The Supreme Court (SC) this week directed Unitech to deposit Rs 15 crore by September to pay homebuyers invested in its Gurgaon residential project since 2009. The company was ordered to deposit Rs 5 crore in the court’s registry within two weeks and Rs 10 crore by the end of September to pay back 38 buyers. The amount to be paid by Unitech to buyers for delay in interest payment will be decided by SC on October 4.
While most homebuyers are relieved that repayment of the principal amount for the property is assured, they say even getting back some percentage of the interest (on the payment made for the property) will not be enough for them to buy a house in the area where the Unitech project is located. Cases such as these, they say, should force lawmakers into including incomplete/delayed projects in the ambit of the draft rules of the Real Estate (Regulation and Development) Act, 2016 (RERA). As of now, the Act includes buildings completed by March 2016.
RERA also requires builders to deposit 70% funds for a project in an escrow account, but most developers divert funds collected from homebuyers from one project to another as there is no clarity in laws to penalise them. Only RERA provides for stringent punishment and ‘equity’ when it comes to penalty, says Abhay Upadhyay, national convenor, Fight for RERA.
“Buyers are assured that they will get back the principal amount but that is not the same as getting a house. Cases such as that of Unitech call for urgent enforcement of RERA guidelines by the states,” he says.
Naveen Yadav, a homebuyer who had booked a 3BHK apartment of 1,565 sq ft in Vistas, Gurgaon, says while the SC order is welcome, he will not be able to afford a similar house in the area if he withdraws from this project. “I bought this apartment for Rs 4,000 per sq ft. Another project in the vicinity today commands a price of almost `1.5 crore for a 3BHK apartment. “The amount I finally get back from the builder will not be enough to buy a house in the same area,” he says.
Yadav says homebuyers have submitted to the SC that the interest given to them should be at least at the rate of 18% compounded annually, equal to what the builder was charging buyers defaulting on their payments for their apartments. The principle of parity underlined under RERA should apply here. Compensation should also include mental trauma and the litigation cost,” says Yadav. He is paying a rent of Rs 35,000 per month and has already paid about 30% of the housing cost.
Yadav also says that since the interest received by buyers will be taxable and attract a 30% interest from other sources it should be termed as compensation and declared tax free. Many buyers bought the apartments for self-use and not for investments. “It was not a financial instrument and hence buyers should not be taxed for it,” he adds.
About setting aside housing project funds in escrow accounts,Yadav feels there should be transparency and builders should be open about declaring the amount set aside when buyers ask for it. A mechanism should also be in place to monitor the funds from time to time.
“Haryana already has a provision for setting aside 30% amount in an escrow account which has all along been merely a tick in the box. We were never given details of the amount maintained in the escrow account,” he says. Unless there is transparency and stringent monitoring of how the money collected from buyers is spent, this too will not be of much help.
Legal experts say that ongoing projects without a completion certificate (by March 2016) will come under the purview of RERA. Apart from the escrow provision, RERA also requires builders to inform the regulatory authority about how that money was spent. It also contains a clause on percentage of completion.
“If builders have so far in the absence of RERA spent the entire amount collected from buyers, then they cannot ignore the fact that they are required to submit the percentage of completion account before the regulatory authority that will clearly indicate the amount of money that has already been siphoned off from the project,” says S K Pal, a Supreme Court lawyer.