Be More Cautious about Your House Purchase!

(An updated re-post)

There is a genuine desire amongst the people who don’t have their own house to have one for their home in a city. Yes, I know this as I am myself one of them! On the other hand, a lot of attractive residential projects get launched by enterprising developers in varying locations ranging from the already established areas to the newly acquired ones. But it’s not as easy a task as we may hope for.

The Cabinet gave approval to some major amendments to the Real Estate (Regulation and Development) Bill in December. The bill, which is on the verge of being passed, will greatly benefit home buyers in the coming years. How, we will discuss in our next article.

House purchase involves a big portion of the total net-worth of a family. Hence it forms an important consideration in one’s personal finance. While it may take time for the upcoming regulations to take real shape and the setting up of a regulator for proper control of affairs, new home aspirants must remain very cautious and make their moves with proper understanding of the various issues involved and of the area under consideration. This is essential to avoid any suffering of the never-thought-before residential woes after the purchase.

Delayed Possession & Unfair Trade Practices

One major problem usually faced by buyers is the delayed possession of homes. This is mainly due to undue delay on the part of administrative officials in making approvals/clearances, a large number of which are required by a housing project. These include approvals for development of projects and occupancy certificates.

There are some other issues which people have been found to face as a result of the unfair trade practices on the part of the developers and builders. These include diversion of funds to other projects or land buying, poor construction quality, getting the floor & carpet area less than what is promised, hidden cost of developers and poor customer service.

In one particular case that came in news, a two-floor residential project was launched in 2012 and planned/promised to get completed in January 2014. However, many months behind the deadline, the builder went missing without any trace. Buyers cried foul, alleging he had run away after defrauding them of nearly Rs 3 crore collectively. They produced copies of cheques with which they paid their instalments; many had even paid up the entire cost of their units close to Rs 70 lakh each.

Above is not a single incident of fraud or inconvenience that the hapless real estate consumers have faced. There have been scores of such cases in last few years in many places, appearing in newspapers, varying in the type and degree of inconvenience caused to buyers. Sometimes the disgruntled buyers have also been obliged to stage protests against the realtors raising slogans. Their case stories are financially worrying ones – paying house rent, paying EMIs and interest to bank but ineligible for income tax benefits in the absence of getting possession.

Are these the state of affairs anticipated by buyers when they had dreamt and planned for investing their hard earned money?

Development Related Issues

Apart from these, it is also seen that some issues faced by buyers are related to lack of development due to administrative and legal hassles. The upcoming and promising destinations may take much longer than what is advertised to become actually worth living.

Lack of proper civic infrastructure and basic amenities in new locations, for many years altogether, can turn a buyer’s dream of leading a modern life into a nightmare. The wait to shift to his dream-home can turn abnormally longer, or the living experience can become a stressful one. Anyone entering into a deal for having real estate as an asset class in his portfolio may find his property value getting negatively affected making it a dead investment.

Following are some such development related problems that are many-a-times faced by home buyers in the new housing projects in or around cities:

Drinking Water, Power Supply & Sewerage Connection:

Despite the collection of all charges from the end users, the facilities of water supply and sewerage connection may not get timely provided by the government agencies. During this period it is the responsibility of the builder to provide the same to residents on temporary basis. Many residential societies developed by private builders may remain functional for many years dependent on such temporary measures for these facilities like tube well and septic tanks. This is true in case of power supply as well. Practically it takes time for power substations to come up in new areas; sometimes it may be abnormally long.

Education, Healthcare & Shopping Areas:

These essential facilities for a good living may also remain undeveloped for quite long, which result in a lot of inconvenience for home buyers who move into their purchased apartments. In the new locations, there remains the unavailability of government institutions. In the absence of any government school or college, this need is catered to by private organisations which set up their schools to meet the demand from residing families. Whether these schooling facilities remain up to the mark is not a surety. Also, there is delay in the availability of proper medical facilities when hospitals do not get allotted or constructed, even though sites may have been earmarked for these.

Safety & Security Measures:

This issue is one of the most important for consumers who plan to buy house in a new locality. But it may take few years when the security needs of such areas get addressed by setting up of the police posts. During this period of the absence of proper security measures, there is every possibility of occurrence of some crime incidents.

Now, it’s not that your dream-home purchase story is all too dismal and there is so much helplessness around. There are good practical points that can be built into our cautious moves for success, which we will be discussing in the coming weeks. So remain connected!

Do write below in the comments section if you have anything to share from your real estate experience!

(Photo Courtesy: Dan DeLuca)

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Sukhvinder S SidhuThe writer, Sukhvinder Sidhu, is a ‘SEBI registered Investment Adviser’ and a ‘Certified Financial PlannerCM’. He writes to contribute his bit to create financial awareness, so that readers take right personal finance decisions for a better financial life for themselves and their families.
Know more about him.