How builders cheat flat buyers in India

In our recent experience, particularly in Navi Mumbai, we have come across numerous instances of builders giving a false picture to flat buyers, in order to sell their flats. Some of these methods are listed below and could be classified as scams to rip off the gullible customer….

“There is only one flat available”

This is the most common statement made by builders to any inquiries about their projects. It is more prevalent in smaller buildings of 4 floors or less. These are typically small plots of 200 sq. meters in Navi Mumbai and are usually Tripartite (also called CIDCO transfer plots by some builders). This is done to project a false image of a booming market. In most cases the builder has not even sold a single flat, let alone all flats. He makes this statement expecting the buyer to hurry his purchase and to sell his unsold flats. And normally this ‘available’ flat is either the ground floor or the top floor or some other location with a really bad ventilation or view. This is the flat that will give him the maximum headache while selling, therefore he wants to sell it first. In big projects, its normally the 4 bhks which the builder wants to get rid of first. 2 and 3 bhks are relatively easier to sell.

Once he manages to sell 1/3 of the flats (in an under construction or finished project), he has funded his entire construction. He can sell the remaining flats at whatever price he wants or he can sit and wait for prices to rise. He won’t tell you this.

“All flats have been sold to investors,you will have to buy from them,there is no flat available directly”

This is nothing but another attempt to make you feel that the flats are in such a huge demand that there are none directly available from him. But dig a little further and ask him for a copy of the registered and stamp duty paid sale agreement of all those investors and you will be told that he doesn’t have anything like that because they have all paid in cash !! So basically he can catch a sweeper and make him appear like an investor cause cash payment has no record. Dont believe any such crap. This is just a trick to make you believe that he has sold all his flats. In most cases, he has not even sold a single flat.
Selling same flats (area-wise) at different prices to different buyers

In India, the real estate market is like the wild-west. There is no regulation as far as listing of prices (unlike any other product which is for sale and has the MRP clearly mentioned on it). Builder is free to price his flats at whatever rates he feels like. Builder is not even required to list the sale price of the flats he has sold on any website or govt portal. No such provision has been made in RERA (the much touted ‘regulation’ of real estate trade in India). Such details are hidden. Even though the builder may claims that he has sold all the flats and that ‘only a few flats are left’, he will never back up these claims via documents and sales agreements cause he does not want to show you at what price he has sold other flats. Opaqueness is the name of the game. Although there exists the Competition Commission of India (which is supposed to investigate such violations / illegal practices ), hardly any investigations take place and we all know why.

The Real Estate market is the cash cow for politicians. They invest heavily via proxy companies and shell companies. It is also heavily funded by policemen. They plough all their ill-gotten wealth into real estate. Their black money funds builders in a big way. They don’t want to let go of this money machine at any cost.Mayur – Sky Properties

One way to find out whether you have been ripped off is to file an RTI with the Registrar of Societies of the district where the project is located and source out all the documents filed for registration of the society. These documents have details of all the flats that were sold and the price which were sold at along with the date the flat was sold on. Don’t be surprised if you find you were ripped off a few extra lakhs than your next door neighbor. But this is much after the flats have been sold and the builder has formed the society. By then it may be too late to save your money. Photo below shows the list that the builder has to file with the registrar of Societies. Take a look..

Typical list of Flat Prices filed with the Registrar of societies

“For carpet area,subtract 33% from the Saleable area (super built up area)”

This is the biggest scam being practiced on gullible buyers. When a builder tells you to assume that loading is just 33%, you can safely assume that the actual loading is almost 50%. You will end up paying a few lakhs more just because of this scam. It is safe to assume that in buildings that have been constructed recently (upto 3-5 years ago), the carpet area is exactly half of the built up area or maybe even upto 40% of the super built-up area. This is the main reason why older buildings are actually cheaper when compared via Carpet Area, since their carpet area is much more.
The technical term for this scam is ‘Loading’.
Please read other sections of our website for detailed explanation of this scam.

PS : With the advent of RERA, this lie has been curbed to a certain extent as the RERA website has the carpet area mentioned. But one should double check this area with the actual area as sometimes the builders give wrong and misleading information to RERA and RERA authorities blindly upload the same on the website. Caveat Emptor.

“You will get the legal papers only after paying the cash component of the deal”

Honest builders should give you a copy of all legal documents like title certificate, Municipal sanctioned plans, sample sale agreement (on blank paper) etc which you should get verified by a lawyer. The lawyer will normally not charge you to look at these papers. Don’t make the mistake of blindly paying the builders in cash. You will never get it back and you will be trapped.

PS : With RERA, this lie has also been curbed to a certain extent, since these disclosures are found on the RERA site…but recently there was a massive scam where some fraudsters forged building permits of the municipal corporation and land documents and got their projects listed on the RERA website. The buyers blindly believed the RERA authorities and booked flats in those projects (more than 55 at the last count) and lost their money. Just another day in Mafia Nation. See full report here

Flat is Vastu Compliant

This is another lie which the gullible liar swallows without a question. The builder does not substantiate his claims in any manner. No Vastu Charts or Autocad Drawings with the Vastu zones clearly marked are shown in the brochures. Simply saying that Entrance is facing the north or kitchen is in XYZ direction is nowhere close to what real Vastu is all about. Real Vastu involves careful plotting of the flat or home in Autocad and then superimposing the detailed direction map on top of the Autocad design to see the actual positions of the rooms and directions. But no builder will tell you all this and they will not show any evidence that their flats are Vastu Compliant. What the builder says is North may not be the accurate north. And even if it is the North direction, the other directions will change depending on the shape of the flat (Square or Rectangular). Any so-called ‘Vastu Expert’ who does not even plot an accurate floorplan of your flat in Autocad is just fooling you.

If any builder claims Vastu Compliance, ask him to send you the DWG file (Autocad file) of the flat and then you can send it to your Vastu consultant for careful verification and analysis. This is the only way for accurate Vastu analysis.

Society formation charges,Parking charges,Development charges.

Basically, you can safely assume that these charges will be taken in cash and no receipt issued as all of these charges are illegal. Builder does not sacrifice any FSI for parking area and hence its free for him. Supreme court has banned sale of parking space. What the builder doesn’t tell you is that he is not only charging for the society formation but also taking money for the conveyance of land and building to the society after its formation. Development charges are also illegal. Society formation charges are a scam as the registration of the society barely costs 5000 rupees and its the builder’s responsibility and expense to form a society as soon as he sells 60% of the flats in his project. Conveyance of land and building to the society is also the builder’s responsibility and expense. He cannot make the end consumer pay for it. If he does, you can take him to the consumer court. Even if he does not form a society or give conveyance, he can be taken to the consumer court. The decision is quick and will always come in favor of the society/flat purchaser.

Remember : A builder is supposed to form a society at his expense as soon as 60% flats are sold…and is supposed to finish the conveyance to the society at his expense within 4 months of formation of the society.

THIS IS THE LAW !!

If the society needs conveyance in a hurry, it can obtain the conveyance at its own expense after sending notice to builder that they are proceeding with deemed conveyance but will take him to court after that and make him liable to reimburse them later, including the court and advocate charges.
Note : To file such a case and claim all the expenses, you must maintain proper receipts and accounts of the money you spend cause court will see all this before awarding compensation to society.
How to Proceed legally against Builders who do not form a society and give conveyance to it :-
Flat buyers (*registered societies) can collectively hire an advocate for Rs 25,000 to 30,000. These charges include drafting and filing the papers in the Consumer Court, attending the hearings, arguments, serving notices and getting the certified copy of the final order of the court and getting a decree from the court to execute its order.
These things must be made clear to the advocate in the beginning of the case in writing and his signature obtained on a piece of paper.
If you neglect this, you cannot pursue a truant advocate.
The Supreme court pays advocates it appoints as amicus curiae (friend of the court), Rs 6,000 at admission stage and Rs 10,000 at final hearing.
So do not think that these charges are ridiculously low. And if you think that these charges are unrealistic, you can click on this link to see the official rate list of advocates in Supreme Court.

Consumer court handles these types of cases day in and day out. Its an open and shut case for them. Its not some super complicated or difficult matter. Approach the consumer court with confidence. The order will come in your favor at a fraction of the cost that you would pay for conveyance and registration yourselves.

Profit Margins of builders (Minimum 150%-200% margin)

When a builder quotes a price to you (per sq foot), you must assume that his construction cost + land cost + interest cost is exactly half of what he is quoting you. This is the bare minimum. An easy way for you to figure out a reasonably accurate figure is to first figure out his land cost. In Navi Mumbai, CIDCO gives prime plots on Tender. And winning bid can be found out via RTI filed with CIDCO. Then you calculate the built up area of the entire structure. This information is available on the RERA site. In Mumbai (Maharashtra) the cost of construction for the best quality construction is Rs 4000 per sq ft (includes everything including fittings and finishing) . This includes everything. If the builder compromises on this, he can cut down the construction cost to Rs 2000 per sq ft. Once you have his land cost and total built up area calculated, you can arrive at a fairly accurate figure of his cost of construction and land cost. Once you figure that out, its simple maths that will tell you how much it cost him to construct your flat. And in most cases you will see that its exactly half of what he is pricing his project at. Sometimes his margin is 200%. If you want you can even calculate the interest cost of his loan (if he has taken one)..cause construction of a Ground + 17 floor structure in Mumbai takes at least 1 year. A builder needs his own source of funds to complete upto 2-3 slabs of construction. After that he funds the rest via funds taken from buyers. If he is short of funds, he will sell a few flats to get some funds and continue construction.
If builder manages to sell 1/3 of the flats via booking during pre-construction or construction stage, he has funded his entire construction. He can relax and sell the rest of flats at any fat price he wishes. You can get max discount from the quoted price (upto 30% discount) during the initial construction phase or pre-construction phase. If he is really short of funds he may even give you a 40% discount … so that his construction can continue.
So basically, for a builder, the main task is to somehow sell 1/3 of his project, even at a discounted rate, to fund the rest of the construction.

This should give you a good starting point to bargain with builders. When any govt dept issues tenders for a certain job, they calculate how much it will cost to complete the job. Then they issue a base price. This base price is calculated at cost + profit margin formula. Whoever bids closest to this price wins the bid.

Negotiate from a position of knowledge and inside information.

PRICE CHART FOR OUR SERVICES

SERVICE CHARGES 

CIDCO Transfer only 15,000
Mortgage NOC only 15,000
CIDCO Transfer + Mortgage NOC 20,000
Only Drafting/Documentation 5,000
Drafting and Registration of Sale Agreement/Sale Deed 10,000
Brokerage (Purchase/Sale transaction) 2%
Brokerage (Rentals) 1 month rent/year
Consultation over Phone/Whatsapp/Zoom/Google Meet 4,000/30 mins
Property Tax Name Transfer 10,000
Water Bill Name Transfer 10,000