Some Real Estate companies are using barter type deal to sell their product. They are offering assured return on investment for construction period, guarantee for lease after construction and many lucrative offers. Many property
owners are entering into contract with such real estate companies by believing the offer and most of them are not verifying the financial strength of the builder.
How builders are doing barter type of business
Barter type deal is like this:
The builder will purchase our property at market rate. They will definitely offer more than market price for our property.
The builder will offer to allot space from their project which will be constructed in the next few years. The space allocation will be on the basis of price of our property.
The transaction will be done in a proper way like this:
The builder will give us the sale purchase of our property and execute sale deed
Then the builder will collect the same amount from us and allot space for the particular amount and execute Agreement to Sell. The sale deed will be executed by the builder only after construction of the property.
All agreements related to the project may be on circle rate, which may be much lesser than the actual sale value.
What will happen after execution of the transaction?
Immediately after execution of sale deed the builder will sell out the property sold by us and collect money.
We will get assured return for few months. In fact the assured return will be giving from our money only, because the builder is not generating any profit from the particular project as the project will be under construction.
If the project is a success, it is well and good.
If the project is failed, the investor will be in trouble, because:
The Agreement to sell executed between the buyer and the Builder may be at circle rate which will be much lesser than the actual value.
If the case went for litigation, the buyer can claim only the amount mentioned in the agreement. In such situation the builder will be benefited.
Many builders are using barter technique to attract property owners to enter into deal with them. One of our clients has requested us to conduct inspection of one of such builders. The situation was like this.
On inspection it was found that the multi Crore deals were offered by a newly incorporated company with Rs. 1 lac share capital. They did not own any land or property. One of their independent Group Companies owned a property which was already mortgaged to a bank.
Mode of working of companies deal in property barter
Many of the companies dealing in barter type business against future projects are purchasing the property from customers.
Allotting space from a future project
Selling the property of the investor and realizing the money
Giving assured return from the money realized from sale of the property
Most of their project are for long term and may fail due to one or another reason.
After failure of the project, the only option left with the buyer is to go for litigation.
Since the agreement to sell may be executed for a lower price, the customer will get a lower amount even after litigation.
Precautions before investing in real estate projects