The economy has been hit by a variety of scams. Corruption is rampant. And the line differentiating black and white money is getting thinner by the day. One of the major sources of black money is the real estate business, with housing projects accounting for a significant share.
Tax evasion in real estate deals, involving builders, brokers, bankers and land owners, has been in existence for long. And the measures to curb black money generation have either been non-existent or seldom adhered to.
Liberalisation
The opening up of the economy in the early 1990s, the emergence of India as an IT powerhouse and financial liberalisation measures have led to GDP growth picking up, employment generation improving, and purchasing power of the people rising, especially with retail/consumer loans being granted liberally.
These developments resulted in a boom in the housing sector, and corporates and multinational companies began entering the sector in a big way to exploit the newfound opportunity to make huge profit.
The companies enter into agreements with landowners and banks to develop housing projects.
These are generally not vetted/approved by the authorities either at the State or Central level. Thus, neither the buyer's nor the Government's interests are protected.
The terms and conditions of the builders are generally in their favour and even if consumer interests are protected, the clauses are drafted so vaguely that they are seldom enforceable.
Individual owners of houses and apartments are invariably at the mercy of the developers and are duped in several ways. Cost escalation, delays in the execution of projects, pricing for built-up and carpet areas, among others, are areas where the prospective buyers are taken for a ride.
For instance, there are super built-up, built-up and carpet areas. The price quoted is for super built-up area, which is 30-40 per cent more than for the carpet area.
The standards for fixing the super built-up and carpet areas vary from city to city and within the same city it varies from builder to builder. The terms and conditions included in the sale agreement are not very exhaustive and verification of these in the sale deed is seldom done or attempted.
Having paid margin money and some of the instalments, the escape route is often sealed and the buyers are at the mercy of the builders/developers.
The country lacks a comprehensive/exclusive law to take care of the transactions and the related disputes under real estate, particularly in the housing segment in large cities and sub-urban centres.
Several laws
The transactions are governed by several laws which are incomprehensible even to the well-read. There are several Central and State laws applicable to real-estate-related transactions and it is practically impossible for ordinary people to have a clear understanding of the legal issues that need to be taken care of while undertaking a real estate deal.
Frauds are common, especially in the metros, involving banks, developers and buyers. Though the prospective buyers get legal opinions, the reliability and validity these are often questionable. And the accountability on the lawyers giving such legal opinions is virtually absent.
There are no adequate checks and balances to ensure that the deals by the developers and corporates are as per the rules and regulations, if any, and they stand scrutiny of the highest standards.
Systems are not in place to ensure full compliance with the laws of the land relating to land acquisition, laying of roads, provision of public parks, taxation, accounting standards and whether all the parties involved in various deals adhere to the prudential norms expected of them.
Generation of black money, corruption, misrepresentation of facts, irregularities before and after the deals are common allegations leading to total lack of credibility. The pricing is not subjected to any broad guidelines and is driven by corruption and greed.
In the process, along with the buyers, the economy suffers, as erosion in ethics and values with regard to land acquisition, developing housing projects, pricing pattern, accountability, and so on, affects all segments of society and the general credibility of the whole system is at stake.
The corporate giants in the field, being in the private sector, are not covered under the RTI Act and their accounting standards are not free from lapses and deficiencies.
They collect huge funds in different forms — such as corpus funds for maintenance of flats, common areas, clubhouse, gardens and security cover.
They promise parks and proper connectivity to main roads, markets, and so on. They charge for car park on ownership/lease basis, and the amount collected is generally exorbitant. The details of the money collected, the investments made from that, and so on, are not made transparent.
Maintenance costs
And, this apart, the builders collect amounts towards maintenance in lump-sum or monthly basis which often get revised upwards in the name of general escalation of costs.
In the case of large projects, the construction work is often never competed on time. And as they do not provide details of money collected from occupants and non-occupants, flats sold and unsold, and so on, it is not known who bears the maintenance charges for the entire project.
Presumably the entire maintenance is passed on to the occupants, although many flats remain unsold or sold to developers themselves and are not occupied.
By and large, the accounts in respects of projects completed and fully allotted are not made available to the welfare associations, if any, formed in the housing projects.
Lack of clarity
The developers do not care to answer genuine queries of the associations. They do not make clear the entitlements of the occupants regarding the undivided share of the premises (although the sale deeds indicate entitlement) and often have the intention of making money with such land at the cost of the occupants' welfare, convenience and rights.
If questioned, they quote some local laws and get away with it. If referred to the courts, the matter takes years to get settled and the corporates treat the occupants indifferently during the interregnum. The position with regard to insurance of the flats also varies depending on the builder, banker and prospective buyer.
A study of giant corporate housing projects reveal that with regard to dealings with the occupants, accounting standards, accountability to the local authorities and occupants there is need for some sort of regulation and grievances redress mechanism, particularly for the buyers.
A necessity
A national housing ombudsman would, therefore, be a necessity not only for prospective buyers but also for occupants and the authorities.
Consumer forums and the Consumer Protection Act cannot take on these types of cases as they are already flooded with several other cases and the complexities of housing-related cases differ in content and scope.
The need for some sort of checks and balances exclusively for housing projects would be welcome to ensure that all concerned conduct themselves appropriately and there is some semblance of order, uniformity in the maintenance of accounts and transparency in all these types of transactions.
T.V.Gopalakrishnan
This article appeared in The Hindu Business Line dated 20th June 2011
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