Developers Charge Certain Flat Owners As Much As 2,000 Per Sq Ft For Right To Resell Properties

Market in a whirl, builders raise transfer fees manifold 

    When Mumbai's realty market was booming three years ago, it was scarcely thinkable that a flat owner would have to pay the builder a fee to be able to resell his own property. Today, though, it is not only thinkable but a disheartening reality. As realty prices peak and sales drop, city developers are demanding their pound of flesh from buyers who desire an early exit. In the past few months, many of them have doubled—in cases, octupled—the transfer charges on resale of flats that were booked while under construction and ready properties where a society is not yet formed. Their move, property experts say, only serves to keep the prices high. 
    Where till recently builders were charging Rs 200 per sq ft as transfer fee, today they are seeking as high as Rs 2,000 a sq ft from investors, which include second home buyers who want to sell their flats before the developer disposes of the stock. 
    Between Bandra and Vile Parle, the transfer charge has reached a rate of Rs 2,000 a sq ft. In areas from Borivli to Malad, Rs 250 a sq ft is said to be the going rate. In Powai, the fee is Rs 300 to Rs 500 a sq ft, though in developments by one well-known builder, the figure is about Rs 1,000 per sq ft. In south Mumbai, a transfer fee of Rs 1 lakh per sq ft is not extraordinary. 
    Developers argue the charge is aimed at blocking speculative investors (those who buy flats just to sell them later after earning a profit). Before a project in launched in the open market, a developer usually pre-sells up to 30% of the total project at a lucrative price to a small group of high-net-worth individuals. Not everyone buys builders' argument, however. 
    A Borivli-based broker said: "This is ridiculous. If I am the flat owner, why should I pay the builder before I can resell the property? I have three flat owners who are negotiating with developers to get the transfer fee reduced so they can liquidate their assets. Two of them are in need of money while the third wants to sell since he has earned a good profit." 
    Kantilal Underkat, a solicitor, said the practice of transfer fee is illegal. "But since these payments are normally made in cash, no complaints are filed. Buyers and sellers do not protest since they do not want to go against the builder lest they are harassed later." 
    Transfer charges is just one thing, some developers have adopted other measures to limit flat owners. In pre-launch sales, they add the stipulation of a lock-in period, whereby buyers cannot sell their flats for two to three years. Also, if after giving 50% as down payment, the buyer wants to sell the property, the developer gets the first right of refusal. If an owner still wants to sell the flat to a third party, he is expected to share 50% of the profits with the developer. 
    "Considering that these transactions are done in black, investors who have surplus funds do not mind sharing the money with developers" asked a consultant. "But why should genuine sellers share the cash?" 
    Transfer charges also prove a problem for buyers. For them to get a bank loan, a no-objection certificate from the developer is first required, which builders make contingent on transfer fee. 
    Paras Gundecha, who is the president of Maharashtra Chamber of Housing Industry and the chairman of Gundecha Group, said developers generally do not levy a transfer charge, though he admitted some might be indulging in the practice. "It is wrong as far as genuine sellers are concerned. But in the case of an investor—who wants to make quick money—developers would want a share of the profit." 
Safeguards sought in mega realty deals 
Mumbai: The prolonged bad phase in the property market, coupled with financial instability, has prompted sellers of high-value properties to demand a range of safeguards. 
Sellers like Hindustan Unilever, Standard Chartered, even the US consulate, have insisted that prospective buyers furnish bank guarantees, balance sheets, past track records of making payments, and, all importantly, details of how they intend to raise the funds. The US consulate has been so selective, in fact, that it reportedly refused to share the information memorandum on Washington House and Lincoln House with four developers on account of their balance sheets. Pranay Vakil, chairman of global property consultant Knight Frank, is not surprised by the conditions. "Unlike earlier, sellers are not talking of deferred payments. Nor are they talking of taking Earnest Money Deposit since the seller would be dissuaded from putting the property for sale if for some reason, the buyer is unable to pay the bid amount in a stipulated period. In such strained markets, the seller, therefore, wants to see 100% money on the table," said Vakil. 
The caution is perhaps not misplaced given the financial strain many developers are under. A builder last year sold about 40,000 sq ft of office space to a property fund at a lower rate even though it has to pay a big sum as interest to a bank. Another listed developer is negotiating to sell roughly 20 lakh sq ft FSI in a redevelopment scheme. And a leading south Mumbai developer has to pay dues worth over Rs 1,000 crore to a foreign bank from which it had borrowed loans. 
    In the recent past, experts believe, several transactions have fallen through or got delayed because of the buyers' ostensible incapability to make payments on time. In one instance, a developer paid the bid amount to the miffed owner of a textile mill in Prabhadevi almost a year after the joint venture agreement had been signed. 
    Citibank, meanwhile, is taking time before sealing the purchase of 3 lakh sq ft in FIFC tower at BKC because, it is claimed, the bank wants to keep a watch on its cash flow. 
    Experts say lack of available cash might have stopped some leading developers from participating in high profile land auctions, but it does not mean they do not have the abilities to raise funds. "These developers have shown their ability to deliver and not just to investors. It's just that at times like these, sellers have questions about whom to trust and whom not to. Non-developers, with their ready cash, therefore offer a safe bet," a consultant said. 
    Vijay Wadhwa, chairman of Wadhwa Developers, says the current market is more suited for users who want properties for personal or official use. "We are bullish but equally realistic of the property market. We didn't quote exorbitant rates in auctions since that would make the project unviable," he said.