Landlords.. Don’t Play Fancy Games!

Hyderabad: Landlords are advised to be cautious of games some real estate developers play diverting their funds into other projects. Major Developers of Delhi- Ncr region sold the flats with the help of agents as part of the pre-launch offer and diverted the proceeds to other projects. As a result, the major players in the real estate development sector have defaulted payments to building material suppliers, leading to halting of construction.

The customers could not get flats on time. These firms have defaulted making payment of salaries to employees. Further, they have unpaid bank loans. Later, they were dragged to court by the customers, causing severe anxiety and heartburn to landlords over the fate of their site.

If developments going on in the Hyderabad realty sector are observed, one may wonder whether the Hyderabad land owners are going Delhi-NCR landowners’ way. The land owners there, out of greed, received huge amounts as advance from builders and entered into a joint agreement with the developers and got themselves landed in soup.
Since the customers who bought flats in development projects that had never taken off moved court against the developers, the land owners were in a state of limbo. They are scratching their head not knowing how to salvage the situation. They are in a piquant situation as the projects remained incomplete and they are not able to entrust the land to another developer.

What is happening in Hyderabad?

Believing the boom in the realty sector of Hyderabad as real, expecting wonders to take place, some landowners grew greedy and expecting to receive higher amounts as advance from realtors and are bent on handing over their land to only such developers. They are not able to assess whether the realtor would be able to develop the project on time or not.
The land owners are weighing only two things – higher amount paid as advance and higher plinth area of their share of the property developed. But, they are ignoring to check whether the builder’s ability to finish the project. Because of this attitude, they are likely to face problems in future.

Let good sense prevail

The chairman of a Bangalore-based realty firm, whose directors are reputed persons, signed at least 50 projects 10 years ago, unable to assess the ground realities. But, some of the firm’s projects are not yet grounded so far. Because of the greed of the land owners, they find their site locked in litigation due to various reasons. Hence, they are not able to entrust the property to others. In some projects, the developer owed money to suppliers of building material.

The developers are forced to pay the customers moving the court for delay in completing the project. The builders have to pay bank loans. After honoring all these commitments, the builder is not left with a penny. That is why, the land owners in Bangalore were in a Catch-22 situation. They find it difficult to wriggle themselves out of the situation. Taking a cue from their travails, the Hyderabad land owners should draw their lessons.

Hyderabad Landlords?

Landlords in Hyderabad, tempted by government’s infrastructure development projects announced in their area, feel that wonders will happen in the realty sector in their area. They are thinking too commercially. If any developer approaches them, the land owners query them how many storied-structures they are going to build on their land. Is it a 30-storeyed structure or a 40-storeyed structure?

• They would not hesitate to make counter offers to builders quoting offers – in cash or a certain percentage of the total proceeds – that came their way from builders. However, they would tell the builders that they ignored these offers, provoking the builders to make more lucrative offers.
• Often, the land owners bargain for higher benefits. Because of it, they are not able to identify the real developer whom they should entrust their land for development. Builders, promising to build 30 or 40-storeyed apartment complexes or offering higher amounts as advance to land owners, are selling the site to others under the UDS. When it comes to building the structure, the developer is left in a helpless condition since he paid a major portion of the amount with him to the land owner. He would not be able to sell the flats unless there is progress in construction activity.
• Even if the builder tries to sell the flats prior to construction, the high cost and lack of progress in construction activity, no prospective buyer is coming forward to book the flats. As a result, the gestation period of the project – whether it takes three years or five years – is left at the mercy of time.

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Are you giving for development?

• The land owners should stop feeling elated over collecting huge amounts as advance. They should assess whether the builder would be able to complete the project on time?
  • The land owners should ignore those developers whose project development is subject to sale of flats
• If any developer approaches them, the land owners should verify the developer’s credibility and seriously discuss his plans to complete the project.
• Before signing of the agreement, the land owners should think: “Will he honor his commitments? What problems the builder is likely to pose?”
• Having handed over the site, does the builder hand over flats to customers on time or invite the wrath of customers? The land owners should analyze these aspects
• An attempt should be made to assess how the developer would sell the flats: With the help of his employees or agents? Having obtained HMDA and RERA permission, will the developer use the full money collected from customers in his project or siphon it to other projects? The issue should be discussed beforehand.
• It is always advisable not to hand over the land to developers who are facing financial difficulties.