5 Common Traps Used by Builders to Lure Buyers

Published on July 17, 2013, 02:20 AM IST
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As the real estate sector has become less transparent, so too have developers. To sell projects, developers are applying several marketing strategies to entice homebuyers as well as investors. Most of the times for a homebuyer, buying a house costs them their entire savings for life. So, it is important to be careful when planning to buy a house as developers set many traps in the market to attract buyers. Below listed are few schemes which developers set to trick buyers;

1) Discounts and freebies
Offering discounts and freebies have become common practice for developers. They often give discounts and freebies like gold coins, club membership, parking space, holiday packages and so on to attract homebuyers. Most homebuyers happily accept such offers to save money. For instance, a car park alone comes for 1-10 lakh and getting it as a gift entice buyers to fix a deal. Even there are developers who started offering payment for stamp duty and registration charges that ranges between 5 and 12 percent of the total property value.

In reality-
Several developers charge for parking space when booking a house buy in actual they cannot do so, according to Supreme Court ruling of 2010. Only to obey the apex court’s ruling, some developers do not charge for parking space but add the value with the super built-up area which in turn increases the total value of the house. And the rule is same for rest of the freebies or discounts developers tend to offer. All together, freebies are just to tempt buyers; in actual they do not get any real benefits.

"A good way to determine whether these freebies are added to the cost of the house is by comparing the price of the property to similar ones in the vicinity. If there isn't much of a difference, opting for the builder to pay the stamp duty and registration costs can be to your benefit. In case of other things, insist on a cash discount rather than the freebies," explained Pankaj Kapoor, managing director, Liases Foras.

2) Guaranteed rentals return
Guaranteed rentals are mainly offered to investors who seek rentals on regular basis from the property they are investing in. This means, on signing the contract, buyers are suppose to get an annual rental income of around 6-12 percent of the total value of the property; as developers guarantee. Sometimes, developer offers a few quarterly post-dated cheques to reassure buyers of the accuracy of the scheme. However, the developers hold the actual possession of the property during the contract tenure and then they put such properties on lease to clients including financial institutions, banks, corporate and so on.  The scheme offers free maintenance of the property.

What’s the trap?
Usually developers launch such guaranteed rental scheme when they face cash crunch situation. And, if developers fail to generate adequate cash flow then there can be a high risk of check bounce; the post-dated cheques which developers provide at the time when buyers sign the contract. "It doesn't seem feasible for a developer to offer rental returns as high as 12 percent because he has to bear the maintenance costs. So, you must ensure that no hidden costs are included in the purchase agreement. A rent that is 4-5 percent of the value of the property is more credible and a good return," says Kapoor.

3) Pre-EMI sharing schemes
The meaning of pre-EMI sharing schemes is when taking a home loan, it get disbursed depending on the construction stages. This means homebuyers do not have to pay EMIs on home loan till the construction is getting over as well as getting the possession in hand. But, homebuyers have to pay the loan interest from the first disbursement. Adding to it, several developers choose pre-EMI sharing scheme where they pay this amount for a period of normally 24 months.

What's the trap?
Before choosing this pre-EMI scheme, homebuyers need to ensure that the developer has not padded up the cost. This means, developers might not give any discounts or freebies in the deal. Therefore, it is always better to bargain at the first place when buying a house and then choose the scheme. Moreover, if developer delays to complete the project on time then the time period for pre-EMI payment will get extended and home buyers will end up paying the balance payments all by themselves.

"Try to bargain with the builder to extend the tenure of the scheme till possession and not restrict it to a specific time period. This keeps the pressure on the builder to hasten completion and give possession since he is paying the interest till then," said Samantak Das, director, research & advisory services, Knight Frank India.

Also buyers need to ensure if developer will pay the penalty in case of delay in possession or construction.

4) Model flats design
It is really hard for common people to understand the blueprints and same with the home buyers. So, to make things easy, developers prepare a model flat for homebuyers. This process helps buyers to get an idea of how their dream home will look like

In reality-   
To attract buyers, developers may add lot many amenities while preparing the model flat. And surprisingly those amenities probably will not be included when constructing the actual property. Besides, developers attempt this trick as a part of their sales strategy. When it comes to small-sized model apartments, developers reduce the size of the furniture and instead add bright lighting to create the illusion of bigger space.

"When you visit a sample flat, carry a pen, paper and measuring tape with you to note down all the amenities that are installed in the property. Then, cross-check with the builder whether the exact things will be provided to you or not. You should also scrutinize the agreement documents carefully to ensure that you will get what the developer has promised you verbally," says Das.

5) Offer warranties
Developers providing appliances in apartments are a known fact but now they have started distributing the warranty cards to homebuyers during the time of possession. This means developers started offering warranties on amenities they provide to homebuyers on purchasing a house.

In reality-
When it comes to offering warranties, developers only hand over the warranty papers to homebuyers. Whereas, after you get the possession, you are anyway have right to get warranties on appliances like kitchen chimneys, bathroom fittings, CFLs, ceiling fans and so on. But, if there is any issue with the products, homebuyers have to run to product manufacturers and developers might turn into deaf ears after passing the warranty card. Moreover, developers offer warranties for appliances that come with the apartment. And, such warranties are not much related with the construction of the apartment.