Developers need many approvals to start a project and certificates of completion and occupation before they can hand over possession to the customers. Delays in acquiring these from the authorities also translate into delayed possession. With the absurd approvals and certificates demanded from developer, coupled with bribes that need to be paid to get the project approved, result in an undetermined delay in allotment of possession.
What to do before you book a property?
A few checks before investing in a retail property can play a big role in the success of the overall investment.
- Checking the past record of the developer
Man is largely a creature of habit. Thus, when a developer who has a strong history of delayed projects is involved, making an investment in his next project should done with caution.
- Agent/Lawyer check
With the help of an agent or a personal lawyer, buyers must ascertain that the builders have absolute rights of the land for construction. In addition, all necessary project approvals and licenses must be judged for authenticity and viability.
With the problem of project delay becoming so ubiquitous, one way to bypass it is to invest in a ready-to-move-in project.
What to do in case of a delayed housing project?
A delay of 6 to 12 months is not considered out of the norm in India. Thus, one mustn’t panic in case of delay. However, if the delay exceeds the period of a year, investors must act with caution and consider either of the two below mentioned options:
- Make a wise exit
If the project has been going on for, say more than three years since the time of booking, the project value is likely to have appreciated, giving the buyer a good chance of earning a profit. However, in a situation where the initial booking is paid for by a loan, exiting the housing project becomes a difficult proposition. One needs to find a buyer and that buyer must be ready to take the loan from the same bank or housing finance company (HFC). The whole process becomes more complicated if the buyer plans to take a loan from another bank or HFC. The builder may also demand a transfer charge for exiting the project early. Moreover, once word gets around that a particular project is heavily delayed, finding buyers becomes difficult.
- Hold your ground and put up a fight
The investor can talk out grievances with other apartment buyers within the same housing project and form a strong association to demand a final deadline for the project in writing. The way the developer reacts in the situation will be a key indicator of his attitude and how committed he is to the completion of the project.
- Other non-violent means of redress
These include protest marches, sitting for dharnas, sharing experiences on an online forum, reaching out to print and television mediums, etc. Larger developers especially tend to be wary of adverse publicity in the media. In the past, many have been known to respond when buyers took their issues to the media.
However, if nothing works, a complaint to the consumer court can be filed and redress can be sought at a civil or criminal court or the Competition Commission of India(CCI) can be approached. Since legal cases go for long, sometimes beyond project completion, legal recourse must be the last option to consider; especially in the case of an influential developer. As long as the court case is on, the builder will deny possession even if his project does finally get completed. If the judgement in a lower court goes against him, he will approach a higher court, which could further delay things. Nonetheless, decisions by The National Consumer Disputes Redress Commission, the High Courts of various states and the Supreme Court, and the Competition Commission of India against some developers have given more buyers the courage to approach them in their battle against builders.