Get Real Trust, but Verify

  • Abhishek Behl / FG
  • India
  • Apr 10, 2015

An urge to make a ‘killing’, a desire for ‘assured’ income, or a means to earn some ‘yield’ on a large stack of cash, has forced many people in Gurgaon, and in fact from across the country, to ‘invest’ in Real Estate in this City in many ‘forms’ – and in the process many have fallen prey to unscrupulous ‘builders’ and ‘agents’. Apart from losses in property frauds, hundreds of crores have been lost in 'investments' in various ‘ponzi’ schemes that are being run by builders, para-finance companies and even private chit-funds in and around the Millennium City. What is surprising is that even well educated professionals have been equally as gullible (and of course greedy) as uneducated farmers. Gurgaon has become the hub for these kinds of frauds because there is huge amount of cash floating in the City, due to the extensive and extremely profitable (till recently) sale and resale of land and property, by locals as well as national and even global players. The City is now ripe territory for such crimes. Even a village that did not have a single millionaire a decade ago now boasts of half the families being filthy rich. And the Real Estate transactions have been cash based – in large part or even fully. This huge unaccounted ‘bonus’, buttressed by rental and other income (again largely cash), has given the scamsters a lot of space to play in. Recently the Gurgaon Police lodged an FIR against a Delhi-based couple and a Gurgaon local for defrauding a senior citizen of Rs. 2.65 crores, by ‘selling’ a plot in Sushant Lok that they did not own. In a similar case, five people last month were booked for selling a plot that did not belong to them, to a property dealer. The five, including a woman, had duped the dealer of a couple of lakhs before they were caught. The same plot in Sector 67 had been used as a gambit to cheat a buyer of Rs 50 lakhs some years ago. While several such cases of individuals cheating gullible citizens have come to the fore, experts say that many frauds are not reported to the police as the victims do not wish the transaction to be made public for various reasons. Everything was better, if not fine, when the Real Estate industry was ‘growing’. Now, with a sluggish, if not dead, market for over a year, a number of fly-by-night builders are showing their true colours. They have no intention of completing their projects, as ‘investor churning’ and the consequent 'price fixing' is no longer possible. They have shut shop and seem to have no intention to repay the hard earned money of many buyers. Gurgaon Police has recently registered cases against more than a few builders (some even ‘reputed’), for failing to deliver on their promises to buyers for years, or for selling property without any relevant legal documents. While these cases of fraud may appear isolated, many in the industry believe that the underlying pattern is common. Sanjay Sharma, a Real Estate consultant, says that intense greed for ever-expensive needs is what tempts many people to invest in companies and assets that are of dubious quality. Referring to the assured return schemes offered by various ‘developers’, Sharma says that a ‘reputed’ company launched an assured return scheme in Manesar in 2007, promising assured returns, and later rentals as well. A large amount of money was mopped up with the help of heavy media advertising. The company later launched another scheme in Gurgaon, for setting up a commercial project, and crores were collected. However when the people asked the company to return their money, the promoters simply defaulted. The reportedly strong influence of many builders on the previous government ensured that even the police could do little. Such was the environment that even para-bankers, with no authenticity, opened shop and operated with impunity in the City.

While the Real Estate industry still offers the promise of a physical product to its buyers, the realm of these financers is totally shady and, despite many scams, even leading to suicides, this ‘shadow banking industry’ in the City is growing. The transactions are conducted simply on ‘reference’, implying trust - a commodity that is the most brittle nowadays. Based on positive references and a business that appeared to be doing rather well, a bakery owner in Palam Vihar managed to borrow almost Rs. 5 crores from the informal channel of ‘financers’ - many of them being erstwhile landowners of Bijwasan, Bajghera and villages around Palam Vihar. Impressed by the glib talk and ‘sophisticated’ manners of the businessman, they gave him lakhs of rupees without any proper legal documentation and formalities. The rates of interest were almost usurious, ranging between 4 to even 10 per cent per month in some cases. Vijay (name changed), who hails from a nearby village, says that he received interest at about 3 per cent for a year, and so decided to increase his loan amount. Lamenting now he says, “For the last one year I have got no interest, and the latest news is that the bakery owner has sold his house  and gone underground.” In fact when some of the financers went to ask for money from the businessmen they were confronted by  the family  members, who alleged that they were being harassed and threatened to call the police.

Amit, a Real Estate dealer, avers that if someone is lending money at more than 3 to 4 per cent per month interest, then there are good chances that the borrower will default.“ A majority of the people who take to fraud did not start their business to indulge in such activities, but their inability to handle failure sucks them into a vortex of deceit,” he adds. He personally knows of people who had to ‘indulge’ in shortchanging people after the market projections for Real Estate went completely wrong. Pawan, who has got caught in one such con, says, “Many erstwhile farmers have been ruined because of these operators, and I would strongly recommend that they should not give their money to anyone offering high interest or who promises to  double their money in 3 years. That is not possible.” There was a time when everyone in the City was becoming rich, investing in land and property, but once the things started slowing down, the skeletons came tumbling out. Even some of the top Real Estate companies in Gurgaon are being booked for making wrong promises, siphoning off money meant for a project, not meeting the standards and launching projects without sanctions. A Palam Vihar resident says that had the government agencies or the lenders been alert, most financial rip-offs could have been avoided. For example, the baker was a habitual offender, who has carried out similar scams in the past in neighbouring Delhi - and is likely to repeat the offence. Analysts and police officials say that such crimes flourish because of the presence of both motivated scamsters and moneyed but greedy ‘investors’, along with an ‘involved’ bureaucracy and politicians. Despite the heat being finally turned on now, the crimes are still growing because the scamsters believe that the reward of successfully carrying out a con far exceeds the risk of getting caught and punished. Globally too the rate of crime varies inversely with the intensity of enforcement of rules. Sharma says that the tendency to get rich quick and to not be left behind is still prevalent in this City.

 

With many across the board having been cheated, there is now a clamour for the setting up of a Better Business Bureau, like in the United States. Sanjay Sharma says that consumers in US can lodge a complaint with this Bureau, and it remains in the public domain so that anyone can check the veracity of various businesses. “There is a centralised database. You can check  any business and the character of its owners,” he says. In India, shady operators can start a business, run a scam, get caught, close shop, and then set up another company to start scamming again. Police investigations don’t leave any trail that can be checked and analysed. In this scenario it is therefore hardly surprising that a company like Mahadev Mutual Benefit Company, which has had a shady past, was able to run a ‘ponzi’ scheme worth hundreds of crores in Manesar for years; almost 50 people and entities have been scammed. The Police probe took over a year before they were able to register cases under Economic Offences. The Company had promised high returns and, after collecting crores mainly from gullible farmers, had then closed its offices, prompting a wave of protests. Similarly, a large number of buyers in Gurgaon and Rewari lost crores because PACL freely mopped up funds from investors by offering high interest rates, and when the time came to pay it vanished. American psychologist Cialdini has written that a large number of people get trapped by these cons because their greed is exploited to trap them. He adds: ‘When the intent is not right it leads to manipulation, and that is done best by scamsters who sell people hope, make excuses as long as one can, attack the messenger to detract scrutiny of one’s own actions, and exploit human gullibility in an extreme fashion’. GL Sharma, who is a politician and realtor as well, suggests that people should verify the authenticity of documents with revenue officials while buying a property. In many cases a single property is mortgaged to multiple financial institutions and later sold to unsuspecting buyers. Sometimes the real owners of a property give a General Power of Attorney (GPA) for the same to multiple persons. The cheat takes money from multiple buyers and makes good his escape before the matter is brought before the revenue authorities. In certain cases the same plot is registered in the name of two or more people. Even government land belonging to civic agencies, and forest land, is sold falsely. There are also other issues, like the encroachment of plots.

Gurgaon Police, which is investigating a number of cases of land fraud and other issues related to housing, has issued a Checklist, to make people aware about the dos and don’ts while undertaking property transactions. Professionals aver that checking one’s personal greed is the best way to avoid these pitfalls, but in the Millennium City where everyone wants to get rich quick, buy the best car and the best apartment, it is unlikely that self-regulation will succeed. The fraudsters need to be determinedly deterred by the strong arm of the law. A few ‘high-profile’ scam-builders need to spend a few years in a very ordinary building – called a jail. The extended slowdown in the industry will also help to separate the men from the boys, and the (long term) developers from mere (short term) builders – many of the latter having indulged in the ongoing Real Estate scams. 

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