Assured Returns Schemes – Money Spinner Or Fraud?

To swim safe out of the funds crunch, many of the builders are using the ‘assured return’ technique to lure buyers. This method is popular with the commercial property market, where the demand is even more deficient.

Assured Returns is a scheme wherein the seller promises to give an assured sum to the buyer till the possession is finally handed over to the buyer. It is a formal agreement between the builder and the buyer to provide an assurance to the latter that he’s safe from any kind of loss.

Banks are charging high interest rates of around 17-18% or are wary to fund the real estate market because of the prolonged sluggishness. To raise the funds through individuals, the builders promise 11-12% assured returns on commercial properties. This in effect makes it a fixed deposit scheme with builder.

Many of the investors find it attractive that they are safe by investing in commercial property and would get assured returns. But, what they do not appreciate is the risk associated with such schemes.

A recent case was that of the Vighneshwara Group, where the investors registered an FIR against the builder for defaulting in the payment of Assured Returns when the cheques given to them for the month of July bounced. The case was registered with the Economic Offences Wing (EOW) of Gurgaon Police. Such cases of defaults are common with assured returns properties, so you should be aware of all the pros and cons.

Here are some risks involved with assured returns commercial properties:

Budget Lock-in- For most of the assured return commercial properties, the builders ask the buyers to pay 70-80% of the amount upfront due to which their budget gets locked in. Now if the project is delayed or if the builder defaults, all the loss goes to the buyer.

Contract enforceability – What if the builder does not give the returns as promised? Since there is no regulation to take action against the builder; the risk of losing your money in such projects is even higher. Failed assured return scheme gives nothing but paperwork to the buyers.

Shared Ownership- In case of commercial properties, usually the builder develops a large area and then offers shared parts of it to different individuals. The owner’s property does not have any boundary and is not demarcated; he just has the papers to prove his ownership of that particular area. This makes it difficult to put the area to personal use or to sell it.

Moreover, the buyer does not have a freehold possession over the property. The builder brings thetenants on behalf of the buyers while possession is in the builder’s name. When the project is ready, the buyer can either exit the deal or stay in the agreement sharing the rent with the builder.

Assured Return Scheme by Newbies- Assured returns technique is increasingly being used by the new market entrants who promise exorbitant returns that are not even reasonable in the current market scenario.

What should you check before investing?

• Does the builder have a good track record?
• How long would the returns last: till completion or till a tenant is found?
• If the rental rate is lower than the promised rate of return, will the builder pay for the difference?
• What if the returns cheque bounces?
• Can the builder find tenants easily?

The assured returns schemes on commercial properties should be opted for only if the builder’s financial condition is good. Moreover, if the returns are promised till completion then you would remain non-benefited till the builder brings a tenant. In addition to the builder’s track record, you should also judge the location and other qualities of the building to reason if the property is actually able to get a return as high as what the developer promised.

Are assured return commercial properties lucrative or deceptive? Share your views and experiences with us by commenting below.