REAL ESTATE

Four &ats, penthouse on loan on an INR1.5 lakh

salary! The pro:le-funding bubble could burst
soon.
Getty Images

Workers at a building construction site on June 6, 2021 in Ghaziabad

Synopsis
From Delhi-NCR to Mumbai to Bengaluru, cases of profile funding, where builders make
use of people’s good credit profiles to get cheaper loans, with a promise to pay EMIs on
their behalf, are popping up in large numbers. The ‘buyers’ here are left with little options
after builders stop paying EMIs. Are we staring at another real-estate scam?

By JYOTINDRA DUBEY

14 Mins Read, Jul 21, 2022, 12:01 AM IST 4

ET Prime Audio Summary

00:00 00:00

A penthouse and a 2at in Mascot Manorath, another one in Himalaya Pride

residential projects in Greater Noida, a three-bedroom spacious 2at in
Parkwood Glade, Mohali and then one more in Dwaarika Heights in Meerut.

This is the list of investments made by 35-year-old Manish Pandey from

Delhi, all bought within a span of just three months between October to
December, 2015, for a total consideration of approximately INR2.5 crore.

Looking at his investments, Pandey's pro:le may seem to be of an

entrepreneur running a 2ourishing business or a C-level executive earning
at least a seven-Qgure salary a month. Right?

Alas, that is not how things are with Pandey.

Pandey is a mid-level IT professional, making around INR1.5 lakh a month.

He neither has the Qnancial capability to pay for the investments upfront or
even to aSord the bank EMIs for such massive investments.

More surprisingly, he bought these properties without spending a rupee out

of his pocket, not even for the down payment.
Yet, he managed to get it Qnanced by the banks.

As strange as it may seem, there are many like Pandey who own multiple
properties without suSicient Qnancial backing. Such a phenomenon is not
restricted to any one residential project or a builder or a particular city.

That's the story behind the real estate scam known as proQle funding, a
scam that targets the vulnerable lower middle-class people, who can barely
aSord to buy any property on their own but have a desire to make a quick
buck.

Pandey, too, feels that he fell for that trap.

His property purchases were not genuine investments, but he was being
used just as a dummy buyer by the builders. He just used his credit proQle in
order to get cheaper loans for the builders in lieu of a commission, that too
without spending a penny.

The builder paid the down payment, promised to pay the subsequent EMIs
on his behalf, buy back the property and close the loan once the 2at is ready
for possession.

Cut to 2022, four out of Pandey’s Qve loans have been declared as non-
performing assets or NPAs by the bankers and he is Qghting legal cases
against him for loan defaults.
ET Prime has spoken to many other proQle buyers like Pandey, who were
oSered the same pitch by the builders, and are now facing legal cases against
them for non-payment of their dues to the banks.

The arrangement was going smoothly as the market was booming and the
builders were paying the EMIs as promised.

But as soon as it stopped, the whole house of cards came tumbling down.

The pitch and the trap

A typical proQle funding case starts like this: builders, through a set of
brokers, start targeting people belonging to the middle-class mostly in the
age proQle of 30-40 years.

The pitch is simple, the builder says that a project loan has a higher interest
rate, say 15%-20% and a home loan is available at 7%-10%. The buyer is then
convinced by the brokers to use his loan eligibility or credit proQle to fund
the builder.

Once the home loan is sanctioned, the builder will get money for his unsold
property at a lower rate of interest and can use this money to complete the
project.
Once the 2at is ready, the builder will Qnd a genuine buyer for the 2at, and
will close the loan of the proQle buyer. In return, the proQle buyer gets a
commission, ranging between 4%-6% of the loan amount in lieu of blocking
his proQle and beneQts enjoyed by the builder due to the interest rate
diSerential.

As you can see, the pitch is good enough to convince vulnerable people like
Pandey who fall prey to such schemes.

But it is not as easy as it may seem.

Firstly, all these agreements between the builder and the proQle buyers are
simply verbal agreements.

Secondly, the down payment, which is the mandatory requirement to get a

loan sanctioned by any Qnancial institution, is not coming out of the pocket
of the buyer. The builder is either paying the buyer in cash or through bank
transfer routed through dummy accounts. This is a clear violation of banking
rules and can attract money laundering charges.

And most importantly, if the builder stops paying those EMIs, the banks will
be after the proQle buyer to recover their dues as the loan has been
sanctioned on his name and not the builder’s, that’s where things become
ugly.

Peculiar cases
A Noida-based proQle buyer shared a very strange case.

He currently has four proQle-funding loans running on his name. All of them
have been declared as NPAs. One of such projects, Himalaya Pride in Greater
Noida, was in advanced stages of construction. He then decided that he will
continue that particular loan as a genuine buyer and sell it oS to clear his
dues.

"The above incidents demonstrate the sorry state of aFairs

in the real estate industry. Ghere builders and bankers are
working in collusion. The Delhi High Court in various
batches of writ petitions have noted that protection needs
to be given to the homebuyers who are stuck in such
schemes."
- Anshul Gupta, managing partner, ANG Partners
He decided to go and check the status of his 2at and was shocked to see that
the 2at is complete and somebody is already residing in the 2at, while the
bankers are chasing him for loan recovery.

The builder not only got funds through the bank loan in his name, but he
further sold the property to another buyer at a higher rate.

Another case, incidentally in the same project, is of a ghost 2at. A proQle

buyer has a loan running on his name for a particular 2at number but in
reality the 2at number doesn’t even exist.

For instance, there are four 2ats on a 2oor, say, 101, 102, 103, 104 and there
are 15 2oors in a tower, the fourth 2at on a 2oor, namely, 104, 204 and so on
can be found until the seventh 2oor. But after the seventh 2oor the builder
clubbed two 2ats into one and changed the 2at number. Hence, 2ats 804,
904 and so on, are clubbed with 803 and 903 respectively.

The Himalaya Pride project is being developed by Himalaya Group under the
2agship company named, Himalaya Residency Private Limited.

Queries sent by ET Prime to the directors of the company on the e-mails

provided by them to the registrar of companies remained unanswered till
the time of publishing.

In both the cases, loans were given by Canara Bank. E-mail queries sent to
the bank didn't elicit any response.

The scam’s tentacles

The scam started as a nexus between builders, property brokers and some of
the bank oSicials. It was at its peak between the years 2013 and 2016, when
the real estate market was booming.

One way of pitching the scheme was through the property brokers. They
used to pitch it to middle-class individuals who used to come to them
enquiring about available properties but then they could not proceed due to
lack of funds for making the down payment and aSord expensive EMIs.

“Me and my wife had just thought about buying ourselves a home. We just
started visiting brokers to get a feel of the market, to check the properties
available and see if we can aSord it or not. And in that chase we ended up
visiting a property broker in Sector 62, Noida. He showed us a few property
brochures but none of them were Qtting our budget so we dropped our plan
for a while. The broker then pitched us this plan," a Noida-based proQle
buyer tells ET Prime on the condition of anonymity.

"We were amazed to know that we can earn a few lakhs without even
putting in any capital from our side. He told us that after this, you will have
suSicient money to make the downpayment for a new 2at of your own.
Without much hesitation I agreed to it. The 2at was costing around INR65
lakh and with my salary I was not eligible for a loan of that high amount but
the brokers assured that it will be managed and he did. Within a week or two
my papers were signed and the loan was sanctioned,” he adds.

The builder paid them some amount in cash and some of it came through a
bank transfer from the broker. This amount was then sent back to the
builder and shown as the downpayment for the 2at.

As and when the loan got sanctioned, the builder started paying the EMIs on
his behalf as committed. The proQle buyer also received INR1.5 lakh as a
commission and was promised the balance INR1.5 lakh after the 2at was
complete and was sold to a genuine buyer.

But after a year, the EMIs stopped coming from the builder and his account
became an NPA. He started getting harassment calls from the bank’s
recovery team almost everyday, and builders stopped taking his calls too. He
is currently Qghting a case in the Debts Recovery Tribunal (DRT) for his loan
default.

In separate cases, a Bangalore resident was looking for a personal loan of

INR2 lakh for his son’s school admission but was lured into this scheme by
the executive of a private bank.

One Yudhvir Singh from Ghaziabad was lured into this by his friend who
also happens to be director of a real-estate company.

That's how the scam started to gain scale and started spreading further
through word-of-mouth.

The thought of making easy money and making ends meet lured Pandey as
well.

“I was facing some job uncertainty at my workplace and was worried about
my Qnancial stability. I knew a few people who had been part of such
schemes and in many cases, the loans were successfully closed by the
builders. It seemed a safe and lucrative option to me and I too, got into it,”
Pandey tells ET Prime.

Same was the case with most of the other proQle buyers ET Prime spoke
with. They were either lured into this scam by oSice colleagues, friends or
relatives.
Some lucky ones
It’s not that every proQle buyer got stuck in the scam.

There are a few lucky ones who got into this scheme of arrangement initially
and made a quick buck.

“The builders succumbed to the credit crunch and low demand in the
market post-demonetisation and defaulted. Had they been using the money
appropriately, the current situation would never have occurred. But the
builders diverted the money to buy more land or for other purposes and as a
result the projects are nowhere near completion and neither us nor the
banks can recover anything out of it,” Pandey adds.

Mayank Gupta, founding partner, MNG Law oSice, a Delhi-based law Qrm,
has represented many such proQle buyers in court. He feels that the scale of
this scam is huge and it is not restricted to Delhi-NCR but one can Qnd such
cases in Mumbai, and Bengaluru among others.

According to him, Chandigarh is developing as a new hub for such scams.

“On an average, each proQle buyer has at least two to three properties on his
name. We haven't come across any case with a single property,” Gupta adds.

The proQle buyers are the victim of harassment from the banks for
recovering their dues, even though they are not the only ones at fault. The
builders and the bank oSicials are equally responsible for executing such a
scam. But these buyers are no saints either.

These buyers struck such deals with multiple builders for multiple
properties.

“The builders intentionally got into it and they are the ones who have got
bankers’ money. The bank oSicials either were involved in it or didn’t do
their proper due diligence to catch hold of such buyers. But in the end we are
the ones who are being harassed and Qghting legal cases. Why are we
suSering alone,” asks Pandey.

Once the builder stops paying EMIs the proQle buyers start getting calls
from bank oSicials and the harassment level in these calls increases as the
time passes. Ultimately, banks are left with no other option but to take legal
action against these buyers.

Mostly the legal cases are being Qled at the DRTs, the adjudicating authority
for the recovery of debts due to banks and Qnancial institutions.

Another recourse that these banks take is presenting the security cheques of
these proQle buyers. The bankers present these cheques by Qling the entire
outstanding loan amount or an amount equivalent to a few months’ EMIs.
As these buyers do not have the Qnancial capability to get those cheques
cleared, they bounce.

The banks then Qle cases in civil courts for dishonouring the cheques.

No way out?
Anshul Gupta, managing partner at ANG Partners, a Delhi-based law Qrm
says, “The above incidents demonstrate the sorry state of aSairs in the real
estate industry. Where builders and bankers are working in collusion. The
Delhi High Court in various batches of writ petitions have noted that
protection needs to be given to the homebuyers who are stuck in such
schemes.”

He adds, “Even the Supreme Court has made a comment in the Bikram
Chatterjee vs Union of India case, that it is shocking and surprising that
such large stage cheating has taken place, the bankers have failed to ensure
and oversee that the money invested in the projects have been diverted
elsewhere. The builders have created assets with that money worth
thousands of crores.”

Gupta from MNG Law OSices says that these buyers have mainly two legal
options, either go to RERA or the consumer court. Which legal option to
follow depends on case to case basis. In some cases where there is a clear
case of cheating on the builder’s side then a consumer court suits better.

“We have had successes in the past with such cases where such buyers
managed to get a favourable judgement from the court,” he adds.

However, a Noida-based proQle buyer quoted above feels that the legal route
is not that easy. “I have a favourable order from RERA in one of my cases but
it is not yet executed. Moreover, I am Qghting multiple court cases for one
property. The same bank has Qled a case in DRT and one in a civil court for
dishonouring a cheque. Not only is it an added expense but one has to take a
lot of pain in attending those hearings and pursuing them,” he adds.

While Pandey believes that these buyers are the ones being harassed by the
banks and they get into legal trouble, the builders who have actually taken
the bank’s monies walk free.

Not only have they taken the funds but also not delivered the projects.
“There is either lack of proper due-diligence from the banker’s side while
passing these loan cases or they are part of the nexus. The banks also need to
take some onus on themselves and also a proper internal investigation is
required by the banks into such cases,” Pandey adds.

He also highlighted that in the case of Dwaarika Heights, where he owns a

2at as a proQle buyer, there was a housing project loan running on the
project by IDBI Bank. For every housing loan, the Qnancing bank was
supposed to take an NOC from the IDBI Bank. And the disbursed amount
should have gone to their escrow account. But the builder and the banks
disbursing housing loans for that project didn't do that.

The project is being developed by EMM VEE Infrastructure Private Limited.

E-mail queries sent to the builder remained unanswered.

The scale of this scam is huge: the projects are stuck and buyers have either
become insolvent or gone underground — the buyers are not genuine and
incapable of servicing their loans. Banks have no way to recover the loans
either from the buyer or by selling the property.

(Graphic by Manali Ghosh)

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