India's real estate sector is regarded as a vital economic pillar because it
makes a significant contribution to meeting the country's housing and
infrastructure needs. The driving forces behind the expansion of the retail
sector and the demand for residential real estate are urbanization and the
rising household incomes.
This industry is still largely unregulated and opaque
due to a lack of professionalism, standardization, and appropriate consumer
awareness. In recent years, there has been a noticeable acceleration in the
growth rate of this industry. There are no industry-specific regulatory
organizations, in contrast to other specialized industries.
History shows that
the establishment of sectoral regulators such as TRAI, SEBI, and others has
always contributed to the development and strengthening of the market. Although
the Consumer Protection Act of 1986 provided a forum for real estate purchasers,
it was unable to address every problem that these consumers and industry
advocates encountered. The industry found it more challenging to expand in a
sensible and structured manner in the absence of standards.
The Indian
parliament enacted the Real Estate (Regulation and Development) Act, 2016 in
response to the issues. The purpose of RERA 2016, a new set of regulations meant
to deter influential parties in the real estate industry from engaging in
unethical business practices, is examined in this paper. This study uses a
doctrinal approach because it is exploratory by nature and emphasizes the
analytical and deductive aspects of legal reasoning throughout the process.
Introduction
"Fraud not only robs people of their hard-earned money, but it also erodes trust
in institutions and undermines the economy as a whole." – Elizabeth Warren[1]
Fraud in the real estate market is a significant problem in India that may have
severe effects on individuals, businesses, and the economy of the nation. These
effects of these fraudulent activities include monetary losses, legal issues,
and even personal insolvency for those who are impacted by the problem.
And
that's why it's crucial that we all know what real estate fraud is, how it
affects us, as well as what we can do to stop it. The real estate sector in
India, despite being a significant contributor to the economy, has become a
hotspot for scams and fraudulent activities. With rapid urbanization and rising
demand for property, many individuals and investors have fallen prey to
misleading developers, fake builders, and illegal practices. These scams often
lead to financial losses and long-lasting consequences for the victims.
Review of Literature:
This literature review summarises major results from scholarly studies and official sources to explain real estate frauds in India. Real estate fraud persists in India despite government efforts. Some researchers have examined the Real Estate Regulatory Authority and its role in fraud prevention. The source said demonetization, the Goods and Services Tax, and the Real Estate and Regulatory Authority will boost the Indian real estate sector (Bothlikar & Nanda, 2022).
Prakash Suneja, Proprietor at Prakash Suneja & Associates (Chartered Accountant), discussed his article related to real estate scams in India through "Real Estate Scams in India: A Growing Concern and How to Safeguard Your Investment."
An expanded definition is provided by Amit Kumar (2014) in his paper "Real Estate Frauds in India: An Analysis of Legal and Regulatory Framework," who writes that real estate fraud is "any activity that involves misleading, deceiving, or exploiting a person in a real estate transaction for personal gain."
The author cites a study by Ranjith Karat, Suraj ES, Jacob Joju, and Manoj PK on real estate fraud in India's business sector, focusing on the infrastructure and real estate markets in Digital India.
Hypotheses
The regulatory mechanisms implemented in India to prevent frauds in the real estate sector, including the evolving framework and the introduction of RERA, significantly contribute to increased transparency, reduced instances of fraud committed by developers and their agents, and alleviation of customer grievances. Therefore, it is hypothesized that the effective implementation of RERA as a regulatory mechanism plays a crucial role in preventing frauds and minimizing economic losses in the sector.
The aforementioned notion has led to the formulation of the following research problems:
To study the background, real estate scams, and the effectiveness of the regulatory mechanism in India to prevent frauds in the real estate sector.
The findings shed light on the evolving regulatory mechanism in place to create the real estate market more transparent and reduce frauds committed by developers and their agents, alleviating customer grievances and minimizing the country's economic losses. To find the effectiveness of RERA as a regulatory mechanism to prevent frauds in the real estate sector.
Methodology
This Research originates through Doctrinal Research.
The Act is a landmark piece of legislation that aims to protect the rights of
real estate purchasers and improve the transparency of the business.
Among the many new fraud-prevention measures established by RERA:
RERA intends to enlighten real estate purchasers and sellers for mutual benefit.
Secondly, developers must register real estate developments with RERA before selling. This helps buyers understand projects and assures legality.
Establish Escrow Accounts: Developers must secure customer funds in an escrow account to prevent misuse and assure project completion.
Financial Disclosures and Fund Management: Scholars investigate RERA's finances and explain how strict controls prevent fraud. Developers must account for all money and not redirect them under RERA, preventing financial fraud and mismanagement.
Developers must provide accurate project statements to protect consumers.
RERA provides a specific adjudication procedure for consumer disputes, enabling purchasers to resolve complaints quickly and effectively.
The strict penalties for noncompliance in RERA aim to prevent developers from engaging in dishonest behaviour. This study found that RERA reduced Indian real estate fraud. The National Housing Bank (NHB) discovered that RERA has reduced real estate fraud reports to the Indian Police Crime Record Bureau (IPRCB). The number of transactions recorded has grown because of RERA, according to the Confederation of Real Estate Developers' Associations of India (CREDAI).
While RERA has had some positive effects, it still has some work to do before it can successfully combat real estate fraud:
Some states struggle to execute RERA requirements due to insufficient resources and qualified people, making enforcement challenging.
Communication is crucial as many homebuyers lack knowledge of their rights under RERA and how to report fraud.
Thirdly, internet real estate platforms have become a new space for scammers, necessitating innovative surveillance and law enforcement strategies.
The RERA has been praised as a major step forward in India's fight against real estate fraud. The Act is yet in its infancy of implementation; thus, it needs to be seen how effective it will be in preventing future fraud.
Town and Country Planning (TCP) departments were the major regulatory agencies at the state level, authorizing and regulating land use and development plans. They prioritized urban planning and infrastructure over real estate regulation.
At Central Level Regulatory Authorities, the central government had limited and minimal direct regulatory oversight of the real estate sector.
Although the Ministry of Housing and Urban Affairs (MoHUA) was responsible for coordination, policymaking and planning for urban growth were its primary responsibilities.
While the NAREDCO (National Real Estate Development Council) had good intentions, its voluntary nature hampered its ability to enforce self-regulation and ethical norms among developers.
Consumers' Points of View and Advocacy: Consumer advocacy emerged in the pre-RERA era as a response to the difficulties encountered by buyers of residential property. Consumer Forum (NCDRC).
RERA Complaint Application
File the complaints under Section 31 of the Real Estate (Regulation and Development) Act 2016, with the Real Estate Regulatory Authority or the sit-in judgment official.
A grievance must be in the form recommended according to the particular State government's principles. In case a purchaser's privileges are damaged or any provisions of the Act are violated, then an objection can be filed under RERA in the setup provided by the relevant State government.
The grievance can be registered if the (home buyer, agent or builder) is facing either one of the following issues the appellant is confronting:
Charged higher than the actual rate of the property
Did not provide a receipt in favor of the money paid.
Furnished a low-quality construction.
Handed over a house that does not consent to the details settled upon.
Did not accommodate a free parking spot inside the compound.
Did not create a cooperative housing society and delivered it over to the property owners.
And, does not supply a water storage tank.
Also, did not provide enough ventilation and light.
Did not hand over the house within the stipulated time frame. In case the time frame is not cited, it is expected that the development will be done within a limit of two years from the date of the beginning of work.
Did not give the balance sheet for the costs against which the manufacturer has collected cash, for example, electrical fittings, maintenance, etc.
This list is not comprehensive and there can be a few issues, for which the objection can be filed against the promoters, allottees or potential realtors.
The application expenses are determined by the State Legislature, and the Centre does not have any say on it.
Advantages Of Filing A Grievance Under RERA
Chances of quick transfer of grievances.
Transparency.
The prerequisite of money is related to regulation by the promoters.
No uncertainty in area dimensions.
Promoters are at risk of payment for overdue delivery.
Adjudicating method to be set up.
It is generally simple to file a grievance in states where there is a working authority with a website. There is no predefined list of reports required for filing, however, the consent to sell, transport deed (assuming any), and application form is necessary.
Real Estate Scams in India
This happens with both individual sellers and developers. There have been cases where scammers have duplicated title deeds of vacant or disputed projects and sold them to innocent buyers.
Deliberate Delays:
Project delays and disappearing builders are another common occurrence in real estate fraud. One strategy unscrupulous builders resort to is to delay project completion deliberately until they get the requisite number of buyers.
Others divert the money pooled from one project to another, delaying both projects in the process.
Deviation from Approved Plans:
Many projects when completed take several deviations from the approved plan in terms of common areas. This poses a huge challenge for many buyers who have to compromise on common amenities, spaces, promised luxuries, and even on core project amenities like dedicated parking space despite having made additional payments for the same.
Delayed Approvals:
There are many cases reported where buyers are left wringing their hands in despair even after possession, since several sanctions for utilities like electricity connection, water connection, etc. were pending. Issues like plot in unauthorized layout or sub-divided land, building with land use violation, setback violations, floor area violations, etc. detected after agreement formalities and construction have commenced could lead to delay in other downstream.
Assured Rental Returns:
Many builders market their projects by assuring a fixed rental income from properties. Some builders even publish fake rental listings of various projects over the internet. If the prospective buyer does not conduct their own research, they may actually believe that the property once bought can be easily rented out for a fixed monthly income. But, in all reality, once the purchase is over, rentals are hard to come by, leaving the investor in a lurch.
Forced Cancellation:
In a rising market, the builder will try to find all types of faults with you and your payments. He will keep looking for excuses to cancel your booking so that he can sell the same unit to another investor at a higher rate. Some builders deliberately delay projects so that many investors panic and cancel their bookings. In such a case, the builder uses the investor's money without interest and also charges a cancellation penalty.
Pre-Launch Scam:
In a pre-launch scheme, the builder offers few units at a discounted price till the time he receives the approval. In an ideal pre-launch project, the builder should have applied for approvals and there should be no reason for approval to be rejected. However, some builders use this scheme as a bait to attract investors. The builder sells units without applying for approvals and has no plans to get approvals. The only aim is to raise money, use it to buy land or generate higher returns.
Predatory Lending:
Predatory lenders prey on borrowers who don't have good credit scores, typically charging them sky-high interest rates on mortgage loans. These high rates can leave borrowers with monthly payments they can't afford. Homeowners then run the risk of losing their homes to foreclosure if they start missing payments—while the predatory lenders happily collect the profits from those higher interest rates.
Wire Fraud and Escrow Scams:
Escrow arrangements are attractive targets for scammers. They might call, send you an email, or text you, claiming that they represent your title or escrow company. They'll ask you to send the money you need to open your escrow account to a bank account they created. When you do this, they'll take your money and disappear.
It can be easy to fall for these wire transfer scams, especially during the
hectic days of closing a mortgage loan and buying a home. Scammers create email
addresses or phone numbers that look almost identical to those used by your
legitimate title or escrow company.
The Nigerian prince scam
This is one of the oldest and most well-known tricks in the book. If you receive a strange email from someone claiming to be an imprisoned prince or king, be wary. Chances are they'll ask you to wire over bail money with the promise of repaying you later. If the scammer gets your funds, they'll promptly vanish from the face of the Earth.
Romance scams
Online dating sites can pave the way for long-term relationships—or devious schemes like romance scams. Here, cybercriminals create fake profiles, prey on vulnerable parties who are seeking romantic relationships, and convince others to send them money with elaborate stories. This con can go on for months or even years if left unchecked.
Bait-and-switch home listings
Bait-and-switch scams occur when a potential home buyer calls a realtor or real estate agent to ask about an advertised home that they saw for sale (on a site like Zillow, Craigslist, or social media platform) that seems "too good to be true." First, the agent informs the caller that it's no longer for sale. Then, the agent offers to show other listings that are more expensive or of lower quality.
Hidden property damage (and shady property inspectors)
Buyers can become victims to home inspection scams. For example, home inspectors may either intentionally perform a poor inspection or lack the necessary knowledge and skills needed to perform the inspection. Regardless, the result is a report that misses damages or problems (or intentionally leaves the information out). Unfortunately, the buyer ends up with a home that needs unexpected repairs.
"We Buy Homes For Cash" scams
Homeowners who are facing foreclosure, can't afford home repairs, or need to sell quickly "as is" may be tempted by "We Buy Homes For Cash" offers. There are legitimate companies that buy properties for quick cash payments — however, there are also scam artists who use this as a front for their frauds.
Reverse mortgage scams
Reverse mortgages are loans designed for property owners who are ages 62 and older. They can borrow against their home's equity and not have to repay it until they move or pass away. Legitimate reverse mortgages are available under the Federal Housing Administration's Home Equity Conversion Mortgage program. However, scam artists often target seniors with fake reverse mortgage scams that con homeowners out of money, equity, and sometimes their homes.
Notorious Real Estate Fraud Cases in India
The BPTP Scam
What Happened? BPTP, a well-known real estate developer, faced allegations of duping homebuyers by delaying possession, changing project specifications, and not delivering promised amenities. Many buyers paid hefty sums but never received their properties as per the agreements.
Amrapali Group Fraud
What Happened? Amrapali Group collected advances from over 42,000 homebuyers for projects across Noida and Greater Noida but failed to deliver properties on time. Instead, funds were diverted for personal luxuries and other business activities.
Unitech Limited Fraud
What Happened? Unitech Limited, once a leading real estate player, collected huge sums from homebuyers and investors but delayed projects indefinitely. Investigations revealed fund diversion, financial mismanagement, and non-compliance with building regulations.
Supertech Twin Towers Scam
What Happened? Supertech Group built twin towers in Noida in violation of building regulations. The project exceeded permitted heights, encroached on open spaces, and ignored environmental guidelines.
Who Are the Main Targets of Real Estate Scams?
Real estate scams targeting home buyers
Fraudsters intercept wire transfers meant for down payments, create fraudulent or misleading listings, and trick would-be homeowners into paying deposits on "invisible" listings.
Investment schemes
Scammers may try to lure people into investing in fake real estate developments or other fraudulent investment opportunities. They promise high returns with little risk, but the investments are often fake.
Title fraud
Scammers may try to steal the title to a property by forging documents or using other fraudulent methods. They may then sell the property to an unsuspecting buyer.
Mortgage and other scams targeting current homeowners
From mortgage wire fraud to reverse mortgages, these schemes are designed to trick homeowners into giving big payments to scammers.
Were You the Victim of a Real Estate Scam?
Tell someone you trust, Many people are embarrassed that they got scammed. However, fraudsters rely on victims keeping quiet to continue their scams without getting caught.
Cancel any loans, If the real estate scammer had you take out a loan or do a reverse mortgage, reach out to the lender within three days. This is typically within a contract's "cooling-off period."
Freeze your credit with the three major credit bureaus — TransUnion, Equifax, and Experian. When you freeze your credit, scammers can't open a bank account or get a credit card in your name. You can lock your Experian credit file with just one tap by using Aura's easy-to-use mobile or desktop app.
File a chargeback for any payments that you made to the scammer.
If you made payments to the scammer, contact your bank or credit card company to report the charge right away. You may be able to reverse a wire transfer or get the charge removed from your credit card account.
Save any communication you had with the scammer. This information may not only help you get your money back but can also be used to prosecute the scammer.
File reports with the Federal Trade Commission (FTC), the FBI's Internet Crime Complaint Center (IC), and local law enforcement. You can report a crime at Identity Theft. Gov as well as file a police report with local law enforcement agencies.
Pay close attention to your credit report for any signs of fraud or identity theft. Aura constantly monitors your personal and financial information for signs of fraud. If the worst should happen, every member of an Aura plan is also covered for up to $1,000,000 in eligible losses due to identity theft. Learn more about how Aura can help keep you safe from scammers.
When it comes to buying and selling real estate, it pays to do your due diligence and not jump into anything too quickly. Scammers take advantage of the complicated and lucrative home buying process to try and scam you out of your hard-earned money.
Be vigilant in looking for the warning signs of a real estate scam. And for extra security, consider signing up for Aura's top-rated identity theft protection solution, which includes home title and credit monitoring with every plan.
Judicial Interpretation
Lalita Kumari v. Government of Uttar Pradesh (2013) Registration of FIRs, which is a duty of the police, is mandatory in cases of cognizable offenses. Fraud in selling and buying real estate is hence cognizable.
M/s. Satyam Shivam Sundaram v. State of U.P. (2013) Key Takeaway: Buyers are entitled to get compensation in case of delayed possession.
K.K. Verma v. Union of India (2007) Overview: The compensation payable for land acquisition should be just and fair.
Bangalore Development Authority vs. R. Vasudeva (2006) Principle laid down: "It should be fair play and transparent as far as the allotment of property is concerned by those at the helm of affairs."
Conclusion
Real estate fraud is a pervasive issue that can have devastating consequences.
However, with comprehensive research and analysis, the real estate industry can
reduce fraud risk and build a more trustworthy market. By leveraging technology,
maintaining transparency, and performing due diligence, stakeholders can protect
their investments and create a safer environment for property transactions.
Real estate scams in India are a growing concern, but with awareness and
caution, you can protect yourself from falling victim to fraud. By conducting
thorough research, verifying documents, and choosing regulated developers, you
can make informed decisions and ensure that your real estate investments are
secure.
Therefore, these reforms provide a more dependable and efficient market
for homebuyers, boosting trust in property investments. These landmark cases
help the professionals and People in understanding the constantly changing
facets of real estate law, as with increased regulation, this industry is
getting to be very consumer-oriented.
Suggestion:
Double-check Borrower Information: Make sure the person asking for the loan is telling the truth about their job, income, and who they are.
Look at Property Values: Work with trusted appraisers to make sure the home's price is real and not pumped up.
Review Credit Reports: Look closely at the person's credit history for anything weird, like too many recent loan requests.
Use AI and Tech: Use advanced tools like artificial intelligence (AI) to spot strange things in loan applications, like quickly changing home prices or fast ownership changes.
Track Money Movements: Keep an eye on how money is moving in and out, looking for anything that seems off.
Get a Second Opinion: Always hire outside appraisers to avoid any funny business between buyers and appraisers. Do random checks of loan files to make sure everything looks good and no steps are skipped.
Teach Employees to Spot Fraud: Help your team learn about different tricks and scams, like fake income reports or people stealing house titles.
Look for Warning Signs: Train staff to notice red flags, like missing papers or buyers who seem in a rush.
Audit Regularly: Do regular checks on your system to make sure everything is following the rules.
Check Titles: Always confirm that the property titles are clear of any problems or fake transfers before giving out a loan.
Teach Borrowers: Give your customers simple tips on how to avoid scams, like fake foreclosure help or too-good-to-be-true offers.
Offer Help: Provide resources so borrowers can check the status of their title or mortgage anytime.
Thus, the real estate scams, were examined in this Research paper.
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Award-Winning Article Written By: Advocate Manisha G
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