You may have come across several advertisements that offer assured returns and convenient payment plans for real estate properties. These often attract investors towards residential, retail and commercial projects. However, the Union Cabinet has now passed the Banning of Unregulated Deposit Schemes Bill. This will be banning assured returns based schemes which will henceforth be taken as Ponzi offerings. Real estate developers have been barred from promising fixed returns till possession.
Earlier, if real estate developers wished to raise funds for their projects, they would offer assured returns to investors. The interest rate for monthly returns would range between 10-12% per annum of the purchase price of the property. This would be lower in comparison to the 16-18% per annum interest rate that the realty company would have had to pay to any commercial bank. Developers usually signed the Agreement for Assured Returns with buyers where both parties agreed that buyers would fork out a down payment upfront of around 90-95% of the purchase price of the property during the time of booking or within a few days after booking.
Post receipt of this payment, developers started paying assured returns between 10-12% per annum. These payments would continue till the time the property was leased out by the developer and the monthly rent payment commenced. The remainder or 5-10% of the purchase price of the property was paid by the buyer once the possession was received. Investors were attracted to these schemes for properties which were yet to be built or even for land that was yet to be acquired and developers have in many cases stopped the payment of returns after only a few months, stating reasons like a slow market or financial issues. Several have abandoned such projects suddenly while there are complaints of cheque bounces as well.
Many experts feel this move is positive and will affect the Delhi-NCR market immensely. Several developers feel that this will scale up the overall liquidity crisis and they state that this will affect just 5% of the entire market since it will impact B/C grade developers who are strapped for cash. Some experts feel that the Government should also be regulating buy back schemes in which real estate developers buy back apartments/commercial spaces from investors/buyers after a pre-fixed duration at a price which is pre-determined. The Delhi-NCR is where most of these schemes flourish and this may lead to a drop in liquidity levels even further.
This may also affect smaller shops and offices since a large percentage of these are sold under assured returns schemes. This move by the Government also safeguards investors against any fraud by the developers.
