In the long and deep mess of India's real estate development, the past week has been a sort of landmark, in the shape of the Supreme Court judgement on the combined case arising out of the petitions filed by the victims of the Amrapali group. The judgement is a landmark because it puts the interests of the potential homeowners squarely above those of the banks and the local authority. This should be good for the homeowners and make the choices before authorities and the banks somewhat tricky.
The bottomline is that if a developer owes money to banks and authorities and owes houses to buyers, then the buyers could get priority. I say 'could' because this is not the normal course of events but something that the highest court has done in this one case. To boil it down to the simplest terms, as they have worked out in this case: if you, the buyer has paid the developer, but the developer has embezzled that money instead of paying the authority for the land, then it's not your problem.
I'm sure this is of great interest to the countless people who have paid developers, and/or are paying bank EMIs and are in what appears to be an endless string of waits and delays. Eventually, it could mean that they have a better chance of getting the houses that they have paid for. Perhaps this should also give developers as well as lenders and authorities some motive to think their choices and actions through again. There can be little doubt that in the overly long story of the fixing of India's real estate sector, this court judgement will play an important role. However, the greater role could be in influencing the future rather than in fixing the past.
All things said and done, this Amrapali case may be one where much of the buyer's value is recoverable now that the court has ruled that the banks' and the authority's claim comes later. However, that's not universally true. From what one can observe, there are many, many cases where the money is basically gone. In many of these cases, developers have essentially embezzled money, often diverting it to launch projects that never got off the ground. As I've said earlier, India's real estate business should be seen not as an industry in crisis, but as a crime scene.
Once while talking to a Real Estate salesperson who has worked with a number of developers over more than a decade, I asked why developers had gone on launching new projects without making any effort to build and deliver them. Since I know him personally, he gave a candid answer, "Developers get paid when they launch projects, but they don't get paid when they build and deliver. In fact, they have to spend money to do so." Understand the implications of this. What this means is that a good part of the real estate development business has been about making false promises and embezzling customer's money.
This may be in the past now, or at least on its way to becoming the past. RERA, as well as closer scrutiny at all stages may mean that the business of building and selling houses may be becoming cleaner now. However, I've put many a 'may' and 'may be' in that sentence, and with good reason. One simply doesn't know for sure.
When it comes to putting down a sum of money that it would take most of us decades to earn and save, one cannot be too cautious. The basic problem is that for too long, many businesses have acted in bad faith with their customers with impunity and have generally gotten away with it. That time may be ending but again I'm saying 'may be'.
When it comes to putting down your savings to buy a house, it's better to buy something that exists rather than buy promises from an industry that has such a terrible track-record of delivering on promises.
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