Beware of assured returns

Assured return as an offering of funding methodology in real estate, be it commercial and retail or residential has not been successfully executed at the ground level das it has always been marketed and accepted as a scheme and has never been regulated by any government body. In other developed markets across the world such schemes are duly regulated to attract public funding, including crowdfunding etc. 

Many serious developers have successfully worked on such funding methodology as it also serves as “good press” for a developer who delivers on the promise of assured returns along with timely completion of the project.

Assured return schemes in India started at a time  when there was no Industry status or any kind of regulatory authority in place in the real estate sector.  Many new developers were facing financial difficulties due to slowdown in the market and were not able to raise funds below 14-16 per cent pa interest rate.  To the buyers making down payment,  they promised 11 or 12 per cent assured return after a certain time period. It was a win-win situation for the developer as well as the investors. Till recently various developers had lured investors by promising assured income in commercial and retail properties and even in residential assets in recently launched or under construction projects. But there have also been cases in which the developer siphoned off the funds to other projects and the buyers being left high and dry with neither the completed flat nor the assured return. 

However, now all this may become a thing of the past as the Cabinet has recently banned unregulated deposit schemes and a law in this regard is expected to be put in place soon. It may now be mandatory for all deposit seekers to register with the designated authority provided under the proposed law.

This is an excellent move by the Cabinet to ensure that the investor is not duped by the developer. The role of Real Estate (Regulation and Development) Act, 2016 has become pivotal now, as people will ask for refund as henceforth such schemes will be considered illegal.

Nevertheless, in spite of steps taken by the government, some developers are still offering assured monthly rentals to the investors — interpreting law in their own way using loopholes. 

Prospective buyers and investors should desist from investing in such schemes as these are usually being offered in cases where capital for execution and development of project is not adequate and your investment would be at risk for any kind of further unidentified hindrances arises in the project.

— The writer is Chairman, Hawelia Group