Warranty on realty: Pune builder breaks fresh ground

Pune-based real estate developers Gera Developments is offering a five-year warranty on all its residential and commercial projects.

This is for the first time a real estate developer in India is offering a comprehensive warranty as part of the sale agreement, in keeping with the global trend. The development is being seen in the industry as a trend setter.

Builders in developed countries like US and UK are known to offer a graded 20-year warranty that provides similar coverage. The trend is also prevalent in Singapore and Hong Kong.

"It's something that the entire real estate fraternity will eventually offer, in keeping with the global trend," says Kumar Gera, managing director of Gera Developments.

The concept received a good response during Confederation of Real Estate Developers Association of India's recent meet.

Property consultants say it is a tectonic shift for an industry that is largely seen with distrust, where builders are known to disappear after the sale has been effected and post-sale accountability is unheard of. Customer push will govern warrantied projects and soon we may have customers demanding it, they add.

Rajeev Sabharwal, chief operating officer, ICICI Home Finance, says, "Warranty-backed projects will find it easier to get bank approvals though there wouldn't be any bargain interest rates initially. Also, good developers usually don't disown any problems after the sales are made. But now that builders will offer a warranty as part of the sale agreement, projects will be differentiated on that count."

The Gera warranty covers the biggest bugbear for Indian property owners "" leakages. Also included is a contract for annual maintenance and repairs of water and drainage lines, fittings, plumbing, electrical tests and carpentry maintenance.

It also covers a comprehensive acid cleaning for tiles after three years and repainting the building exterior after five years. This is in addition to the three-year warranty on structure as stipulated by the Maharashtra Flats Ownership Act.

"Once developers start offering warranties, it will lead to a better quality of construction, which will result in better supply chain management and better quality control. It will also help builders to get back-to-back warranty from material suppliers. The upshot of this will be that projects will have higher resale value," says Gera.

But will buyers also have to shell out more for the warranty cover? Back-of-the-envelope calculations show that for a 1200 square feet apartment worth Rs 15 lakh, it will cost around Rs 1,400 per apartment annually for preventive maintenance, another Rs 6,000 for external repainting. Factoring in repairs and supplies, the total cost per flat will be around Rs 13,000 annually.

Gera plans to absorb the costs that may range from Rs 60 lakh to a crore over three years. "Since it is a highly competitive sector, the warranty costs will not be built into the price of the apartment," he clarifies.

Internationally, real estate investment trusts or mutual funds prefer to invest in warranty-backed projects. With real estate mutual funds looking to set shop in India, this trend is likely to be seen here as well.