Lessons Homebuyers Have Learnt From Recent Realty Mishaps

It has only been months since reformatory legislations have come into force-- The Real Estate (Regulation & Development) Act, 2016, came into force on May 1 while the Goods and Services Tax regime came into effect on July 1. Amid the chaos that is an integral part of changes taking place, a positive sentiment among consumers, especially homebuyers, started building. Now, in place is a dedicated body to guard the interests of homebuyers. Because there would be one uniform structure, buyers would also not be baffled by the complicated taxing matters. Things had started looking up till the news about real estate developer Jaypee Infratech going insolvent became public. There have been rumours of several other developers following suit, report dismissed by developers' body CREDAI.

As is true of such mishaps, there are lessons to be learnt from the current crisis.

Nothing is too big to fail

As was evident during the world economic crisis of 2008, there is nothing that is too big to fail. Financial mismanagement is enough to cause the fall of the mighty — the Lehman Brothers going bankrupt could be cited as an example of that. Certain developers in India seem to be heading towards a similar fate. Jaypee, for instance, a real estate biggie and the constructor of the Yamuna Expressway in Noida, has defaulted on a Rs 526-crore loan. As a result of this, IDBI Bank has initiated insolvency proceedings against the developer. News in the media has also surfaced that Noida-based real estate major Amrapali may be approaching the same destiny. Both these companies have built a great number of residential and commercial projects in the national capital region, and had earned for their brand a certain respect. The sheer number of affected homebuyers in the Jaypee crisis –30,000—lets you know about the popularity of the trouble-hit developer. If media reports are an indication, more developers may join this league. A homebuyer, it seems, cannot blindly depend on the popularity of the size of a developer. A developer's bullish approach is also not something that must necessarily be counted a positive. A developer's past record — these will be available on the Real estate Regulatory Authority of the state concerned —will be taken far more seriously now than the size of his company or his bullish approach.

Ready to go for the ready-to-move in

Most buyers earlier debated the pros and cons of investing in an under-construction property. The demerits of investing in a new project would often pale in comparison with the merits – you get to live in a brand new home; banks are more willing to lend; the comparative cost of buying is lower; you will not have to spend any money in renovation; the joy of entering into a new house is matchless. If one did the due diligence and invested with a fine developer, it could turn out to be a great deal. Recent developments may change that entire calculation. While affected buyers will get their money refunded, nobody would take lightly the trouble they had to go through in the entire process. As a result of this, there might be a clear buyer shift towards ready-to-move-in homes.

Also read: Jaypee Insolvency: Homebuyers Needn't Raise Claims By August 24