A Comprehensive Guide for Indian Home Buyers to Safeguard Themselves from Property Frauds

Builders come up with new schemes, exposing buyers to various scams, from deceptive investments to delayed constructions and possessions.

10 May 2024

By Ishika Kumar

Investing in real estate can be a lucrative endeavour, yet it’s fraught with risks, particularly in India where property scams abound. Despite the potential rewards, buyers must exercise caution to avoid falling victim to fraudulent practices that permeate the market. 

Although there are laws like the Real Estate (Regulation and Development) Act of 2016 or RERA to protect home buyers, the real estate industry still sees a rise in scams. Buyers often fall for lower prices, making them susceptible to fraud despite increased protection. Builders come up with new schemes, exposing buyers to various scams, from deceptive investments to delayed constructions and possessions.

This article aims to illuminate the common pitfalls encountered by prospective homebuyers and provide pragmatic strategies to navigate through the murky waters of real estate transactions.

The Landscape of Property Frauds in India

The Indian real estate market, buoyed by escalating prices and investment prospects, presents an enticing facade that often masks underlying scams orchestrated by unscrupulous developers and counterfeit listings. These scams manifest in multifarious forms, ranging from title frauds to false promises of assured returns, ensnaring unsuspecting buyers in their intricate web of deceit.

Deciphering Common Property Scams

·        Title Fraud: Perpetrators fabricate ownership documents, peddling properties they do not rightfully own. The foundation of any property transaction lies in clear and undisputed ownership. However, unscrupulous individuals often exploit loopholes in documentation, fabricating ownership claims to perpetrate title fraud. Prospective buyers should be vigilant and must exercise due diligence, meticulously scrutinising property titles to avert this peril.

·        Assured Returns: Beware of developers guaranteeing exorbitant returns, a ruse often employed to lure buyers into investing substantial sums, only to be left disillusioned when promises remain unfulfilled. This allure of guaranteed returns can be irresistible, yet it often serves as a smokescreen for underlying deception. Developers peddle promises of exorbitant returns, only to abscond with investors’ hard-earned capital, leaving behind a trail of broken dreams and financial ruin.

·        Inordinate Delays: Under-construction properties plagued by incessant delays signal potential trouble, with funds diverted for purposes other than construction, exacerbating the risk for investors. These delays serve as breeding grounds for fraudsters seeking to exploit investors’ vulnerabilities. Funds intended for construction are syphoned off for personal gain, leaving investors stranded in a swamp of deceit and despair.

·    False Promises: Builders may entice buyers with tantalising offers, concealing ulterior motives that could precipitate financial loss and disillusionment. They are adept at spinning webs of deceit to lure unsuspecting buyers with lofty promises and grandiose visions, only to deliver a mirage of shattered dreams. Prospective buyers must exercise caution, scrutinising every claim with a discerning eye to discern fact from fiction.

·        Forced Cancellation: Developers resort to coercive tactics to annul bookings, capitalising on rising market values to sell properties at inflated prices. The pervasive nature of fraud in the real estate sector is laden with such instances. Buyers must remain vigilant, refusing to succumb to pressure tactics and demanding transparency at every juncture of the transaction.

·        Pre-Launch Scams: Tempting pre-launch offers mask a developer’s lack of requisite approvals, a ploy to syphon funds for personal gain rather than advancing the project, with developers exploiting regulatory loopholes to fleece unsuspecting investors. Buyers must tread cautiously, verifying the legitimacy of projects and scrutinising developers’ credentials before committing their hard-earned capital.

·        Deviation from Plans & Specifications: Variances between promised amenities and actual deliverables highlight the builder’s deceptive intent, necessitating rigorous scrutiny of contractual agreements. Plans should be followed up with every step of the way, ensuring that they are being implemented exactly as they were initially promised.

Identifying Red Flags

            ·        Seller’s Haste: A rushed transaction often portends fraudulent intent. A sense of urgency spread through the transaction process should serve as a warning sign, prompting buyers to exercise caution, thorough due diligence and conduct before committing to a purchase.

·        Unbelievably Low Prices: Deals too good to be true are often laced with deceit and conceal hidden pitfalls, necessitating meticulous examination of purported bargains to discern genuine opportunities from fraudulent schemes.

·        Evasion of Document Disclosure: Genuine sellers exhibit transparency in furnishing property documents. Sellers’ reluctance to furnish property documents raises red flags, signalling potential fraud. Evasion should always raise suspicion and demand heightened scrutiny.

·        Unregulated Locale: Properties situated in unregulated areas harbour inherent risks, with tenure uncertain and ownership rights ambiguous. Buyers must exercise caution and circumspection, avoiding investments in unregulated locales to mitigate potential risks.

·        Loan Application Rejection by Banks: Refusal of loan applications by banks signifies a clear indication of underlying discrepancies, serving as a harbinger of potential fraud. It warrants further investigation, and may potentially avert a disastrous investment.

·        Absentee Sellers: Absentee sellers leverage power of attorney to execute transactions, a tactic exploited by fraudsters to perpetrate scams. As there is no direct communication, the middle-persons can take advantage of the buyers by trapping them in ludicrous schemes, with no proper answers to queries.

·        Restricted Site Visits: Restriction on property visits by sellers signals duplicity, underscoring the need for multiple inspections to validate authenticity.

·        Exorbitant Token Money Demands: Predatory sellers coerce buyers into hefty token payments, indicative of nefarious designs and warranting vigilance.

·        Unsubstantiated Assured Returns: Schemes promising assured returns cloak underlying risks, requiring detailed evaluation before committing to the investment.

Safeguarding Against Property Frauds: 

            ·        Conduct Thorough Research: Prospective buyers must delve into market trends, scrutinise seller credibility and validate property ownership to pre-empt potential frauds. Knowledge is the first line of defence against property fraud.

·        Physical Site Inspection: Evaluate property condition firsthand, inspect surrounding neighbourhood amenities and ascertain structural integrity to mitigate risks. A firsthand assessment of the property is imperative to ascertain its suitability for preventing the risks associated with undisclosed defects or discrepancies.

·        Document Verification: Thoroughly review all property-related documents, supplemented by legal expertise to authenticate legitimacy, and safeguard against forgery or misrepresentation.

·        Avoid Cash Transactions: Insist on documented transactions, retain receipts and eschew cash dealings, as it is crucial to maintaining audit trails and mitigating financial risks inherent in real estate transactions.

·        Legal Consultation: Seek legal counsel to review contracts, identify loopholes and mitigate legal liabilities inherent in real estate transactions. Seeking legal counsel is indispensable in ensuring a smooth transaction process devoid of fraudulent practices.

·        Stay Vigilant: Remain alert throughout the transaction process, heed intuition and examine every detail to pre-empt potential frauds.

In conclusion, the real estate landscape in India teems with a wide array of inherent risks. It is disappointing but extremely frequent and normalised, necessitating prudent vigilance and due diligence on the part of buyers to thwart potential scams. 

By arming themselves with knowledge, exercising caution and availing legal expertise, homebuyers can navigate the treacherous terrain of property transactions unharmed, safeguarding their investments and securing their financial future.