Housing project is approved by the government agency; RERA; and banks & financial institutions! Shouldn’t this be enough to instil confidence of the home buyers that the housing project is safe to invest? How could otherwise a builder with poor execution capabilities or fiscal imbalance cross the three eyes of scrutiny and dodge the bullet at each and every level of checks & balances? Track2Realty questions as to who is the custodian of due diligence in the housing market?
In reality, these are the unanswered relevant questions of the Indian housing market. These are the questions that continue to haunt the home buyers, even though holier-than-thou claims of market reforms suggest otherwise.
All the connected parties mentioned above are the powers to be as far as the home buyers are concerned. An average home buyer looks up to these power centres with expectations of getting a safety net. These are empowered bodies with better access to information and clout to evaluate a project.
Government agency must have checked the project viability; RERA must have issued license after scrutiny; banks/housing finance companies must have evaluated the financial safety with the projects. These are the comforting thoughts for an average home buyer with limited knowledge of the business of real estate.
In the end, the victim home buyers get shocked when they are rather reminded that they should have done their own due diligence before investing hard earned money into an under construction property. And the clueless buyers have absolutely no idea as to what does the term due diligence mean to them. I once asked one such builder whether he expects all the home buyers to first get a law degree and then come to shop for a house.
Even for the exceptional & rare breed of discerning home buyers, the steps of due diligence is to cross check the land title, approvals by development authorities & RERA, bank financing of the project, and developers’ past track record. And yet they fail to come out safe than sorry. What else can a buyer do?
In a cost conscious market like India where the home buyers find it taxing to hire an attorney, there is no fool proof mechanism of due diligence for the buyers. Even when the buyer hires a lawyer and yet the project is delayed or builder defaults, all that the buyer gets is the legal remedy post the misfortune. Presence of a lawyer doesn’t ensure due diligence that will defeat its very purpose. An added safety net post RERA, escrow account, is more of a fiction than fact.
This raises a fundamental question as to who is the custodian of due diligence in the housing market. Are there any? Are government agencies, RERA, banks & financial institutions not responsible for due diligence when they approve a given housing project?
The Delhi High recent order that recently granted an interim stay in favour of the home buyers who invested in projects where the builders were supposed to pay EMIs till possession, but stopped doing midway, has set the cat among the pigeons.
The order by Justice Rekha Palli clearly stated that the balance of convenience at this interim stage lies in favour of the beleaguered homebuyers, keeping in view that they are being penalised despite not being at fault. The order called it a grave and irreparable loss caused to the petitioners if they are not granted any interim protection. The court observed that the petition brings into light the well-known sorry state of affairs, which has been recently going on in the construction industry.
However, this is a one-off judgment. The larger issue is the rampant industry practices where the debt is on the books of the buyers and not the builders. The banks & housing finance companies as a standard practice would prefer to catch hold of the weaker victim, that is buyer. The tripartite agreement builder, buyer and the financer clearly puts the onus on to the buyer and not the builder. This has been the reason why an otherwise well-reasoned financing model of Subvention Scheme failed. Then there are issues related with the home buyers credit score, if the buyer fails to pay it back to the bank.
The unanswered question in the housing market at large is who is the custodian of due diligence? Shouldn’t government agencies and the lending agencies be made accountable for their failure to do the required due diligence? How to make every connected party accountable in the housing market to check the rampant malpractices? What kind of due diligence mechanism can balance the contractual obligations for both the builders and the buyers? Why should only the buyers be penalised and financially slaughtered when he has made no mistake?
These are the issues that must be confronted to, forget establishing best practices, earn some trust quotient in the housing market. Unfortunately, for the leading voices of the sector who bombard the media with press releases and opinion on anything and everything, there is uncanny conspiracy of silence on the issue. The apparent collusion between the builders and the banks/housing finance companies is an open secret of housing market.
It is much easier for them to take a moral high ground in media and say that the home buyers should also do their due diligence and avoid risky projects. But to address the issue requires courage to stand against your own large universe; an universe where there are players more foul than fair. The real estate developers continue to prefer to brush it down the carpet and dismiss the malpractices as acts of fringe players only. The government agencies and the lending agencies would wash off their hands, and RERA would end up as another window of litigation that more often than not leads to lengthy & expensive litigation in the courts above.
In a property market where the product is sold before it is made; entry barrier is non-existent and the judiciary functions at snails’ pace, only a full-proof mechanism of due diligence could lead to market reforms. It could also help the developers’ funding woes since the buyers won’t be hesitant with under construction projects, the way they are today. But then none of the stakeholders seem to be ready for even as basic things as Uniform Builder-Buyer Agreement and Disclosure Standards.
Due Diligence would continue to be the buyers’ burden; a pressing question that doesn’t have an answer. No one else is ready to raise up hands and be the custodian of due diligence in the housing market.
Ravi Sinha
#RaviTrack2Media
Ravi Sinha is a journalist with over two decades of cross-discipline media exposure. He is the CEO of real estate thinktank group Track2Realty. He has been writing extensively on the real estate sector for more than a decade now. Evaluation of real estate brand performance is his core domain expertise and he has immense insight into consumers’ psychograph. He has conceptualised Track2Realty BrandXReport as India’s 1st & only objective & non-paid brand rating journal that is industry-accepted benchmark of brand equity & ranking of the Indian real estate companies.
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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