Calculate before you buy
In a recent letter to the HDFC shareholders, the chairman of HDFC, Deepak Parekh slammed developers for not differentiating between super built-up area and carpet area (internal wall to wall area) of the houses that they sell. He further said that developers misguide buyers by selling on the basis of super built-up area, without clearly mentioning how much is the carpet area. Parekh added, “There are instances where the difference between the carpet and super built-up area is as high as 50 per cent. Bifurcating the carpet area and common amenities increases transparency in the transaction. Ironically, though some states have legislation for flats to be sold on the basis of carpet area, what is lacking is enforcement.”
If experts like Parekh feel that carpet area should be the basis of transactions then why do developers charge buyers on the basis of super built-up area? In Delhi, the authorities are following the recommendations of new the Master Plan of Delhi 2021 (MPD 2021). But these are not enforced.
Buyers pay extra
Anuj Puri, chairman and country head, Jones Lang Lasalle Meghraj says, “Building bylaws and regulations differ from state to state and even city to city. However, it invariably turns out that property buyers are required to pay for construction that falls in FSI-free areas—areas of congregation, passage, and common conveniences. In a typical project, these areas do not tend to constitute more than 15-20 per cent of the overall FSI. Nevertheless, all that a buyer would really wish to pay for is the exact amount of space available for personal use in the property—in other words, the carpet area.” However, as Puri says, you can’t have a house without walls so the buyer ends up paying for the space occupies by the walls as well occupy, by this criterion, he buyer will have to pay for built-up area. Puri contends, “This is, of course, unavoidable.”
Also, if one takes an example of any of the projects in the country, he will find by a simple calculation that he is being charged extra. Let us say the developer is charging Rs 2,500 per sq ft as a basic rate. The buyer is interested in buying an apartment of 1,250 sq ft. So the value of the apartment stands to be Rs 31.25 lakh (Rs 2,500 sq ft X 1,250 sq ft). But this does not include the parking charges and maintenance charges. The price calculated does not include the preferential location charges (PLC) either.
Optionals have become mandatory
Pradeep Mishra, a real estate consultant says, “Developers fix the price on their own. Charging PLC is not logical. Sometimes developers charge a PLC on the ninth and tenth floor also. The reason they give is that the apartment is facing a green, when in fact the green is just a small park in the centre of the project. Moreover, the developer charges PLCs on corner and road-side flats also. Usually, there should be PLCs only for ground floor apartments.”
The preferential location charges are usually 5 to 20 per cent and developers adds their cost to the price of the apartment.
Puri of JLLM says, “In yet another twist to the situation, the developer adds facilities (read common spaces) to the area of the apartment, which the law does not require him to.” He adds, these spaces because they enhance the ambience of his project. For example, the law requires a residential building to have only one parking place for a certain number of flats. However, almost all prospective buyers in a metropolitan city would own cars, so the developer provides more than what the law requires. He offloads the enhanced cost on his clients, definitely charging them for more than they are getting.
Sunder Khatri, a Delhi-based lawyer dealing in property-related cases says, “In many cases, the basement is also charged, which does not count while calculating the floor to area ratio (FAR). Usually, the basement is meant for parking and storage. And as such the developer should give one free parking space. No authority uses words like super built-up area. So developers are misusing the terms. They are flouting the norms.”
He adds, “Common amenities is the right term to be used, and it is job of the town planner and various other departments to sanction the projects. In general, developers take a pre-approval and then later on add the amenities and other specification as per their need.”
Need for regulation
Parsvnath COO, B P Dhaka says, “We need a regulator who can set rules for sales and common spaces. Carpet area should be the norm for selling, as that is the living area. Why should one pay for the extra area and common spaces. And it is likely that anybody living in a metro in a Rs 35-40 lakh apartment will own a car. So there should be one car space per apartment in the housing. It is the developer’s responsibility.”
But developers say, the government asks them to provide all possible amenities including shops, hospitals, and schools while constructing projects of a certain scale (such as townships). These incur extra costs on them.
Somebody has to pay
In a way the developer is justified in offloading the cost of such facilities on his buyers. But the addition of such amenities adds value to the project. But as Puri of JLLM says, “There is no there satisfactory means of establishing to what extent he can offload the extra cost on his clients.”
Parry Singh, managing director, Red Fort Capital says, “World over people transact on the basis of carpet area. This is a good practice, as buyers have to pay for only the area they are living in. As per my knowledge, only one developer in Mumbai is selling on the basis of carpet area.”
As Parekh said in his letter, “Just about anyone today can become a developer or broker. Developers rarely offer any warranty for the flats and in case of disputes, consumers have only the consumer or civil courts as recourse—both of which may take ages before a case can even come up for hearing…. From the consumer’s perspective, a house is the single-largest investment a person makes in his or her lifetime. It is only fair that there is some effective mechanism that can take care of grievances and ensure basic consumer protection.”
That effective defence mechanism can be a real estate regulatory authority.
If experts like Parekh feel that carpet area should be the basis of transactions then why do developers charge buyers on the basis of super built-up area? In Delhi, the authorities are following the recommendations of new the Master Plan of Delhi 2021 (MPD 2021). But these are not enforced.
Buyers pay extra
Anuj Puri, chairman and country head, Jones Lang Lasalle Meghraj says, “Building bylaws and regulations differ from state to state and even city to city. However, it invariably turns out that property buyers are required to pay for construction that falls in FSI-free areas—areas of congregation, passage, and common conveniences. In a typical project, these areas do not tend to constitute more than 15-20 per cent of the overall FSI. Nevertheless, all that a buyer would really wish to pay for is the exact amount of space available for personal use in the property—in other words, the carpet area.” However, as Puri says, you can’t have a house without walls so the buyer ends up paying for the space occupies by the walls as well occupy, by this criterion, he buyer will have to pay for built-up area. Puri contends, “This is, of course, unavoidable.”
Also, if one takes an example of any of the projects in the country, he will find by a simple calculation that he is being charged extra. Let us say the developer is charging Rs 2,500 per sq ft as a basic rate. The buyer is interested in buying an apartment of 1,250 sq ft. So the value of the apartment stands to be Rs 31.25 lakh (Rs 2,500 sq ft X 1,250 sq ft). But this does not include the parking charges and maintenance charges. The price calculated does not include the preferential location charges (PLC) either.
Optionals have become mandatory
Pradeep Mishra, a real estate consultant says, “Developers fix the price on their own. Charging PLC is not logical. Sometimes developers charge a PLC on the ninth and tenth floor also. The reason they give is that the apartment is facing a green, when in fact the green is just a small park in the centre of the project. Moreover, the developer charges PLCs on corner and road-side flats also. Usually, there should be PLCs only for ground floor apartments.”
The preferential location charges are usually 5 to 20 per cent and developers adds their cost to the price of the apartment.
Puri of JLLM says, “In yet another twist to the situation, the developer adds facilities (read common spaces) to the area of the apartment, which the law does not require him to.” He adds, these spaces because they enhance the ambience of his project. For example, the law requires a residential building to have only one parking place for a certain number of flats. However, almost all prospective buyers in a metropolitan city would own cars, so the developer provides more than what the law requires. He offloads the enhanced cost on his clients, definitely charging them for more than they are getting.
Sunder Khatri, a Delhi-based lawyer dealing in property-related cases says, “In many cases, the basement is also charged, which does not count while calculating the floor to area ratio (FAR). Usually, the basement is meant for parking and storage. And as such the developer should give one free parking space. No authority uses words like super built-up area. So developers are misusing the terms. They are flouting the norms.”
He adds, “Common amenities is the right term to be used, and it is job of the town planner and various other departments to sanction the projects. In general, developers take a pre-approval and then later on add the amenities and other specification as per their need.”
Need for regulation
Parsvnath COO, B P Dhaka says, “We need a regulator who can set rules for sales and common spaces. Carpet area should be the norm for selling, as that is the living area. Why should one pay for the extra area and common spaces. And it is likely that anybody living in a metro in a Rs 35-40 lakh apartment will own a car. So there should be one car space per apartment in the housing. It is the developer’s responsibility.”
But developers say, the government asks them to provide all possible amenities including shops, hospitals, and schools while constructing projects of a certain scale (such as townships). These incur extra costs on them.
Somebody has to pay
In a way the developer is justified in offloading the cost of such facilities on his buyers. But the addition of such amenities adds value to the project. But as Puri of JLLM says, “There is no there satisfactory means of establishing to what extent he can offload the extra cost on his clients.”
Parry Singh, managing director, Red Fort Capital says, “World over people transact on the basis of carpet area. This is a good practice, as buyers have to pay for only the area they are living in. As per my knowledge, only one developer in Mumbai is selling on the basis of carpet area.”
As Parekh said in his letter, “Just about anyone today can become a developer or broker. Developers rarely offer any warranty for the flats and in case of disputes, consumers have only the consumer or civil courts as recourse—both of which may take ages before a case can even come up for hearing…. From the consumer’s perspective, a house is the single-largest investment a person makes in his or her lifetime. It is only fair that there is some effective mechanism that can take care of grievances and ensure basic consumer protection.”
That effective defence mechanism can be a real estate regulatory authority.