How to Handle the Property Handover Delay and Home Loan EMIs.
Many home buyers’ biggest nightmare is the situation where they face delays in the handover of apartment / villa . Assuming that the buyer is living in a rented house and has booked a brand new apartment using a home loan, and is about to move out soon. Nevertheless, there is a delay in handing over the apartment, and the equated monthly installment period has also begun. As a result, one has to deal with EMI and rent at the same time. A situation like this would also be stressful for the buyer. Unfortunately, real estate builders are often involved in this practice, which has become rampant.
Consequences of Delays :
Delays in handover are mostly due to delays in approvals, financial crunch, or the builders’ inability to complete the construction. The consequences of delays, however, fall on the buyer.
The buyer may be forced to pay higher pre-EMIs as a result of these delays or be unable to claim tax deductions or benefits such as Rs.1.5 lakhs under section 80c and Rs.2 lakhs under section 24 towards the payment of the loan’s interest.
To avail of the deduction under Section 24, the buyer must get possession of the property within three years of taking the loan. If the 3-year deadline is not met, the deduction benefit reduces to only Rs30,000 per year.
Hence the question arises whether the buyers should suffer for the delays in possession caused by the builder. Should they suffer the financial implications because of the economic crunch faced by builders?
How buyers can handle these situations ?
Before selecting a project one should always do some groundwork about the developers , their credibility, and their previous projects. Once they have made the purchase decision always check for payment plans, exact delivery date, and penalty clause in the agreements.
In the absence of a penalty clause or an exact delivery date, insist that the developer incorporate it into the contract so that when delays in handover occur, they can be handled.
Ensure that developers have included provisions in the penalty clause such as compensation or a percentage of interest they will pay to the buyer when the project is delayed.
Consider a situation where a person is renting a property and has taken out a home loan to buy a new apartment / villa , but the possession of the same is delayed. In this situation, the buyer will have increased financial responsibility. In addition to rent, they also have to pay EMIs.
One of the solutions is to always factor in delays while buying a property with help of loans. The other option could be delaying the home loan with the help of your savings i.e. pay the few installments out of savings like liquidating some of the investments to pay the initial installments.
Before liquidating the investment always consider the opportunity cost of utilizing the amount. Another solution is buyers could opt for a moratorium period on the home loan.
Moratorium period :
A moratorium period is a legally authorized period that delays the payment of EMI on account of specific loan installments. With borrowers not having to start repaying their loan as soon as it gets disbursed, they can avail of what’s known as an EMI holiday and begin paying EMIs after a break.
This will reduce the financial burden temporarily and allows the buyer to plan their financial obligations. Of course moratorium period has drawbacks such as the missed EMIs being added to the principal, Hence additional interest charges may be applied.
Moreover, a moratorium period is provided based on the loan eligibility of an individual and the loan amount availed by the same.
Before opting for a moratorium period always discuss with the banker about interest rates and other terms and conditions. All the above-said solutions are suitable when the delays are for a shorter tenure.
When the delay takes a year or more than a year the first thing buyer can do is talk to other buyers in the same project and form an association. The association can arrange a meeting with the developer to discuss the compensation or possible solutions or else they can take legal recourse.
Legal path :
Property buyers can always approach RERA or respective legal bodies when they face delays in handover. RERA will appoint one or more mediating authorities to settle the dispute. Buyers can also refer to certain court rulings on the cases below to make themselves aware of their rights.
- Interest has to be paid by the builder to the buyer for the delay in possession- Ghaziabad Development Authority vs Balbir Singh 2005CTJ 124.
- Buyer is entitled to opt-out of a project if there is a delay in delivery and buyer is entitled to receive a full refund with reasonable interest – said National Consumer Commission in the case of a resident of Agra, Indira Gupta against Agra Development Authority.
- The Supreme Court made a ruling against DLF Southern Homes Pvt Ltd (now known as BEGUR OMR Homes Pvt Ltd) and Annabel Builders & Developers Pvt Ltd saying that builders should pay buyers annual interest on the cost of the flat for the period of delay in its delivery, in addition to the meagre monthly per square foot penalty mentioned in the apartment buyers agreement (ABA).
RERA’s bills also allow buyers to opt out of the project if there is a delay in handover and buyers also can claim a full refund with interest if the developers fail to deliver the project on time.
To make sure that the projects are completed on time RERA has made a provision where the developer should deposit 50% of the amount received from the buyer in a separate bank account within 15 days. This avoids financial crunch as a possibility of delay.