In the recent past I have been bombed with this question time and again :
Which Brand in Real Estate Should I TRUST?
Which Developer is TRUSTWORTHY?
After reading the newspapers last week I truly don’t have an answer…” Last week the Supreme Court came down heavily on a developer from Delhi NCR saying: “ You have committed a First Degree Crime by cheating the Customer “ you will have to face serious consequences and so will those who supported you in this journey
The Forensic Auditors made a serious revelation: The Builder had not invested anything from his pocket, but raised money from the customers and diverted the funds for self-use and luxuries.
The court made a serious noting on the banks and financial institutions for not auditing the status of construction and also the financial health of the company.
Shouldn’t the bank-financial institutions check developers contribution in the project before the loan is given for the procurement of land or for construction
1. Private lenders invest with the developer to fund his contribution to seeking loans from financial institutions.
2. Developer works on the greed of the private lender by offering him higher interest.
3. Developer leverages this money to show his contribution to the financial institution.
4. The financial institution gives loans for buying land or for construction.
In simple words :
The developer identifies land for developing Residential or Commercial usage
Let us presume the cost of Land is: Rs 100
The developer approaches a fund for money to buy land. The fund asks the developer to put 25 % as his contribution.
The developer approaches private lenders for 25 % or Rs 25. The private lender charges heavy interest as high as 24 % or more to put 25 %
Developer gets Rs 25/- from a private lender
the financial institution gives a loan of Rs 75/- for land purchase
DEVELOPER GETS RS 100 TO BUY LAND WITHOUT PUTTING EVEN A PENNY FROM HIS SIDE
The developer further goes to market and sells products (apartments, plots, villas, office spaces, etc) and raises money for construction. If there is still a shortfall he goes to the bank to raise construction finance
If you read the above carefully the developer uses his brand value and starts a project without investing a single penny
The surplus generated from sales – customers’ money is then used for self-use and luxuries.
DEFAULTS ARE WRITTEN ON THE WALL: SOONER OR LATER
The court has taken a great step in ordering the banks and financial institutions to audit the books of developers and check the trail of the developer’s contribution. Gone are the days when the developer will be able to do a project without his own contribution; “ OWN means OWN “
Ah ! at last AUDIT started in this industry which will help all and will bring back security to the customer’s money.
Our Prime Minister Modi Ji in CREDAI Youthcon 2019 had appealed to all developers to bring credibility to Real Estate Industry.
I am sure the SUPREME COURT HEARD IT LOUD and is doing its bit.