The long wait for home

It has been a four-year wait for Vikram Bishnoi and it doesn’t seem to be getting over. He had booked an apartment in Unitech’s The Residences project in Gurgaon in 2009. The builder had promised to hand over the apartment by December 2011. But the construction is still going on.

“Every month, I pay ₹40,000 as rent for my current accommodation and an EMI of ₹36,000 for the loan I have taken to buy the apartment. I have incurred a loss of almost ₹30 lakh if I calculate the delay from the date I was promised possession of the house,” says Bishnoi, who works in a multinational company and lives in Gurgaon. He is also the President of the Unitech Residences Apartment Buyers’ Association.

Tired of the delay, Bishnoi and the rest of the buyers had last year resorted to a unique protest by working as labourers at the construction site. “The project’s construction status hasn’t changed much. As many as 1,200 flats are yet to be delivered. My funds are also drying up. We had meetings with the Government-appointed Grievance Committee where the developer has been found guilty. But only the structure work and brick work has been done,” says Bishnoi. “I have met Unitech officials 14 times in the last 40 days trying to persuade them to finish the project. This is the time I should have been spending with my family,” adds the father of two school-going children.

Bishnoi’s case is not unique in India’s real estate market, notorious for its myriad issues. But the problem is most rampant in the National Capital Region (NCR). There are more buyers like Bishnoi whose dreams have turned into nightmares.

Manoj Mittal is still waiting for the flat that he had booked in La Tropicana, a luxury project launched in Delhi’s Civil Lines by Parsvnath Developers Ltd. The project was expected to be completed by 2009. It is being built on the 17-acre plot that the company had bought from Delhi Metro Rail Corporation for ₹195 crore in 2004. “This is a case of a government-sponsored delay,” says Mittal. “The master plan has been changed multiple times to avail of the benefits of a proposed higher floor area ratio (FAR),” he adds. FAR is the ratio of the total floor area of a building to the plot area. “I had booked the flat 11 years ago. I wanted to live there with my family. Now my children have also grown up, what will I do?” he says. Mittal is also the General Secretary of the La Tropicana Resident Welfare Association. The Association had filed a case against the builder in the Delhi High Court and the National Consumer Forum.

The story is the same in Noida, another big real estate market in the NCR. One of the many upcoming projects here is the Ridge Residency by Today Homeson Noida Expressway. The project, which includes 18 towers, was launched in 2009 and the delivery was to be done in phases. Though the company’s target is to complete the project by 2016, that looks unlikely as only two of the 18 towers have been completed and handed over to buyers.

Prachi Chitnis had booked a 4 BHK (bedroom, hall, kitchen) flat for ₹67 lakh in 2012. “Twenty-four floors had to be constructed in the tower in which I have booked the flat. But only three storeys have been completed. We are worried about the quality of the structure as it has been in the present state for such a long time now,” says Chitnis. One can’t see even 100 labourers at the site, she says, adding the developer has extended the project completion timeline to 2017.

Unitech, Parsvnath and Today Homes did not respond to queries sent by BusinessLine .

Bishnoi, Mittal and Chitnis are part of a fast-expanding community of disgruntled home buyers in the NCR, where most of the real estate developers have erred on project delivery. In fact, it is the worst-performing market in the whole country, says a research by PropEquity, a real estate data and analytics company. Eighty-four per cent of the projects that were promised possession between January 2011 and December 2014 in the NCR are running behind schedule. In the Mumbai Metropolitan Region, the delay is seen in 59 per cent of the projects; 50 per cent in Bengaluru and 47 per cent in Chennai.

The PropEquity research shows that in the NCR, there was an average delay of 33 months for projects that offered possession during 2011-2014 and are still under construction. In Mumbai, the delay was for 25 months; 22 in Chennai and in Bengaluru the average delay was of 20 months.

The real estate sector in the country is still to recover from the shocks of the 2008 economic slowdown. Apart from delivery delays, sales have been declining, leading to a huge inventory. Before 2008, though, the scenario was different. The boom in the sector saw a lot of developers launching projects without a concrete plan and often beyond their capability, resulting in delays. In the NCR market, the problem was even more serious.

“In the last 10-odd years, real estate was a better performing market (compared to the others). Entry barriers were low and it was easy to get into real estate, especially in the Uttar Pradesh part of NCR, such as Noida and Ghaziabad,” says Mudassir Zaidi, National Director- Residential Agency, Knight Frank India, a consultancy. “Hence, a lot of players entered the market, increasing the supply.

“A large part of the buyer base consisted of investors. As the market started slowing down, investors started sitting out of the market,” he adds. Also, “many of the developers didn’t have management capability to execute. But they jumped in and launched projects resulting in the highest delays here,” points out Vineet Relia of SARE Homes, a real estate firm.

As of today, the NCR region has one of the highest inventories. A Knight Frank study said the NCR market had a QTS of 14 as of December 2014. QTS means Quarters To Sell, or the number of quarters it will take to offload the current inventory. Little wonder, it now lags behind the rest of markets in the country in launch of new projects. According to data from real estate consultancy Cushman and Wakefield, 2,800 units were launched in the NCR in the first three months of the year, down 68 per cent from the previous quarter. While in Mumbai 4,000 units were launched in the first quarter, an 11 per cent decline from previous quarter; in Kolkata, the launches were down by 40 per cent, in Chennai 3,200 new units came into the market, double the previous quarter.

“The key markets in Delhi NCR that have seen substantial delays include Golf Course Extension road and Southern Peripheral Road from Gurgaon; Noida Expressway from Noida and Greater Faridabad. While in all these markets the delay averages around 30 months, the Noida extension is staring at a delay of 40 months, on account of land acquisition problems faced here,” says Samir Jasuja, Managing Director, PropEquity.

What makes the NCR real estate market the worst performing in the country? There are three basic reasons. Delay in approvals from the authorities, liquidity crunch faced by the developers and poor project management.

“Authorities have a huge role to play in the whole schedule of the project. If the required statutory approvals are not obtained on time, that impacts the whole schedule of the project by a significant margin,” says Santhosh Kumar, CEO – Operations & International Director, JLL India.

“With the high number of approvals that developers are required to secure and due to the lack of single-window clearance, it could take anywhere between 18 and 36 months before beginning any project,” says Amit Modi, Whole-Time director of real estate firm ABA Corp. He is also the Vice-President, Western UP, Confederation of Real Estate Developers’ Associations of India.

Industry players point out that the real estate sector doesn’t have an ‘industry status,’ making it difficult for the companies to avail ‘legitimate’ finances from banks. An industry status would help companies to get loans on average interest rates and at low collaterals, against the existing high-risk rates. The companies can also access Central and State subsidies for projects in the hinterland and raise external commercial borrowings.

Some of the problems are specific to the NCR market. Modi points out that “the constant orders from the National Green Tribunal (NGT), asking for repeated halts in construction activities in Delhi/NCR has left everyone in the lurch.” The NGT had recently directed builders to stop construction in specific areas in Noida Extension and Gurgaon that violated Ministry of Environment and Forest guidelines of 2010. Projects by Supertech, Amrapali, Gaursons, among others, are located in the area. But how did these builders get the go-ahead in the first place?

The real estate companies have not helped the matters by being reckless. The NCR has the lowest number of builders (464 compared to 2,580 in Mumbai and 722 in Chennai, says a PropEquity study). This means that on an average, a builder in the NCR has many more projects to juggle, compared to his peers in the rest of the country.

Also, “Developers sometimes utilise some portion of the funds collected from buyers into buying land for future projects,” says Zaidi. An investor presentation of Unitech shows that as on December 2014, the company had 105 projects. Forty of the projects were in handover/finishing stage; in 22 projects, structures were up and internal work was in progress and in another 24 projects, structure work was on. While one project was yet to start, land development activities were in progress for 18 projects.

“It’s nothing more than a lack of commitment to timely completion and delivery on the part of a developer. Nowadays, developers are obsessed with launching new projects rather than making the completion of existing projects a priority,” says Pankaj Bansal, Director of real estate company M3M India.

The Real Estate Bill 2013, the amendments to which were recently approved by the Cabinet, has the potential to bring some semblance of stability in the sector.

The Bill, which is expected to be tabled in Parliament in the present session, aims to reduce delays, frauds and ensure accountability and transparency for the home buyer. “The developers would need to deposit 50 per cent of the amount received from the buyers in a separate account. This will deter developers from diverting funds elsewhere and, hence, will help in expediting the construction of the project,” says Kumar of JLL. It will also help that two-third of the buyers need to agree for changes in structural designs of a building.

But the builders are not amused. “Most of the complaints belong to delayed completion/delivery are because of delay in getting clearances. There is no proposal in the Bill to address this situation,” says RK Arora, Chairman, Supertech Ltd. “The decision to avoid harsh punishment to developers and the reduction in the percentage of deposit in escrow account (an earlier draft of the Bill had suggested 70 per cent) gives relief to the developers. The proposed legislation should not be enforced retrospectively as it is impossible to comply with various rules and regulations for the under construction projects,” added Arora.

The proposal to create State and Central level real estate regulators to safeguard the interests of buyers and investors is a positive step. But, says Bansal, there are long-pending issues such as single-window clearance and giving the sector industry status that need to be looked into.

“Developers can still divert 50 per cent funds to other projects. The cap should have definitely been more than this,” says Chitnis.

Adds Mittal: “It is surely a step in the right direction. But when will it be passed in Parliament? We have to keep waiting.”

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