Are construction-linked home loan schemes responsible for the present crisis in the housing sector in India? Well from the face of it that appears to be the case; there is a bizarre trend seen across metropolitan cities and even Tier II and Tier III cities of builders dumping projects after having received around 90 per cent of the payment from home buyers.
Across the skyline of various cities, incomplete towers stand out as eyesores, pointing to the sad state of affairs in the realty sector even as lakhs of home buyers who have put in their savings and are paying huge monthly instalments, along with rents, await the delivery of their dream homes. Protest by many of these residents in the National Capital Region as also other parts of the country exemplify their frustration with the system.
As per a property research firm, Liases Foras, over half the real estate projects across the country are currently delayed by over 12 months and another 25 per cent by over 36 months.
Knight Frank Report
- There were about 7 lakh unsold units across eight major markets
- Delhi-NCR and Mumbai accounted for 55 per cent unsold units
- The resale market has seen a 19 per cent fall this year
- New launches dropped by 40 per cent in the first half of this year
Home Buyers’ Struggle
Recently, a number of home buyers in Noida Extension, Unitech Exquisite and Ramprastha City in Gurgaon have held protest demonstrations against their builders for the delay in giving possession of their flats. Incidentally, these projects are not involved in any litigation over land acquisition or environmental clearances.
Ashish Kaul, who has taken on several builders for delay in possession of flats in Noida and Faridabad by moving consumer courts, said often builders buy huge land parcels with the money they receive for construction of projects.
Many builders of Delhi NCR bought projects in far off Mohali and Zirakpur in Punjab as also other parts of the country. But due to sluggish demand, their money is stuck in these projects. They also raised huge loans for these projects, many of which failed to take off, and as such even the construction of the original projects got delayed.
Builders Reap all the Profit?
No wonder, most builders eagerly pursue the construction till the time the final roof slab is laid. By then they normally get paid 90 per cent of the amount by the buyers and the housing finance institutions.
This is the point at which good builders first complete the project and deliver it before moving on, while the unscrupulous ones just do not deem it necessary to complete the work for which they have been paid.
As such, we now advise most of our clients to buy only completely built flats and not go for those under construction.
Satender Bharadwaj, Indirapuram, Ghaziabad-based realtor
It is in light of such practices by builders that a large number of residents welfare associations and home buyers associations are now demanding that the Real Estate Regulatory Authority (RERA) Bill, on which a Parliamentary select committee report on amendments is pending before Rajya Sabha for amendments since July 30, be introduced and passed at the earliest. The campaign, “Fight for RERA”, is now garnering support on social media.
But appreciation for the cause of home buyers is missing among the government, planners and regulators.
Banks Share Responsibility?
When in August, Reserve Bank of India Governor Raghuram Rajan spoke about the need to restore buying activity in the realty sector, he said,
I think we need the market to clear the excess stock and with growing unsold stock, we need to see the ways to do it. Some of it might be by making loans easier.
However, there was no word to the banks to exercise due diligence while funding projects by developers who have delayed construction in the past.
All banks charge the customers a legal fee at the time of processing the loan applications to vet the financial credentials of the developers. It is ironical, therefore, that so many projects have got stuck in the construction stage across the country for various reasons as claimed by the apex body of builders, Confederation of Real Estate Developers’ Association of India (CREDAI), in the wake of the suicide by its Thane chapter president Suraj Parmar.
Parmar allegedly ended his life as he was being asked by government officials and politicians for bribes. While holding a protest following his death, CREDAI had earlier this week lamented that developers are required to get up to 60 approvals before starting a project and this takes up to three years, and leads to cost overruns and avoidable delays to the home-buyers. The question remains: “Why are these projects financed by the banks and financial institutions even before they get all the clearances?”
Where Does the Solution Lie?
On the way out of the crisis, CREDAI has suggested that RBI cut interest rates to make home loans cheaper, taxes be rationalised and approval process streamlined through a single-window clearance system.
Both the genuine builders and buyers need succour in this hour of crisis as the delays in projects has also impacted the buyer sentiment. People no longer want to get stuck in towering eyesores.
This was articulated well by Sanjay Dutt, managing director, India, Cushman and Wakefield, when he went on record saying,
Undue delay in completion of projects also added to the stigma attached with under-construction projects. This led to buyers to become increasingly reluctant to buy into under-construction projects, leading to slowdown in sales and pile-up of inventory.
The Crisis as Told by Numbers
The impact is showing on the ground. According to a report by Knight Frank, there were about 7 lakh unsold units across eight major markets and Delhi-NCR and Mumbai accounted for 55 per cent of these.
The resale market has seen a 19 per cent fall while new launches dropped by 40 per cent in the first half of this year.
For the buyers stuck in incomplete projects, the best recourse probably lies in approaching the National Consumer Disputes Redressal Commission which recently ordered builder, Unitech, to pay compensation at 12 per cent per annum for delaying delivery of apartments in a Gurgaon project.
As the advocate of the buyers, Sushil Kaushik, had put it: “This judgement will impact all cases where buyers are looking for possession of their flats.”
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