Consider this property advertisement: “A 2-bedroom-hall-kitchen apartment in New Cochin for just Rs.7.99 lakh. And not just that you will get a home loan of 80% for the property.” Sounds attractive, doesn’t it? No wonder thousands, including non-resident Indians (NRIs), fell for it. Unfortunately, it turned out to be a huge property scam and investors lost close to Rs.1,000 crore, according to various newspaper reports. The advertisement—posted online by Kerala-based developer Apple a Day—promised villas and apartments in the heart of Cochin at attractive rates. What went in favour of the developer were a couple of completed projects.
This particular property scam broke in 2011, but property buying, especially for NRIs, remains challenging even now, considering that the real estate market remains largely unregulated and cases of fraud abound. Here are three red flags you should watch out for before putting in your money.
Red flag one: sounds too good to be true
An inherent characteristic of a scam is that it will promise unreal returns or “exciting” offers. Instead of getting excited about it, become extra careful. Take the example of the Apple a Day offer mentioned earlier. All those who paid Apple a Day the money to book their apartments are still fighting to get it back. So remember that a good offer doesn’t necessarily mean that you should opt for it. As it is in the case of all investments, quick and big returns should always be looked at with caution.
Red flag two: builder is in a tearing hurry
Is your builder in a hurry to close the deal? A developer or builder who has intentions to cheat will show an urgency to sell the property and will encourage you to make the downpayment right away. Some may even offer a price that is below actual market prices.
Shankar Nambiar, an NRI from Dubai, paid Rs.10 lakh to Apple a Day as the initial amount for an apartment that cost Rs.20 lakh. He is now fighting to get his money back.
“This is common among most scams. Would-be victims are warned of dire consequences or the loss of a good deal if they don’t respond right away or take too long to read paperwork or even fail to send money,” says Vinod Sampat, a Mumbai-based lawyer.
Red flag three: no clarity on documentation
In a genuine transaction, you will have to sign a set of documents, including title deeds, agreement of sale and so on to legitimatize the deal. Fraudsters, however, will urge you to go ahead and send them the money without signing any paperwork. “They will tell you that the paperwork will get processed in due time. However, they will never appear,” says Sampat.
Jehangir Gai, a Mumbai-based consumer activist, says that inspection of the records of the builder is equally important and that can happen only if you insist on the paperwork. “You should check if the property is mortgaged or any kind of loan has been taken against the property.”
Gai says that if the developer shows signs of apprehension in showing you the papers related to the property, then it should be a signal for you that there is something amiss. There are letters of approval from local authorities, clearance certificates, registration certificates and so on to check the authenticity of a project. You should also check if there is any past litigation against the builder.
Many small developers, especially in non-metro cities, may not have the necessary approvals or documents for the property that they are selling.
Physical distance puts you at a disadvantage since you may not be able to check the property site or visit the developer’s office. So it bodes well to do a thorough check: carry out the required due diligence and undertake a bit of research, focusing mainly on previous projects and current online commentaries about the developer.