Safeguarding Against Fly-by-Night Operators: Review by ANAROCK Property Consultants
Indian real estate sector has been witnessing recovery in many regions and investors are cautiously putting their money in different options available at good valuations. The Indian real estate market has always attracted considerable interest from the expatriate Indian diaspora. The market is currently in a slowdown but with a high potential of turning profitable in the medium to long term, making it an attractive investment proposition. Non-Resident Indians (NRIs) represent a sizeable share of buyers on the Indian real estate market.
However, investment in real estate without adequate knowledge of what works and doesn't work on this exciting but complex market can be problematic. NRI investors especially need to know how to safeguard themselves from unethical practices - by both real estate developers and property brokers.
Most important safeguards for prospective NRI real estate buyers related to:
Developer’s reputation is of paramount importance. NRI investors should avoid housing projects by unknown developers, especially when it comes to under-construction projects (the long-time favourite category for NRI real estate investors due to the lower rates of ongoing rather than completed projects). Today, it is mandatory for every under-construction housing project in India to be certified under the Real Estate (Regulation and Development) Act, 2016 (RERA). Investment in projects which do not have this certification will inevitably spell trouble.
Even with RERA certification, all housing projects are NOT created equal. Projects by reputed developers are the best bet for safe real estate investment. NRIs should verify the credibility of the builder, including his past track record for timely completion of projects as well as construction quality and inclusion of sufficient amenities.
The legal status of a housing project is the function of whether or not the developer legally owns the land it is being built on, and whether or not he has all the development permissions. Buyers - especially NRI buyers - need to verify the legal status of a project and have every right to ask for all relevant documentation.
RERA also makes it mandatory for real estate brokers to be registered under the authority. However, most brokers in India have avoided doing so as it would make them accountable to an 'uncomfortable' extent.
Unethical practices - Many real estate brokers in India as well as Indian real estate investment hotbeds like the UAE make false information about the properties they're selling, such as expected rental yields, capital appreciation, guaranteed returns on investment, etc. Such practices are commonly seen among small-time brokers and brokerages which are not registered with RERA. NRIs need to be aware of such false promises and only deal with duly RERA-registered brokers and consultancies housed under leading brands.
Legal and tax-related advice - Fly-by-night brokers are essentially focused on closing sales at any costs. They will omit important legal information about a property they are selling and also give incorrect information about the tax implications of purchasing it. If an NRI is dealing with a non-RERA registered broker, it is imperative to take additional advice of a legal expert as well as a qualified chartered accountant before investing.
Freebies and other benefits - Unethical brokers often offer seemingly too-good-to-be-true freebies and financial benefits to NRIs. Such offers and freebies are often a 'smokescreen' to cover inherent deficiencies in the project, such as bad location, uncertain legal status, doubtful completion timeline, etc.
It is always advisable for NRIs to either visit the construction site themselves (vacation time in India is ideal for this) or to have close relatives or trusted friends or colleagues to represent them at a site visit. The main factors to look for are ongoing construction activity and extent of construction progress.
Also, before committing to a residential real estate investment, an NRI should ask a trustworthy broker for details on:
The past and potential future capital appreciation of the micro-market, as well as the rental demand scenario in the location (both of these parameters are important criteria for the soundness of an investment decision)
The overall liveability of both the project and its location. The availability of sufficient civic infrastructure (like roads and public transport) and social infrastructure (like schools, hospitals and shopping outlets) is especially important if one if buying a property for eventual personal use, or use by the family.
NRI buyers are no longer at the mercy of second-hand information on things like construction progress. States where RERA has been implemented also have dedicated RERA websites which provide a database of registered projects as well as live project updates. Details like launch date, expected possession date, developer details, building details, booking status, etc. can all be found on a project's RERA page.