5 tricks builders won’t be able to play on you

A building under construction
Homebuyers stand to benefit from the approval of the Real Estate Bill

With the Real Estate (Regulation and Development) Bill cleared by both houses of Parliament, it is only a matter of time before the regulatory mechanism is set up by all states.

Many malpractices within the sector, responsible for lack of consumer confidence and plummeting sales, are likely to get curbed with this Bill.

No profiting from information asymmetry: Earlier, developers took undue advantage of the fact that less information was available to the buyer than to them. Take one instance.

The builder would tell a customer that land acquisition had been completed for his project.

But not reveal that only 80 per cent had been completed, and he was embroiled in litigation over a patch of 20 per cent. Unfortunately, the apartment he sold to the buyer could have been slotted in the project plan on that very patch.

So even if the rest of the project got delivered on time, this customer’s possession got delayed.

Statutory permissions have been another major cause of delay.

At the time of selling, the developer would confidently tell buyers all permissions would come through in a few months. Later, the project would get delayed in the absence of some.

Now, registered projects must disclose a lot of accurate information — status of land acquisition, statutory approvals, layout plan, etc — to the regulator, which will put it up on its website.

No playing around with buyers’ money: A common practice among developers was to raise money from buyers for one project but not use it to complete that one.

They would use the money to buy land which would enable them to launch another project and raise more money from a new set of buyers.

This inevitably led to delays in delivery and hassles for buyers.

The latter would have to bear the burden of monthly instalments and rent simultaneously, and in case of a delay beyond three years, lose the tax benefit on their home loan.

With the Bill making it mandatory that 70 per cent of money raised from sales in a project will have to be put in an escrow account (states have the freedom to reduce this figure to 50 per cent), developers will find it difficult to divert money from one project to another.

“This clause will prevent shortage of funds and ensure timely delivery,” says Ashutosh Limaye, head of research at JLL India.

No discrepancy in penalties: In the past, if the buyer delayed payments, he had to pay a high rate of interest.

But, if the developer delayed on delivery, he paid a pittance. “Even this money would at times not be paid but be adjusted against final payment from the buyer,” says Pradeep Mishra, research head, indiazhousing.com.

Suppose a person purchased a 2-BHK flat of 1,100 sq ft for Rs 50 lakh. If he delayed payment, the interest would be as high as 18-24 per cent per year.

At 18 per cent, this translated into Rs 75,000 per month.

If the developer delayed payment, he would pay Rs 5-10 per sq ft per month. On an apartment of 1,100 sq ft, this would translate into barely Rs 5,500 per month.

This practice will  end because the Bill specifies that penalties for both parties will be at par.

No changes in project plan at late stage: Developers would sell a project to buyers by painting an attractive picture but later change the building plans and specifications. For instance, the builder might have sold an apartment block with the proposition that it offers a view of the sea.

Later, a new set of apartments would come up, blocking this view.

Similarly, new apartment blocks would come up in what was earmarked as a green area. Another practice was to come up with an affordable housing component in what had been promoted as a luxury project.

Such shenanigans will have to end, with the Bill making it mandatory for the developer to get the permission of two-third of buyers to make changes to project plan.

“Developers will have to be very careful at the time of planning, as it will become difficult to change at a later stage.

They will also have to stick to their commitments to buyers,” says Sanjay Dutt, managing director, India, Cushman & Wakefield.

On the flip side, the need to get two-third consensus could also mean delays.

No delay in handing over charge to RWA: Developers would at times try to delay handing over charge of the project because they stood to benefit from this.

“If the FSI (floor space index) norm was increased in that area, the developer would be the beneficiary, as he could construct and sell more,” says Limaye.

Delaying the hand over would also allow errant developers to charge high rates for services and maintenance. The Bill makes it compulsory to form a resident welfare association after three months of handing over of a majority of units in the project.

Experts are hailing the Bill as a landmark event.

“It will bring transparency and accountability, offer protection to customers and give them the confidence to invest in real estate,” says Anshuman Magazine, chairman and managing director, CBRE South Asia. Nonetheless, buyers should not lower their guard right away.


  • Pay cost of apartment based on carpet area, easier to measure
  • Pay lower interest charges on delayed payment to developer
  • No need to bear burden of EMI and rent simultaneously
  • Earn rent from your apartment and use it to part-pay EMI
  • Pay lower maintenance charges if resident welfare association formed on time

The image is used for representational purpose only. Photograph: Reuters

Sanjay Kumar Singh in Mumbai


How to make the right choice when buying a house

Buying a house is a big financial commitment. Don’t let an investment of Rs 50-60 lakh be influenced by freebies worth a few thousands.

When Arun Kumar Pathak booked a flat in Noida four years ago, the builder had promised to hand over possession within 18 months. He had even offered a hefty 9% discount if Pathak paid the entire amount up front. Not convinced, Pathak opted for a smaller 2% early bird discount and paid only 30% of the price at the time of booking.

“The rest 70% is payable only when I get possession,” he says with a sense of relief. That is because the project is still not finished and there is no saying when the project will be handed over.

Pathak was lucky, but thousands of other buyers are not. Delay in projects has become a common thing across the country. The best option of buyers is to opt for a construction linked payment plan under which they pay as work on the project progresses. This way you don’t lock up your money in a project that is not moving ahead.

This week’s story examines the arithmetic behind each payment option and explains which of these suits you best.

1. Construction-linked plan: Cushion buyers against delay in projects

2. 30:70 subvention plan – Requires a small 3 down payment

3. Subvention without loan: Rigorous due diligence required

4. Interest waiver on home loan: Cuts EMI burden

5. Assured rentals: Reduces cost of borrowing

Read the detailed analysis at:


Narendra Nathan

Download Registered Property transactions

You can now download Registered Property documents by visiting igrmaharashtra.gov.in  Please click on eSearch facility on the left. (Be sure to use Internet Explorer and not Chrome or Mozilla for best results.) This will provide a unique Document id. You can then go to download document, enter that id and then click on Download. The time taken to download the document will be less than 30 minutes.

This new facility has been initiated for 14 of the 23 registrar’s offices in Mumbai. This is a free service for about a week – after that it will be chargeable. The data is available from 2002 to 2011

Stamp Duty in Maharashtra


The Bombay Stamp Act applies to the entire State of Maharashtra. Only the instruments specified in the Schedule I to the Act are covered by this Act. All other instruments are either chargeable under the Indian Stamp Act (e.g., transfer of shares) or are not chargeable at all (i.e., if they are not specified under the Act as well as under the Indian Stamp Act).


2.1 It is very important to note that stamp duty is on an instrument and not on a transaction.

2.2 S. 3 of the Act levies stamp duty at the rate provided in Schedule I on any instrument executed in the State. Even instruments executed outside the state are liable to duty only on their receipt in the state, provided it relates to a property situated in the state or a matter or thing to be done in the state.

2.3 An instrument covering or relating to several distinct matters is chargeable with the aggregate amount of duty with which each separate instrument would have been chargeable.

2.4 In case an instrument is so drafted that it is covered within the ambit of more than one Article under Schedule I, then it shall be taxed by that Article which levies the highest amount of stamp duty.

2.5 The term “Instrument” has been defined to include every document by which any right or liability is or purports to be created, transferred, limited, extended, extinguished or recorded.

However, it does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of share, debenture, proxy and receipt.”

Click Here for the full article and Stamp Duty Rates


The Practising Engineers, Architects and Town Planners Association of India (PEATA) has made a detailed analysis of IMPACT OF MODIFICATION TO DCR JULY 2011

Municipal Commissioner Vide Letter MGC/A/8279 Dated 13th July 2011 requested  Govt. and Vide Letter dated  21/7/2011 requested to Invoke  Provisions under 37 (1AA).

UDD. NOTICE U/ No. CMS/4311/CR-58/2011 /UD-11 Dated 25th July 2011

MC Letter dated 13th July 2011  emphasizes on Uniformity and  Prevent Misuse. He Proposed the Compensatory FSI as Fungible so as to give Flexibility to Architects for Designing the Buildings.


DCR -29 – Open Space Requirement

DCR -30 – Features Permitted in Open Space

DCR – 35 – FSI Computation

DCR -36-  Parking Spaces

DCR -38-  Requirements of Parts of Buildings

DCR – 43 – Fire Protection Requirements

DCR – 44 – Requirements of Individual Exits /Floor APPENDIX VIII(19) – Added.

Click Here for the full document

Vinod Sampat on Redevelopment Projects, Landmark Judgements and Common Mistakes

Advocate and property expert Mr Vinod C Sampat while speaking at a seminar organised by Moneylife Foundation in Mumbai on 12 November 2011.

Tips on selecting builder for redevelopment projects. He insisted that the process should be transparent, and advised that housing society members should have legal and technical consultants to interact with the builder. Also, it is important to check the builder’s credentials and financial conditions, he said.

Landmark judgments related to cooperative societies and explained new rules which have been framed and laws which have been struck down. He also talked about several laws by virtue of which officers concerned can be made accountable for delays and even be penalized.

He said not many people are familiar with the workings of the cooperative housing societies, and are left confused while dealing with a variety of civic and legal compliances. He pointed out that most cooperative housing society members do not check the several financial aspects related to cooperative housing societies; and end up paying extra charges for several things, and at times, defaulting on necessary payments.


Amended DCR doesn’t benefit suburbs, says MSWA

Amended DCR doesn’t benefit suburbs, says MSWA

The amended development control rules had no significant benefit of FSI or open space concessions extepded to Mumbai suburbs.

The Maharashtra Societies Welfare Association (MSWA) and suburban resident welfare associations of Mumbai have sought the withdrawal of new amended Development Control Rules (DCR). They said the changed rules had no significant benefit of FSI (floor space index) or open space concessions extended to the island city for the suburbs.
The DCR amendment came in January this year. The civic body hopes to garner approximately Rs 1,000 crore in premium collection. The square foot rate in of built-up space in the city varies from Rs 72,000 to Rs 20,000, while in suburbs it is between Rs 42,000 and Rs 7,500.

Under the amended regulations, areas such as terraces and swimming pools or individual apartment balconies and ornamental projections that were not part of the FSI would be included in FSI to prevent manipulations by developers. These areas come under a concept of compensatory FSI, in lieu of a premium levied on developers. The areas under.compensatory FSI called ‘fungible FSI` should not be more than 35 per cent of the total area of the apartment. Also, no premium will be charged for fungible FSI while redeveloping dilapidated buildings and in suburbs; the fungible FSI on the FSI already consumed in the existing buildings will be available free of premium. Some other changes include an option of 25 per cent more parking over the DCR limit without premium, which is also exempted in the FSI calculation.

The Maharashtra Chamber of Housing Industry had welcomed the amendments, and said only 20 per cent reservation for affordable housing in more than 2000 square metres plot redevelopment was detrimental to them. According to Mr Boman R Irani, Chairman, Rustomjee Group, there is no advantage for a developer in terms of the amendments, but it had done away with the discretionary power of the authorities, which makes sure that one and all know how much they can build on a plot of land. –


Suburbs are qualified for one FSI plus loading by way of transfer of developmene rights of one FSI, which they should purchase (total two). This is in addition to fungible FSI and a premium FSI of 0.35 (Grand total of 2.7). BAI has questioned the rationale behind the amendments.

While developers in the island city limit get 1.33 FSI, there are no open plots, and they benefit by the incentives given for redevelopment. There are more than 16,000 old buildings which are eligible for three FSI for redevelopment individually, and four, if developed as a cluster (if projects are amalgamated as one), they contend. Most of the old buildings are cessed tenements. With rents frozen for decades, owners of these buildings have either deserted them or are unable to maintain them. The government brought in a cess collection for these buildings from tenants for maintaining them in the seventies.

BAI said the existing provisions for the city allow three to four FSI in addition to compensatory FSI for the rehabilitation portion. Suburbs get one FSI in addition to TDR (transfer of development right) of one, and compensatory FSI of 35 per cent (calculated on one FSI). But these were capped by the open space regulations.



On open space requirement, in suburbs, it is six to nine metres on all sides of the building. For the city, it is six, and concessions can be extended to bring it down to 1.5 metres depending on the plot size.

Further, open space for suburbs is linked with the height of the building and individual sanction from the Brihanmurrbai Municipal Corporation Commissioner.

Mr Anand Gupta of the Builders Association of India said the open space requirement was primarily for fire safety and questioned how it could be relaxed for the city and retained for the suburbs. It was impossible to comply with the open space requirements in suburbs, especially in smaller plots.
Moreover, the Municipal Corporation has defined a special category of plots of less than 600 square metres in the city and made them eligible for reduced open space norms, he charged. More importantly, there were very few dilapidated tenanted buildings in the suburbs, and hence
redevelopment was by the residents themselves. So, there was no justice in denying suburbs the concessions doled out to old buildings in city. Moreover, the plot size in suburbs was far smaller with buildings of two to seven storeys.
Mr Ramesh Prabhu, Chairman of the Maharashtra Society Welfare Association, said a majority of the plots in the town planning schemes under WPD (juhu Vile Pane Development Scheme) were less than 600 square metres. These don’t qualify for any benefits under the open space regulation or rehabilitation component of the amended DCR rules as their counterparts in the city do.

MSWA’s Housing Society Review – 20 April 2012