Will prelaunch purchasers properties face legal consequences?
Actions of Bhuvanteja Infra exemplify the situation
Those who buy during the prelaunch phase are considered co-promoters
If the developer fails to fulfill their obligations, buyers also bear responsibility
Exercise caution while purchasing during the prelaunch stage!
What? How would individuals who bought prelaunch properties will end up in jail? You’ll be surprised to learn the circumstances under which buyers might face such consequences.
During the prelaunch phase, you’re essentially investing in the concept of a property, not an actual apartment. When you hand over 100% of the funds to the prelaunch developer, you don’t immediately acquire ownership of an apartment. There’s no tangible property involved.
Whether it’s the developer or an agent selling flats during prelaunch, they show you a piece of land and promise to build an apartment on it. They demand full payment upfront. Essentially, if you invest in their vision, believing in the plans they’ve sketched on paper, you become an investor or financier. They then register a portion of the land under the UDS (Undivided Share) in your name. Many buyers mistakenly believe their money is entirely secure, but there’s a contradiction to note.
In this scenario, you become a co-promoter of the project alongside the plot owner and the prelaunch promoter. This happens because a portion of the land is registered in your name. All buyers who purchase land during the prelaunch stage, including yourself, become joint promoters. In essence, you share the responsibilities of a prelaunch promoter. To alleviate pressure from buyers, the prelaunch developer often begins construction on the apartment, regardless of whether they have obtained the necessary permissions. One recent example of this is Bhuvanteja Infra, a prelaunch developer. Even today, many buyers are unaware of which of their launched apartments have received approval from the authorities concerned. Nevertheless, buyers claim that the developer proceeds with construction only to showcase progress to potential buyers.
Prelaunch developers, who collect funds from buyers like you, typically use 10% or 25% of the money received as an initial deposit, while the remaining amount is collected through prelaunch bookings. This money is then allocated towards securing the land. However, if they exhaust all the funds from prelaunch bookings to acquire land, how will they finance the construction?
For instance, if they have sold 100 of 200 flats in an apartment, they would use the funds received to pay the landowner. Subsequently, they would pursue necessary approvals to commence construction. However, if local authorities fail to grant the required permissions promptly, the land must undergo conversion based on conservation or master plans, depending on its zoning. The duration for this process is uncertain.
If the prelaunch developer halts the project after initiating construction or if construction ceases due to other reasons, the situation becomes complicated. As you are a partner in the venture, there is a possibility of facing legal repercussions, with a potential police case being registered against you. You would find yourself implicated alongside the prelaunch developer and held accountable for the consequences. Hence, it is advisable to refrain from purchasing plots or flats during the prelaunch phase to avoid unnecessary complications.