Refund reality: The hard way out

When Atul Solanki booked an apartment in Mumbai last year, he thought his dream of owning a house would soon become a reality. What he failed to take into account was the slowdown-affected real estate market. Sure enough, his builder, like many others across the country, delayed giving the possession of the house; three months stretched to six and now has been put off indefinitely. "The developers' representatives refuse to entertain my queries, saying all the projects have been delayed," says Solanki, who has been visiting the builder's office every weekend for the past several months.

Solanki is not alone. Many people who booked flats in the past two years are in a similar quandary. Their options are limited: they can take the builder to court (if they are willing to wait for five years for the case to be settled); they can accept the delay; they can join hands with other buyers to pressure the builder, or they can cancel the booking, get a refund and look for other properties. While the first two options don't offer an immediate solution, the third is a recent inclusion, and as some home buyers have discovered, can sometimes yield good results. For instance, in 2009, several investors in DLF's New Town Heights project in Gurgaon banded together on the Internet to pressure the developer into completing the project on time or offering an exit option. DLF, India's biggest builder, agreed to provide an exit option.

While the fourth option, cancellation, also seems viable given the surfeit of projects that you can choose from, it can actually be a tedious process. The fact is that the real estate sector is not known for its transparency. It doesn't follow best practices in its dealings (a large number of transactions are in cash), in reporting results, and certainly not when it comes to giving refunds. In fact, none of the developers approached by Money Today were willing to talk on record. "We discourage cancellations, but if buyers insist, we refund the money after deducting 10-15 per cent of the total value of the apartment," says the marketing head of a listed real estate firm, refusing to be quoted even for saying something that is mentioned in the buyer agreement.

What is worrying for buyers is that there is no norm that the builders are required to follow while cancelling bookings. While some builders deduct 10 per cent of the booking amount, others quote the same figure on the 'cost of property'. Yet others deduct up to 20 per cent, whereas smaller developers may forfeit the entire booking amount. The problem is more acute now as the investors are finding it difficult to sell property in the open market unlike during the boom time when buyers were aplenty. "Refund depends on three factors—developer's agreement, reason for requesting the refund and the market situation. When the market is bad, such requests shoot up, mounting financial pressure on developers," says Samir Chopra, director, REMAX India.

How to reduce the registration charges

Builders can fleece you in the name of registration charges, with their representatives demanding Rs 10,000-50,000 to facilitate the process. This is besides the stamp duty and legal registration costs. Here are the legal charges and ways to reduce them.

Stamp duty: Varies from state to state and is 5-10 per cent of the value of property. Builders can get you to pay for procuring stamp papers.

Registration fee: Levied by local authorities as administration charge. Ranges from Rs 5,000-10,000 and is levied per registration, not on the basis of the number of people in whose names it is registered.

Document writing: Deed writers charge for preparing legal documents. The representatives' demand of Rs 2,000-5,000 can be cut to Rs 500.

Lawyer fee: Can vary from Rs 500-5,000. The fee can be easily negotiated as it's not a very complicated legal issue.

Miscellaneous: Usually means bribes to officials for facilitating the process. Insist on being there when the payments are made.

What the law says
There is no guideline for refunds and most developers insist that once you have signed the sale agreement, you are legally bound to follow it. No surprise then that sale agreements vary from builder to builder and always favour them when it comes to cancellations. Take the sale agreement for Jaypee Green's Sports City, launched recently in the NCR: "A request for cancellation can be made at any time after allotment. It may, however, be noted that the earnest money (10 per cent of the total consideration) will be forfeited, as the same is non-refundable." Another company that has launched a project in the same location lists this rule: "In case, at any stage, the intending allottee seeks cancellation of allotment and refund of the amount deposited by him, the company may, at its discretion, forfeit the booking/registration amount, or earnest money, as the case may be." Says Chopra: "Developers usually deduct it because of certain inherent charges like external development charges (EDC). However, he is committed to providing a break-up of this charge to consumers."

In a balancing act, some consumer court judgements have favoured the buyer. Recently, the Bangalore District Consumer Disputes Redressal Forum ruled that a developer is duty-bound to return the amount paid by a buyer when there is a delay in the execution of the housing project and the buyer is well within his rights to cancel the agreement with the developer when he sees no progress in the project. "It's the failure of the company (Ittina Properties) to materialise the project that has compelled the complainants to move for cancellation of the agreements of sale. Therefore, the company should have refunded the amount paid by the complainants at the time of booking," observed the court.

In another case, the Supreme Court asked realty major DLF Universal to refund 50 per cent of the forfeited earnest money to a complainant. Remember, however, that such decisions are on a case-to-case basis, and though these judgements help, you will have to go through the same legal process all over again.

Getting a refund
To ease the process of getting a refund, you need to start early—do your homework even before you book an apartment. As the cancellation fee varies wildly, shop around before signing the cheque. Even after you have decided on a project, avoid paying the booking amount in cash. This is because some developers delay providing the receipt till you pay the full booking amount. If the rest of the amount is in the form of a cheque or demand draft, the builder may issue a receipt for this amount alone, claiming to adjust the cash in the balance payment. So insist on a receipt for the complete amount. If brokers are involved or if the property is being resold, getting a refund becomes more difficult. When you get the sale deed, ask the builder to specify the deduction if you decide to cancel the booking at a later date.

What if you want to cancel after the booking? Approach the builder with a 'genuine' reason for cancellation. While defining a 'genuine' reason is difficult, a developer is more open to concessions on humanitarian grounds rather than ones that highlight his shortcomings. So, even though a buyer thinks that a delay in delivery or change in original building plans is reason enough to seek cancellation, the builder is unlikely to see reason in the argument and is wont to cite the delay in all projects. Sometimes, the builder may not have the money if too many projects are being cancelled. "Today, cash crunch is a problem faced by almost every builder as sales have started picking up only recently," says Sanjay Dutt, CEO (business), JLL Meghraj.

However, some developers are willing to refund if a buyer faces a financial problem like an unapproved home loan or a job loss. So when Sobha Developers was approached by a buyer who wanted to cancel a booking due to fear of job loss, the developer transferred her booking to one of its affordable projects. "The idea is not to lose a customer and accommodate him in what we can offer," says Keshav Menon, executive director, Sobha Developers. As the slowdown started settling in last year, Sobha introduced a clause in its sale agreement stating that the booking amount would be refunded only after re-selling the apartment.

Also, remember to check the fine print in your sale agreement before going to the developer. While many builders were shrewd enough to introduce a forfeiture clause, allowing a refund for cancellation only after a deduction from the booking amount, many have realised it only now and talk about a 'new company policy'. In such cases, original documents will come in handy and sometimes all it takes is a legal notice to get the refund.

If you don't get the refund
If, despite best efforts, the developer refuses to pay the refund, what do you do? This is not unlikely as builders are running short of cash. If they have diverted cash from the booking amount in their new projects to complete the older ones, it could be difficult for them to refund cash. In such a case, explore the option of shifting to a complete or nearly complete project by the same developer. He may be more willing to transfer allotment to an existing project than give a full refund. Usually, such transfers don't involve any deductions by the builder.

The other option is to use the power of numbers. Finding other buyers in the same project will not be difficult if you visit the site, especially after a project has been delayed or drastic changes have been made to the original building plan. Sometimes negotiating as a group can force the developer to speed up construction or offer discounts. DLF, for instance, was forced to offer discounts to existing buyers at its Chennai project after a group of buyers threatened to cancel bookings. You could also use the power of Internet to network and get together buyers facing similar problems.

The bottom line: when it comes to refunds, there are no rules and you'll have to fight it out with the builder. But if you do your homework well, you can give a good fight.

The way out

• Familiarise yourself with the sale deed before going to developer.
• Give a good reason for withdrawing from a project; financial problems work best.
• Consider shifting to another property by the same builder.
• Network with other buyers in the same project.
• Ask the developer for a written document specifying the deduction.
• Don't pay cash while booking the property and ask for a receipt.