Why do India’s builders treat homebuyers badly?

I have deep sympathy for homebuyers in a country where there is potential to be defrauded at almost every stage. At the same time, I also know that construction is a tough business with numerous stakeholders and even more complications.

Yet, there is no excuse to treat customers badly, irrespective of the internal challenges. So why do many builders do this?

The God Complex: The biggest reason is the temperament of the average builder in India. They sit on top of the chain. Over 100 industries are dependent on them and pander to their power and whims. This often results in many builders getting delusional and thinking of themselves as Masters of the Universe.

Shyamal Mody of Raunak Group candidly admits that “30 percent of all builders suffer from a God complex.”

In this state of mind, everyone else is dispensable. Hence, the way homebuyers are treated is not very dissimilar to how vendors or employees are treated. The phenomenon is not new. Earlier generations of developers were arguably even worse. Demand vastly outstripped supply. The buyer was the customer, but the builder was king.

Paying a builder in advance: In any other industry, paying for a product before it is completed would be considered silly or even blasphemous. For a variety of reasons, the real estate sector is an exception.

The developer gets money in advance and is tempted to divert it elsewhere. Moreover, advance payment reduces the incentive for constructing a good finished product. Hence, a prospective buyer is a priority, but not one who has already paid a handsome amount of money.

Here’s the problem though: In a world where promoter equity infusion is low but homebuyer capital infusion is high, the stakes are greater for the buyer. A half-built building hurts a homebuyer more than a builder unconcerned with reputation.

Regulatory and legal management: The superior capital infusion by the homebuyer could have been a strength instead of a weakness, but it is now increasingly clear that several developers are employing routes to frustrate the regulatory and legal process. The mask may have changed but the face has remained the same for a majority of players. Instead of the primitive ways of laundering and diverting homebuyer funds, more sophisticated ways have emerged.

Phase of Consolidation: The extent of consolidation in real estate is exaggerated but the phenomenon in itself is indisputable. There is a preference for large and ‘branded’ developers. Given the limited number of such companies, almost all of them have been saddled with more projects than they can handle. In such cases, when things go wrong, as is likely when handling multiple projects, customer management gets ignored.

Power of no reputation: It’s no secret that builders are a despised community. Numerous stalled projects, shoddy execution and undue demands have fostered a view wherein a majority of builders are viewed with suspicion.

That generalised perception may not be correct but it confers a unique superpower on shady and mischievous builders. A discredited developer has nothing to lose. Once a customer pays them and then if things go wrong, there is little downside at a reputation level. If everyone already knows you are a crook, then crying it aloud again has little impact.

Will the builder community treat homebuyers with respect in the future? In the medium term, I am confident that it will change. But I suspect that optimism may be misplaced in the short term. Entrenched mindsets are not easy to reform. Additionally, the nature of under-construction projects is such that leverage often remains with the builder even though the buyer funds the project.

The God complex will eventually go, but India’s builders can play that role for some more time.