(The article first appeared in The Economic Times)
Some of India’s largest real estate firms such as DLF, Unitech, Omaxe and Parsvnath that launched multiple projects at the peak of the real estate boom are now under pressure from buyers and investors who look to exit these projects. Already in a spot due to unavailability of bank loans and a fall in sales, the developers are less inclined to oblige the buyers who are coming together to mount pressure for refunds in projects that are yet to take off. Several buyers and investors, angered by the developers’ inability to start work on projects, have stopped payment of installments on their purchases, adding to the companies’ cash problems. Investors in DLF’s commercial projects in Delhi and Kolkata have come together with the help of brokers to put pressure on DLF to start construction or refund initial deposits. “DLF is way behind schedule in their projects. It should either start work on the project immediately and deliver in time or return our investment with 15% interest,” says Amit Jain (name changed), a senior executive with an MNC who invested Rs 1 crore each in DLF’s projects in Okhla in Delhi and Kolkata. Mr Jain says since DLF follows a time-linked payment plan, it has been demanding payments from buyers even without starting construction. The broker, who facilitated Mr Jain’s purchase, says DLF has not even paid the government to convert the industrial plots at Shivaji Marg and Okhla in Delhi into commercial plots. However, a DLF spokesman denied this saying, “We go by the agreement with the buyers signed at the time of booking. The allegations over the status of our projects are not true. We will deliver as per schedule.” Several projects of Omaxe, Unitech and Parsvnath are also facing similar problems. Akash Verma, a Noida-based garment exporter, had booked an apartment each in projects of Omaxe and Unitech in Noida. He booked an apartment at the ‘soft launch’ of Omaxe’s Noida project in May 2007. Omaxe had promised to launch the project formally a few months later at a higher rate. The formal launch never happened and investors like Mr Verma are stuck. Omaxe has turned down requests for a refund. An Omaxe spokesman, however, said the company has ‘considered and taken care’ of all such requests. Mr Verma has also been unsuccessfully seeking a refund of his investment in Unitech’s Grande project. “I am paying Rs 4.5 lakh as EMI. Unitech executives say the project will be delivered on schedule, but there is no worker at the site,” he says. A Unitech spokesman said, “We generally discourage cancellations. But if the buyers insist, we refund the money after deducting 10-15% of the total value of the apartment.” Most realty firms do not encourage refund requests. Till the end of 2007, investors could easily sell their property in open market as the prices were going up. But with buyers disappearing from the market, investors are forced to approach developers for refunds. Some property buyers are seeking refunds due to their weakened financial positions, while several others do so as they are not sure of the developers’ ability to complete the project. There are a few others who seek refunds as they feel that they can strike a better deal now with prices undergoing a major correction.
Subscribe to:
Post Comments (Atom)
Posts
My engagement with this issue is very simple; it’s a matter of market forces. Mere presence of willing seller and buyer in the market is not enough; it is their respective eligibility which plays a major role. And this eligibility comprises creditworthiness of individual and organisation, availability of loan, its ticket size, repayment schedule apart from availability of buyer at secondary sell point.
ReplyDeleteAvailability of loan to developers from formal institution is just one part, in order to make the projects successful constant cash flow as per the projection is necessary, otherwise project may come to standstill. Similarly individual investor may get loan initially from formal or informal sources on the basis of their existing profile but who can ensure that their financial health will always have upward move. Reasons for downward move may be attributed to personal as well as overall economic situation and later has a major impact always.
In the existing market scenario, developers are facing lot of cash crunch and simply their projects are on hold. On the other side due to lack of transparency in market, communication gap and in the absence of fast redressal mechanism for any kind of dispute arising out of developer-broker-investor deal, lot of apprehension prevails in the mind of all concerned.
As has been rightly observed that till a couple of months ago, investors were able to sell their property in open market as the prices were going up and were able to mint money with least risk level. But in the existing global crisis, with the shortage of buyers, investors are approaching developer to refund the booking amount even. There is not enough physical activity at construction site, therefore mere assurance of developer or their so called motivational speech can’t work. Level of apprehension has gone up so much so that these investors who entered into this venture of booking flats as a measure of alternative investment at higher returns are not sure whether they would be able to pay to developer during the whole project period. In that scenario, if the construction activity stops in between then whole amount of investors would be blocked and no real remedy would be there. And no need to mention there is total dearth of buyer at right price during the secondary sale, rather whatsoever correction in price, in whatever band we talk, in reality distress sale is at its peak.
Get out of this trap buddy. Property sucks. So do people who talk and write about it. That pile of mud, bricks and wood. ha!
ReplyDeleteAnd you feed all kinda crap day after day? shame on you.