In India, being a homeowner is regarded as a milestone in people’s lives. Even with people that have low incomes, wanting one’s own home is a dream that people put all their hard-earned money and savings into. This sentiment makes them more willing to go for offers where they would be able to buy houses at lower rates.
Even though real estate is a regulated industry with stricter laws like Real Estate (Regulation and Development) Act, 2016 coming into the picture to protect home buyers, there is also a growth in the scams and frauds that occur in the industry due to the willingness of buyers to go for lower rates. There may be more protection for buyers but newer schemes and tactics by builders still make the buyers susceptible to such scams. The real estate scams range from fraudulent investment schemes to delayed constructions/possessions.
In this article, we will discuss the top real estate scams and how one can avoid being a victim to them.
What is a real estate scam?
Builders or developers target consumers that are willing to buy/rent a property and they come up with creative plans that offer low rates or reduce the financial burden on the buyer which may sound enticing but after the money has been taken from the buyers, these plans turn out to be schemes in duping consumers off their money and never actually giving them what they were promised.
The real estate sector has become more regulated in the past few years but unscrupulous builders and developers still find ways to cheat people of their money and it is essential for people who buy or rent homes to be wary of tactics used by builders/developers.
Types of scams and how to protect yourself
Title deceptions and frauds are one of the most common ones in the real estate industry and can be perpetrated in various ways:
- Builders often duplicate the title deeds of vacant or disputed properties and sell them to multiple innocent buyers. They can also claim that the title documents are lost or they are Power of Attorney (POA) holders for the said property and sell it to you.
- Developers sell properties which aren’t on the same location as promised or which aren’t theirs to sell.
- Developers sell lands which have a mortgage on them.
A larger real-life example of such a scam can be seen in the Rs 4000 cr Rangmahal Cooperative group housing scheme (CGHS) Scam when a plot was illegally allotted for Rangmahal CGHS in Pitampura, North West Delhi by forgery of land documents and misrepresentation to the Delhi Development Authority for allotting the lands in question at subsidized prices.
All these forms of deceptions on ownership of lands can be avoided by ensuring these steps are taken:
- Hiring a legal advisor who can help verify the title documents before signing the agreement for sale or lease deed.
- Verifying the documents by one’s own self to check authenticity online or otherwise.
- Keep copies of seller’s identification and verify them along with other documents like POAs, title documents, etc.
False promises are also one of the most common frauds in the industry where the builder does not live up to the obligations he had made when the property was purchased. It is done to meet funding requirements. This can manifest in various ways as per the stages of the project:
- False advertisements promising amenities, common areas or views that aren’t available after the project is complete.
- Offering a heavy discount on immediate investment.
- Promising easy exit from the investment.
- Project Delays- Getting construction approvals like Occupation Certificate, Completion Certificate, Floor area permissions, layout authorizations, etc. and in getting post-construction utility approvals like electricity connection, water connection, etc.
- Possession Delays.
A reference to a real-life scam can be the Housing Development Infrastructure Limited (HDIL) scam in Ghaziabad’s Indirapuram wherein the developer had taken money from PMC Bank and 50 flat buyers for the project but no significant infrastructural or other development of the land was done and no requisite approvals were taken from the concerned authorities. The developers executed the Builder Buyer Agreement with the victims in June-July, 2014 even after the expiry of the sanctioned building plan on June 6, 2013. Developers demanded and collected money from the victims unauthorizedly even after June 23, 2013.
Buyer can protect themselves from falling prey for false promises like ones made during HDIL scam and facing inordinate delays in project by ensuring these steps are taken:
- Check the developer’s track record and reputation in the market by looking at older projects and how long it took for them to complete it.
- Talk to investors/Seek personal references in the market for knowing first-hand experiences they’ve had with the developer’s projects.
- Always make promises in writing.
- Scrutinize the documents received and the project details, and compare them with the promises being made to you to see if it is true.
- Check if the project is registered with RERA.
- Ensure Agreement for sale includes clauses for a penalty for delay, compensation for such delay, details about the project time-lines and construction stages, copy of approved plans, etc.
Deviation from the approved plan
It is a major problem faced by homebuyers these days when they invest in projects that are under construction. A 5% wiggle room is usually given for deviations as unavoidable technical or architectural difficulties may arise. However, when the deviation is higher than this, the project can get delayed due to difficulties in obtaining the Occupation or Completion Certificate which can, in turn, lead to delays. Another outcome could be where the promised common areas/amenities like parking spaces, gyms, pools, etc. are not as promised or are just non-existent as had been promised.
With the advent of RERA, deviations have gotten less common but such instances still occur and while the steps mentioned in the points above should be taken to ensure accountability of the builder, additional steps can be taken if such deviation is suspected by approaching RERA authority and filing a complaint.
In such cases, the developer sells the property at low rates and keeps getting money during construction and eventually delays the project forcing cancellation so he is able to re-sell the property at higher prices later.
Buyers can protect themselves by:
- Check the developer’s reputation with respect to project completion before purchasing flats.
- Entering into Agreement for Sale that incorporates clauses relating to cancellations only as per the agreed terms also encapsulated in the agreement.
Assured return schemes
Oftentimes, builders advertise 10-12% returns till possession if upfront payment of a significant cost of the property is done. The returns are done by getting post-dated cheques or bank guarantees and, in most cases, the payments stop after the first few months. It has been declared as an illegal Ponzi scheme by the Securities and Exchange Board of India (SEBI). Additionally, the advent of the Banning of Unregulated Deposit Schemes Act, 2019 has come into effect which prohibits such schemes.
Buyers can protect themselves by:
- Being conscious of the terms of schemes they are being lured into and checking if they are legal with a real estate legal advisor.
- Encapsulating the method of payment in its entirety in the Agreement for sale so a breach can allow for a valid claim.
Bait and switch schemes
This is a deceptive sales tactic used by builders where buyers are lured in by an advertisement regarding a low-priced property but are subsequently encouraged to invest in a property that is priced higher than the one in the advertisements. The properties initially shown are mostly off the market as copied listings as mostly used for these tactics.
Buyers can protect themselves by:
- Conducting due diligence with respect to the builder’s previous projects, track records, the project details, etc.
- Backing out of when the advertised project is not what is being offered.
- Hiring a real estate agent to check the veracity of the claims being made by the seller.
Renting an apartment might seem easier than buying a house but there are several issues that a lessee can face when looking to rent a property. Some major issues are as follows:
The person trying to defraud you might show you a listing of a property with rates that seem too good to be true and will ask you to pay a deposit to claim it before anyone else does as there is a high interest in the market for the said property. They will vanish after the deposit is paid.
To avoid this, it is advised to have a tour of the premises in question and if the same is not granted then to back out from such an arrangement.
Hire a real estate agent to verify listings.
Expensive background checks/rent increases
Most landlords conduct background checks on their prospective tenants and include the same in the rent application fee.
No exorbitant amount is charged for any background check and any requests for the same should be refused.
A real estate agent can be hired to look over and help you through the process of renting.
Some landlords ask tenants to rent an apartment without signing any documentation most importantly, the rental agreement.
A verbal agreement shouldn’t be relied on and a legal professional should be hired to draft a proper agreement with clauses of deposits, A legal professional should be hired to enter into an agreement that incorporates clauses on rent increases, repairs, structural changes, date of payment, amount of rent and other technical provisions succinctly encapsulated in the tenant’s favour.
Not allowing a tour
Some landlords refuse to give a tour of the premises, in such cases no agreement should be made unless the property is seen.
In an industry as big as real estate, a wide range of scams can be perpetrated by builders on unsuspecting buyers ranging from engaging in misrepresentation of title, making false promises about the property in question, deviation from previously approved plans, forcing cancellations, luring buyers into ponzi schemes like assured return schemes and bait and switch schemes and using unfair practices while renting out the property, etc.
A healthy amount of caution can go a long way in preventing one from falling for these scams. This can be done by:
- Reading the news about recent/emerging practices in the industry.
- Conducting research with respect to the property and the developer/owner.
- Requesting documentation of every promise being made/transaction being done and reading all documents relating to the transaction carefully.
- Additionally, hiring a real estate agent/professional or a lawyer when undertaking purchase/renting of property can help ensure your documentation. For example, agreement of sale deed, rental agreement, lease deed, sale deed, etc., is not to your detriment and you are made aware of the rights available to you as a home buyer.
In case one falls prey to such scams, they can approach:
- Real Estate Regulatory Authority in their state for speedy recourse by filing a complaint under section 31 of the Real Estate (Regulation and Development) Act, 2016.
- Consumer Redressal Commissions (District, State or National Consumer Redressal Commissions depending on the amount claimed as compensation) for recourse due to deficiency in service under section 2(11) of the Consumer Protection Act, 2019.
- Any other civil or criminal suits.
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