Assured return schemes in real estate have often been presented as a lucrative investment opportunity, promising high returns on under-construction properties. However, these schemes can be fraught with risks and legal complexities. This article explores the intricacies of assured returns in the real estate sector and why they may be more deceptive than they appear.
Understanding Assured Returns
Assured returns in real estate refer to a commitment by developers to pay a fixed return on the amount invested in an under-construction property. These returns, typically ranging between 12-18% per annum, are paid until the property is handed over to the buyer.
How They Work:
- Investment in Under-Construction Property: Buyers invest in properties that are still being built.
- Fixed Returns Until Possession: Developers pay a fixed percentage of the investment as returns until the property is completed and possession is handed over.
- End of Returns Post Possession: Once the property is ready for occupancy, the assured returns cease, and the buyer retains ownership of the property.
Origins and Marketing Strategies
Initially, assured return schemes targeted commercial real estate to entice hesitant investors. Developers promised monthly returns to make the investment more appealing. This strategy later expanded to residential properties, helping developers secure funds for ongoing projects while providing buyers with an income stream during the construction period.
Marketing Tactics:
- Fixed Percentage Returns: Promises of annual returns between 12-18% until possession.
- Monthly Rent Promises: Some developers offer fixed monthly rents during the construction period, making the deal appear even more attractive.
Risks and Controversies
Despite their allure, assured return schemes have been the subject of significant controversy:
Regulatory Crackdown:
- SEBI’s 2016 Declaration: The Securities and Exchange Board of India (SEBI) labeled assured return schemes as fraudulent, likening them to Ponzi schemes. SEBI highlighted the unrealistic high-interest rates and the investment in non-income generating properties as major issues.
- RERA’s Stance: The Real Estate Regulatory Authority (RERA) also opposes these schemes. Buyers can file complaints against developers offering assured returns, but assistance may be limited for investments made post-SEBI’s ban.
Developer Defaults:
- Failure to Honor Payments: Many developers have defaulted on their assured return promises, leading to prolonged legal battles for buyers. Recovering promised returns can be difficult and time-consuming, often with limited success.
Continuing the Practice
Despite regulatory measures, some developers still offer assured returns, using tactics like:
- Discount Portrayal: Marketing assured returns as discounts rather than direct payments.
- Word-of-Mouth Promotion: Offering assured returns through informal channels to avoid regulatory scrutiny.
Lessons for Buyers
Investing in assured return schemes requires caution and thorough research. Here are key points to consider:
- High Discounts as Red Flags: Substantial discounts or returns may indicate underlying issues with the developer or the project.
- Legal Awareness: Understand that investing in assured return schemes post-2016 SEBI ban is risky and possibly illegal.
- Due Diligence: Conduct extensive research on the developer’s track record and the project’s legal status.
- Fundamental Evaluation: Focus on property location, quality, and growth potential rather than enticing returns.
Conclusion
Assured returns in real estate, while tempting, come with significant risks. Buyers should prioritize thorough assessment of developers and projects, and be aware of the legal implications. By staying informed and cautious, investors can make more secure and prudent decisions in the real estate market.
By understanding the realities of assured return schemes and prioritizing due diligence, property buyers can better navigate the complexities of real estate investments and safeguard their financial interests.