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HomekarnatakaHousewarming plans go cold at Karnataka's co-op housing societies

Housewarming plans go cold at Karnataka's co-op housing societies

Bengaluru: Pay just Rs 480 per square foot for a site in Nelamangala’—it was this catchphrase that caught the attention of Vinay Raj, a software engineer when he came across a pamphlet in November 2011. It was almost too good to be true, but what gave him hope was that the Sandesh Nagar layout was being developed by the seemingly trustworthy Karnataka Postal and Telecom Employees Housing Co-Operative Society. The society also had a registered office in Bengaluru’s Sanjay Nagar.

Then 43 years old, Raj found the site to be within his reach and the place a perfect home to spend the rest of his life tucked away from the city’s cacophony, as he planned to retire early. He was so intrigued by this idea that he roped in his mother and sister, who together invested Rs 53.92 lakh for three individual sites. This amount was paid in four instalments.

“I had no place of my own in Bengaluru. After buying the site, I wanted my mother to lay the foundation stone. We wanted to live in a place surrounded by greenery. Ultimately, fate had other plans,” he says. The society is yet to hand over the site, even 12 years after launching the project. “My mother passed away in December 2020,” he says. Raj now lives with his sister in RT Nagar.

Raj is not alone in his predicament. Several people who once dreamed of setting up a home in Karnataka, have lost both money and heart after co-operative societies—under the garb of government employees’ undertakings—failed to walk their talk.

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Credit: DH Illustration

A housing co-operative society is a legal entity registered under the Karnataka Co-operative Societies Act. Many societies are named after government employees, as they are likely to attract more buyers given their history of developing layouts. The societies comprise of both permanent and associate members. Most investors are associate members who buy shares of housing co-operatives. In return, the person acquires the right to occupy a housing unit in the society.

The problem, however, worsened after September 2014, when the government waived a 15 per cent cap on associate membership, allowing co-operative societies to enrol as many buyers as they wished. This encouraged housing co-operatives to operate like commercial ventures and collect site deposits from many people, even before verifying the availability of land.

According to official records, at least 75 housing co-operative societies in Karnataka have been accused of delaying the allotment of sites in the last ten years. The actual number of such societies that have not provided sites to investors could be much greater. The Registrar of Co-operative Societies (RCS) only takes up a formal investigation under different provisions of the Karnataka Co-op Societies Act 1959 when the officers fail to resolve the complaints mutually.

Given the success of many residential layouts developed by co-operative societies in the past, a lot of buyers book the sites without hesitation. These sites also cost lesser than market rates. Such offers are followed up with an enticing deal—to pay instalments as and when the society achieves certain milestones such as land acquisition and layout plan approval.

Little do the buyers know that some societies outsource the task of marketing to professional agencies, although it is against the rule. Unsuspecting investors believe these tall promises and book sites. They also encourage their relatives and friends to invest. Raj, for instance, convinced his mother and married sister to invest. In another case, Poornima Rao, a resident of JP Nagar, booked a 40×60 site not just for herself but encouraged her cook to invest too.

“I later realised that this suggestion—which led my cook to invest her hard-earned money—was my biggest mistake,” Poornima, who works for a private firm, says.

“I stopped paying after the two instalments as society had not made any progress on the ground for the last seven years. My cook had booked a 20×30 site, and now her son is running around to get back the initial deposit, which was Rs 1.5 lakh,” she said.

This project, proposed in Devanahalli, is being developed by the Telecom and Government Employees Welfare Housing Co-operative Society Ltd, Malleshwaram. Just two months ago, the society filed a police complaint, stating neither the developer has handed over the land nor has he started the civil work even after the payment of Rs 62 crore.

Undercover

When the society enrols non-permanent members, like Raj and Poornima, for the sake of selling sites, certain aspects that come with co-operative ownership are deliberately kept under wraps at the time of bookings.

Firstly, for instance, the society completely banks on investments from members and associate members (buyers) to start the process of acquiring land. Second, the developer gets easy and interest-free money without any collateral. Third, unlike private or government-funded projects, there is no capital infusion until the society gets enough membership to get the project going.

Statutory obligations—that require the member to be a resident of the area for ten years and that only one member of the family is eligible to own properties in society—are hidden from buyers to milk as many site bookings.

A more concerning trend is that associate members—who generally constitute over 90 per cent of the total buyers—do not have any say in society. “Over 2,700 associate members have bought sites in the two projects. However, all the decisions in society are taken by people who have not invested their hard-earned money,” says Vinod Reddy. Reddy had booked a 30×40 site in Devanahalli in 2014, explains. “There are 400 permanent members, but the delay in delivering the site does not concern a majority of them,” he said.

Not just that. Associate members neither have the right to attend the annual general meetings (AGMs) nor cast votes to elect the board. As associate members of many housing co-op societies do not know each other, there is little scrutiny over daily activities, and a collective fight against mismanagement is missing.

In some cases, the investors were able to form an association after sourcing the contacts of other members by a stroke of luck. For instance, one associate member found the contacts in a log book left at the layout site by the society. Others sourced it when the society mistakenly forwarded group emails.

Con operation

As the initial cost is low, the process of payment does not ring too many alarm bells until it is too late. For instance, associate members are required to make down payments, which could be as little as Rs 10,000 to Rs 50,000, to book the site.

In most cases, the first and second instalments too are paid without a second thought. These instalments are scheduled to happen during the process of land acquisition. Associate members get suspicious only when the third or subsequent instalment is due, by which time the society is expected to have started on civil work after obtaining plan approvals from relevant authorities.

Despite not meeting their promises, some societies have also learned the art of squeezing every last penny from the buyers by sending letters or emails, threatening to remove their names from the “seniority list” when the allotment is due.

“If you fail to pay the balance amount within the due date, we will assume that you are not interested in making the payment. Consequently, you will lose eligibility for seniority. Your account will be suspended as per the bylaws. Your money will be refunded after the completion of the project by deducting the penalty,” states a notice issued by the Health and Family Welfare Department Employees’ House Building Co-operative Society (HFWDEHBC) in November last year.

Most investors end up paying the entire amount when they read such letters, troubled by the prospect of losing out on the land or having to endure a long wait for allotment.

The person who received the digitally signed letter from this society said he refused to pay the last installment as he had already paid 80 per cent of the site’s total cost. “Why should I pay the full amount when society itself has not completed its first task of acquiring land?” he asks, requesting anonymity.

To his luck, the Registrar of Co-operative Society (RCS), the governing authority for co-operative societies, sacked the directors of the HFWDEHBC society in June this year after the probe found multiple discrepancies.

The society had partnered with the same private builder for two more projects in Bengaluru even before completing its first residential project, launched in 2011, in Mysuru. Together, for these projects, the society collected Rs 180 crore from 2,781 members, but they continue to wait for the sites.

In another instance, Harish J, a resident of Yelahanka New Town, took the bait when the Rail Wheel Factory Employees House Building Co-Operative Society advertised the creation of sites. He presumed this was a genuine government employee’s undertaking. Worse, his friend booked a site in the not-so-popular Bengaluru Employees and Self Employees Housing Co-Operative Society Ltd, whose developer has partnered with at least three other societies but has no record of delivering any sites.

Long struggle

Although cases of mismanagement are aplenty, disqualification of the board is ordered only after two to three rounds of inquiry, which takes a minimum of two years and a number of visits to the RCS office. For some, it is a perpetual fight.

RT Nagar resident Vinay Raj had filed a complaint with the RCS in December 2016 even when he made the full payment. He spent the next two years sourcing all kinds of documents related to the project under the Right to Information (RTI) Act. After a relentless follow-up, the management was booted out only in July this year but the decision has been challenged in the higher court.

Raj says disqualification is the maximum penalty imposed by the RCS. The directors of such societies walk away scot-free, without tangible punishment either in the form of money or a sentence. He saw his first major victory in 2020 when the Karnataka Real Estate Regulatory Authority (K-RERA) issued orders in his favour. When the management refused to honour the judgments, RERA recently issued three different attachment orders against the society.

“I have visited the RCS and RERA offices once or twice a week for several years. When I used to return home disheartened, my ailing mother and sister stood by my side. Fighting for justice is humiliating but I had to fight,” Raj, who has represented himself both in the High Court and RERA, says.

Now 55 years old, his dream of living in a house amidst open space has been shattered. “I am not sure,” he says when asked whether he plans to build the house whenever he does get the site.

What’s next

Unlike other parts of Karnataka, Bengaluru has been the biggest beneficiary of housing co-op societies, which has supplemented the role of government-funded and private entities in meeting the increasing demand for residential sites. A rough estimate shows that there are 4 lakh sites developed by the co-op societies in Bengaluru alone.

“We cannot write off the co-op societies just because there are a few bad apples,” a senior officer in the Registrar of Co-operative Society (RCS) said. “Generally, it takes six to seven years to form a layout. Despite government support, the Bengaluru Development Authority (BDA) has a track record of delivering projects after multiple delays. Similarly, co-op societies do face unexpected hurdles while acquiring land, or yet times the farmers refuse to give the land all of a sudden,” he said.

However, given that many co-op societies have turned the collective movement into personal business, aggrieved buyers, including senior citizens, say the government should immediately plug the loopholes that have been misused by the societies with the support of developers and corrupt officials.

Prominent among them is the re-introduction of a 15 per cent cap on associate membership, or turning buyers into permanent members. “The 15 per cent exemption has been grossly misused,” Reddy says.

The buyers also observed that the co-op department auditors and officers do not red-flag societies that are indulging in misappropriation. Citing one of the audit reports, Raghavendra, a resident of Sahakaranagar said the Karnataka Postal and Telecom Employees Housing Co-operative Society had collected deposits from 3,391 members since 2007 but the land it acquired was enough only to carve out 1,438 sites.

“Had the authorities looked into annual audit reports, our issue would have been solved ten years ago,” he said.

There is also no system in place that can stop societies from undertaking newer projects until the one in hand is completed. “If such blatant misuse is allowed, the co-operative movement will turn into a Ponzi scam,” a buyer says.

“We are anyway doomed,” Reddy said, summing up his misadventure of booking four sites for his relatives and himself in 2014. When he started questioning the delay, society retaliated with a one site per family rule. He had to eventually withdraw the deposits of three sites without getting any interest.

“Unless the government fixes many loopholes that exist in the system, no person should invest his or her hard-earned money. At the moment, what I see is the manifestation of a large-scale scam.”

(Names of buyers are changed to protect their identities.)

(Published 21 October 2023, 20:36 IST)

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