Buyers under pressure as builders begin to default

Buyers under pressure as builders begin to default
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First Published: Tue, Mar 03 2009. 10 47 PM IST

Fighting in court: Kamal Sachdeva, a finance professional, made a down payment of Rs3.5 lakh for a 1,200 sq. ft house to Pal Infrastructure. Rajkumar / Mint
Fighting in court: Kamal Sachdeva, a finance professional, made a down payment of Rs3.5 lakh for a 1,200 sq. ft house to Pal Infrastructure. Rajkumar / Mint
Updated: Tue, Mar 03 2009. 10 47 PM IST
New Delhi: It is more than two years since Kamal Sachdeva and brother Harish booked villas in Faridabad, an industrial area south of New Delhi that is fast becoming a housing destination, with Pal Infrastructure and Developers Pvt. Ltd.
Sachadeva made a down payment of Rs3.5 lakh and was promised possession of a 1,200 sq. ft house built on a 1,350 sq. ft plot by the end of 2007. He says not only has he not yet received possession of the property, construction has not started since he made his booking in February 2007.
Some four months ago, Sachdeva, a finance professional with a New Delhi automobile company, asked Pal about the progress at the project. Pal informed him, he says, that it did not have the land for the project proposed to come up at Sector 78 of Faridabad.
“I want my investment back but the company says it will only give me a six-month post-dated cheque at an 8% rate of interest. Earlier, they had said they will give a 12% rate of interest,” says he. “I don’t want post-dated cheques because I have heard the company’s cheques are bouncing.”
Fighting in court: Kamal Sachdeva, a finance professional, made a down payment of Rs3.5 lakh for a 1,200 sq. ft house to Pal Infrastructure. Rajkumar / Mint
In cases where small developers failed to start construction even a couple of years after launch “there are several instances of bouncing of cheques issued by developers and developers issuing post-dated cheques (due after 1.5 years),” Citigroup Markets analyst Ashish Jagnani wrote in a mid-January report.
As housing demand all but vanishes in Indian cities and even large developers struggle with operations, stories such as those of the Sachdeva brothers are emerging. The theme is the same: buyers, some of who are evidently investors looking for a fast return, have paid booking amounts but have seen little progress in their projects.
Complaints involving at least two builders in New Delhi and its suburbs have emerged in recent weeks. The second realtor against who complaints are surfacing is AJS Builders Pvt. Ltd.
There are complaints of deviations from purchase contracts or initial sale deeds. Sachdeva, for instance, bought the villa at a sticker price of Rs24 lakh but Pal later told him that he would have to shell out another Rs9 lakh as the villa’s size had increased to 1,650 sq. ft from 1,200 sq. ft.
Pal also changed the location of the proposed villas from Sector 78 to Sector 89 in Faridabad, Sachdeva says.
Pal says that in 2006, the company bought 29 acres of land from Triveni Ferrous Infrastructure and Triveni Infrastructure in Sector 78 and Sector 89. “Towards the end of 2006, we started selling apartments and flats that were to come up in the two sectors and in February-March 2007, we started inviting applications for villas,” says Manav Chandra, a director at Pal. “At the time of sale, we had not specified a sector where we will build the villas and we just told our buyers it could come up in either of the two sector…the exact detail was not given.”
Sachdeva produced a letter from Pal, addressed to his brother Harish’s wife and dated 5 September 2007, for Mint to review. The letter refers to the initial payment made by her for a 200 sq. yard plot at Sector 78.
Chandra says Pal now plans to build 40-50 villas at its Pal Garden project in Sector 89. Some 1,100 apartments will be built at the two plots in both the sectors. He expects completion by 2010-11.
Sachdeva says he plans to move court soon for a refund. Another buyer, Deepesh Jain, too, complained of delays at the Pal development.
Elsewhere, lawsuits are already being fought.
At Ganaur in Haryana, C.P. Batra had booked a villa in 2006 with AJS Builders by making a down payment of Rs2.45 lakh. The villa was priced at around Rs24 lakh. Since there was no progress on construction, Batra asked for a refund. A year back, the builder gave him a six-month post-dated cheque for Rs2.45 lakh, plus an interest of Rs30,000, which bounced. Batra has now filed a lawsuit against the firm.
“There is some delay in launching the project because the land for the project is embroiled in litigation,” says Arvind Singh, assistant marketing manager at AJS Builders. “The government is claiming that the land is theirs.”
Singh adds that AJS will launch the Ganaur project called AJS City within two-three months. AJS City spread over 85 acres of land will have apartments, villas and plots, he says.
The builder is issuing fresh cheques to its buyers who want to withdraw, Singh says. The cheques that bounced earlier were issued by a director of the company Pravjot Singh, who passed away in October 2008, he says. Mint could not independently verify this.
Harish Sachdeva, Kamal Sachdeva’s brother, is also fighting AJS Builders in a New Delhi consumer court for not receiving Rs4 lakh booking amount he paid for a 240 sq. yard plot in Gannaur in July 2006.
Some builders allege that some buyers are asking for a refund after a meltdown in realty prices and they want to cash out of their investment. “Buyers who invested in the project by only paying the booking amount thought they can exit the project at a higher margin once prices go up,” Pal’s Chandra said. “These are speculative investors who now want their investment back because the market has crashed.”
Pal says that it is willing to give refunds to buyers, but it can only give six-month post-dated cheques. “We have a certain company policy,” Chandra says.
An expert said homebuyers should be doing their own checks while buying property. “It is important for the buyer to conduct due diligence and ensure that proper clearances are received and the land or project is free of any encumbrances before they commit to an investment,” a property consultant said, asking he and his firm not be named.
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First Published: Tue, Mar 03 2009. 10 47 PM IST