A ray of hope for home­buy­ers

Projects stuck due to lack of funds or the builder’s in­abil­ity to sell, now have a chance of fi­nally get­ting com­pleted with branded de­vel­op­ers step­ping in

HT Estates - - FRONT PAGE - Van­dana Ram­nani

Bu ye r s aw a i t i n g pos­ses­sion of their homes from builders, who are strapped for cash to com­plete projects, fi­nally have some rea­son to cheer. De­vel­op­ment man­age­ment agree­ments ( DMA) are now be­ing signed be­tween lo­cal de­vel­op­ers and ma­jor realty brands who have a track record of hav­ing ex­e­cuted, sold and com­pleted projects on time.

Wi t h the Real Es­tate Reg­u­la­tory Act (RERA) ex­pected to put pres­sure on de­vel­op­ers to com­plete projects on time or pay heavy penalty to buy­ers in case of de­lays, most builders will now be seen en­ter­ing into de­vel­op­ment man­age­ment con­tracts with brand names to start a new pro­ject and fin­ish it (green­field de­vel­op­ment). Fi­nanciers will also bring in new de­vel­op­ers to fin­ish in­com­plete projects ( brown­field de­vel­op­ment). Under the Act, de­vel­op­ers will have to pay the same in­ter­est rate for de­lays on their part as buy­ers do.

Such deals are likely to ben­e­fit home­buy­ers be­cause de­vel­op­ment managers be­ing brought in to com­plete an un­fin­ished pro­ject have a brand name to pro­tect and are more likely to fin­ish the pro­ject on time.

Under RERA, if a developer has launched a pro­ject but not de­liv­ered it, he will have to reg­is­ter the pro­ject with the reg­u­la­tor and open a sep­a­rate ac­count. Go­ing for­ward, one will see more de­vel­op­ment man­age­ment agree­ments for projects where con­struc­tion may have been com­pleted but the developer has been un­able to sell units. Th­ese de­vel­op­ers will tie-up with brand names to push sales, say ex­perts.

But all com­pa­nies may not want to as­so­ciate with de­vel­op­ers who have de­layed projects. The readi­ness of a de­vel­op­ment man­ager to take up a pro­ject will de­pend on the de­gree of mess the lo­cal builder is in lest it spoils the branded developer’s name.

How will it help buy­ers?

For buy­ers, projects taken up by de­vel­op­ment managers are an op­por­tu­nity to ne­go­ti­ate terms and con­di­tions agreed upon in their orig­i­nal builder- buyer agree­ment.

Buy­ers can now choose to con­tinue with the pro­ject in case they are con­fi­dent about the new developer’s ca­pa­bil­ity to fin­ish it or de­cide to ask for a re­fund that ear­lier seemed un­likely. Also, since the pro­ject has been de­layed, buy­ers can ne­go­ti­ate the terms of the builder-buyer agree­ment such as whether the penalty will be paid to him or ad­justed against the amount he has to pay the developer. They will also have the up­per hand to ne­go­ti­ate ameni­ties be­ing of­fered in the pro­ject while sign­ing the new con­tract, says Saroj Jha of Delhi-based le­gal firm SRGR Law.

How does it work?

De­vel­op­ment agree­ments are a win-win for both the branded developer and the lo­cal landowner-turned builder. Armed with a DMA, de­vel­op­ers who have land parcels with ap­provals in place, will find it easy to sell by as­so­ci­at­ing them­selves with a brand that has ex­e­cuted projects in the past and speed up sales in a weak mar­ket. Con­sumers can be as­sured of qual­ity con­struc­tion, greater trans­parency and the pro­ject get­ting com­pleted on time.

After RERA, de­vel­op­ers in a messy, com­pli­cated sit­u­a­tion will have to main­tain a de­gree of com­pli­ance. In times to come, one will find land ag­gre­ga­tors or con­sol­ida­tors who turned into de­vel­op­ers dur­ing the boom time, go­ing back to their core com­pe­ten­cies and get­ting on board pro­fes­sion­als to de­velop

de­velop projects for them, says Anckur Sri­vast­tava of GenReal Ad­vis­ers.

In a de­vel­op­ment man­age­ment pro­ject, the de­vel­op­ment man­ager is re­spon­si­ble for de­sign­ing, marketing the pro­ject and even en­ter­ing into client re­la­tion­ships. As for com­pen­sa­tion, branded names charge 9% to 12% of the pro­ject sales pro­ceeds and re­im­burse­ment of the pro­ject costs, he says. The de­vel­op­ment man­ager gets a fee with­out hav­ing to bear risks at­tached to putting money in a pro­ject.

From a landowner’s per­spec­tive, the branded developer comes in as a ser­vice provider and con­tin­ues to own the land. “If a small developer or a tra­di­tional land ag­gre­ga­tor is not equipped to deal with po­ten­tial re­spon­si­bil­i­ties and re­lated risks and the obli­ga­tions under the new RERA, it is bet­ter for them to fo­cus on their core com­pe­ten­cies,” says Sri­vast­tava.

In case of a developer be­ing de­clared bank­rupt, fi­nanciers may de­cide to bring in a de­vel- op­ment man­ager to fin­ish the pro­ject on a fee ba­sis.

A de­vel­op­ment man­ager is like a mer­chant banker who works for a fee. This model can be used for both green­field and brown­field projects. In case of a brown­field pro­ject, the in­com­ing developer takes on the re­spon­si­bil­ity of cus­tomer sales and pro­ject ex­e­cu­tion.

The tasks cut out for him in­clude deal­ing with fi­nan­cial in­vestors stuck in the pro­ject, re­solv­ing issues with ex­ist­ing own­ers and tak­ing the pro­ject for­ward after con­vinc­ing cus­tomers that the pro­ject will be com­pleted, says Vi­neet Relia, managing director of SARE Homes.

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