Realty caught in double bind of low cash, high stocks

Over 12,300 residential projects across India are delayed as the real-estate sector continues to grapple with dwindling prices and cash crunch. At stake are more than 20 lakh units, some of which may never see the light of the day, according to data from PropEquity, a real-estate research company.

Of these projects, launched between January 2009 and December 2014, while 1,018 are in the National Capital Region, over 3,800 are in the Mumbai Metropolitan Region.

The study has considered projects that are late by over six months. On average, construction projects stand delayed by 18 months across the country, with NCR at the top at 27 months.

“During the boom years of 2006-2010, new residential projects were launched in the NCR at break-neck speed. Many of these have not been completed even today, almost a decade later. The entry of inexperienced and unprofessional developers has upset the market situation,” says Sanjay Sharma, Managing Director of Gurugram-based real-estate consultancy QuBREX.

Samir Jasuja, founder and CEO of PropEquity, says the biggest reason for the delay has been the diversion of funds from one project to another. “Builders raised money, but instead of completing the existing projects, they invested it in buying new land parcels.”

Over-leveraged builders

One of the incomplete projects is Era Adel Landmark in Gurugram, where the firm’s promoters are accused of non-completion after taking nearly ₹1,000 crore as booking advance.

Similarly, Earth Infrastructures has sold 11 real-estate projects across India as well as abroad without completing any of them. Three directors of the company are now in judicial custody for cheating buyers, while another is absconding. “There have been instances of developers taking money and diverting it to other projects, even outside the real-estate sector,” says Sharma.

Pankaj Kapoor, MD of real-estate consultancy Liases Foras, says with a slowdown in sales and inventory piling up, builders were cash-strapped. “Builders over-leveraged themselves during the heyday,” he says.

Jasuja points out that diversion of funds from one project to another led developers into a debt trap as they were not able to service the debt. “Huge levels of both private-equity financing and debt deals from banks caused over-leveraging. And builders sold more than they could execute,” he adds.

An example is Noida-based Amrapali Builders, which sold over 45,000 homes without having the ability to execute such large-scale projects. The National Company Law Tribunal has now admitted an insolvency plea from Bank of Baroda against Amrapali’s three firms — Ultra Homes Construction, Silicon City and Amrapali InfraCon.

Delayed approvals

Amit Oberoi, National Director, Knowledge Systems, Colliers India, says the majority of the now cash-strapped projects, which are not financially feasible, were by inexperienced builders. “Most of these were new entrants who did not understand the nuances of the market.”

He adds that there have also been substantial delays in approval from authorities, ranging from three months to up to two years in some cases. That adversely impacted some players, says Oberoi.

It was these constant delays that led to the setting up of the Real Estate Regulatory Authority (RERA) earlier this year. All projects where the occupancy certificate has not yet been received come under the purview of RERA. So while RERA may set the sector on the right path, it will be some years before its impact on incomplete projects becomes clearly visible.

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