Property scams target India's middle class

KK Khosla dreamed the Indian middle class dream, and then suffered its worst property nightmare.

After working hard all his life, he bought land in the exploding suburbs outside Delhi. But the man he handed his money to turned out to be an unscrupulous gangster and a cheat.

For Mr Khosla, the plot then turned madcap. His sons Bunty and Cherry embarked on an elaborate series of counter-scams to get their dad's money back, hiring local wrestlers as thugs and dabbling in extortion, to strike back on behalf of the ordinary middle-class Indian.

If Mr Khosla's story sounds too crazy for real life, that's because it is. He is the protagonist in Dibakar Banerjee's Bollywood film Khosla ka Ghosla! (Khosla's Nest), played by Anupam Kher.

The film captured a very real anxiety for middle-class Indians. Like much of Asia, India is still experiencing a construction boom, and new suburbs are being thrown up overnight.

But buying a home in one - or building your own - is frightening because of the possibility of scams or getting involved in legal battles in the clogged up court system.

"It was exactly the replica of the Bollywood movie," remembers Amit Prasad, a Hyderabad-based businessman whose father died without ever seeing his dream house built.

Mr Prasad's story is a real-life version of the nightmare in the movie.

"My father put money into land and discovered he had no control of it and couldn't build on it," recounted Mr Prasad. "To this day we still don't have a property on it."

'Avoid agents'

Mr Prasad's story began in the nineties, when his father spent the family's savings on a plot of land. His father had come to Hyderabad to work for Indian Airlines and dreamed of building his own home.

The land he found was owned by local villagers, but an agent approached him. "He said he had the power of attorney on behalf of the villagers," recalls Mr Prasad.

This turned out to be a lie. The agent made off with the money and both Mr Prasad's father and the villagers lost out.

Soon after the land purchase, the villagers started a court case to re-claim their fields. That was twenty years ago, and Mr Prasad's father never lived to see his dream home.

Court cases like this can take decades in India's clogged-up legal system.

Mr Prasad himself offers sage advice for would-be property buyers. "Your purchase should be from the prospective owner," he said. "Not agents or representatives."

Buying from builders

The experts say things are improving in India, because big developers now build most new homes or apartment blocks. They say the safest way to avoid trouble is not to do it yourself.

"Most of the worst scare stories are behind us," said Harsh Roongta, CEO of home loan comparison website

But even this method is not foolproof. On some occasions, developers can also rip people off. Sometimes, "the same flat is sold to more than one person," says Mr Roongta.

Image caption Cheats and swindlers are taking advantage of India's suburban construction boom

This scam works because customers are persuaded not to register the sale of their new flat, in order to avoid stamp duty - a property tax. Criminals posing as builders take people's money, and then claim the flat was never sold in the first place.

In other cases, builders may not complete the work they promise and the property could be left half-built.

But there are easy ways to avoid this happening, say the experts. Land sales should be registered, and customers should try to buy apartments or homes in sites that are already built - so they can see what they are getting.

"Ideally, avoid an under-construction project," advised Mr Roongta. But if you have to go for one, he said, "then at least choose a project where two or three banks have pre-approved the project."

If banks have scrutinised a new construction project and are agreeing to give home loans, there will be more pressure on the construction firm to deliver. But of course, if something goes wrong the risk still rests with whoever is paying for the new home - not with the bank.

Stories of people being cheated in land deals often appear in the Indian press. But in Mr Roongta's view, the actual number of fraud cases is small, given how many millions of new homes are being built in exploding cities and new suburbs across India.

"Land grabbing is very rare," he said.

Like the story of KK Khosla, the most extreme examples are just in movies.

The opinions expressed are those of the contributors and not held by the BBC. The material is for general information only and does not constitute investment, tax, legal or any other form of advice. You should not rely on this information to make any investment decisions. Always obtain independent, professional advice for your own particular situation.