CCI ruling in DLF case will embolden group home buyers
BUILDERS HAVE MIXED REACTIONS TO CCI ORDER, FEAR INCREASE IN HOME RATES
It is certain that the buyer-friendly CCI order dated January 3, 2013 is likely to receive mixed reactions from the builder community. It is also certain that the order will have far reaching ripple effects if other Group Housing (GH)-buyer associations also seek alterations on the cue provided by the underlying principles on the basis of which CCI has suggested modifications in the DLF builder-buyer contract.
It is highly possible that a lot of the existing features of DLF’s buyer-builder contract are commonly shared by others, both by those developers that enjoy a so called “position of dominance” and those that do not.
Sale of parking lots as separate units to allottees and a highly differential rate of interest charged by developers on delayed payments and the rate of interest paid by them on delayed possession of a property or refunds post cancellation of allotments are the more prominent among these.
The CCI is clear that the “rate of interest charged by builder has to be the same as paid by the builder to allottee.” This itself has the potential to open up a can of worms for Indian real estate developers.
The order states that once allottees have paid the External Development Charges (EDC), the price of the apartment and other charges, the builder does not have any right remaining in the property/group housing complex. Common amenities and facilities are to be jointly owned and maintained by the residents’ association and the developer is to have no perpetual administrative interference or financial claim on this.
This clause could have mixed implications for projects that offer amenities such as a clubhouse or a golf course that charges a separate fee for using these facilities. If it is found that a developer has already passed on the development cost of these facilities to the allottees jointly, an additional membership fee might stand challenge. However, to what extent would have to be seen from a case to case basis.
If a builder makes any alteration that results in an increase or decrease of more than 2 per cent in the super area (sum of apartment area and common areas) of a project then-consent of the allottees has to be sought by the builder. Also, the same applies when a builder wants to alter the FAR. Even if this is increased, the builder cannot club this increased FAR with any of its other project, states the order.
More than anything else, the CCI order tips property buying in the opposite way, from the present situation that is heavily tilted in favor of the developers, to a more egalitarian relationship between a buyer and builder thus driving home the point that a company by virtue of its size and power cannot annul the basic rights of a seemingly ‘powerless’ single home buyer.
Every home buyer has some basic inalienable rights and can seek redressal if these are not respected. This itself is far reaching. Consider this: “The Commission considers that the defaults can be on the part of the company as well on the part of the allottees and the agreement (builder-buyer contract) should provide for defaults of both the parties and the agreement must be equitable in dealing with both the sides and levy of interest /penalty should of equal level on both sides.”
The builder fraternity is also likely to have mixed reactions to certain stipulations such as: use of 30 per cent of what the allottees have paid up for “internal development” (this term stands open to interpretation); development of public amenities such as schools, hospitals, community centres and community buildings at the “builder’s own cost” and restriction of profits from any group housing complex development to 15 per cent. Apart from monetary implications, some of these might even prove to be contra to principles underlying an open market economy.
Builders on the other hand have hinted at increased costs for the end buyer if the order is implemented across. “In India it takes a year and above time for project approval from the authorities, clearance from multiple windows restricts the developer to resume the project at one go, further clubbing of financial hindrances from the banks at high rate of interest narrows the profit margin. Thus ceiling the interest and charging extra for late possession would fuel the cost of construction, pushing the developers to the brink,” says Neeraj Gulati, MD, Assotech Realty adding “Hence developers should be spared from penalizing for delayed possession as they are over burdened with unnoticed variable costs generally not observed by others.”
“Every restriction on developer will lead to cost escalation. For example, if car parking space is not allowed to be sold, the cost of basement will be considered while calculation of selling price,” says Raheja Developers. Also, if amenities and common spaces are owned not by the builder, “cost of developing such facilities will be again considered by developer while calculating selling price”.
At the moment, any builder-buyer agreement is governed by state GH-development laws that govern things like the Floor Area Ratio, Maximum on site coverage, plot sizes, provision of parking space, manner of structural alterations, to state a few things.
For example, projects in Delhi have to follow the rules and regulations laid down by the Delhi Development Authority, Land and Development Office, Delhi Apartment Ownership Act, 1986, Delhi Municipal Corporation Act, 1957 etc. Developments in Haryana are governed by the Haryana Development and Regulation of Urban Areas Act, 1975 (Act of 1975), the Haryana Development and Regulation of Urban Area Rules, 1976 (Rules of 1976), the Haryana Urban Development Authority (Erection of Buildings) Regulations, 1979 (Regulations of 1979) as well as the Haryana Apartment Ownership Act, 1983 etc that acts as a blueprint for buyer rights.
In the case of Uttar Pradesh- it is The Uttar Pradesh Urban Planning and Development Act, 1973 etc, the NOIDA authority governs new project development in Noida and likewise for other cities. Understandably, buyers would do well to familiarize themselves with these state laws as well to understand where exactly they stand with respect to a the law of the particular state.