22-JUN-2011

Builders fail to meet deadlines as home buyers pile up pressure


NEW DELHI/MUMBAI: Delhi-based exporter Raj Kumar Jain bought a Rs 2-crore apartment in Unitech's Grande project in Noida way back in 2007. He was told he would get possession of the flat in 2010. "I have already paid 95% of the cost. But I am still waiting," a livid Jain says. At the project site, there is a grand entrance.

Inside, there is a golf course and club, and skeletal structures of a few tall buildings. Construction is on, but the builder isn't committing on a delivery date yet. Jain's experience with India's second-largest builder is just the tip of the iceberg.


Rising construction costs, labour scarcity and shortage of funds are taking a toll on the real estate industry. Projects are getting delayed and consumer anger is rising as people struggle to cope with rising EMIs. Builders, on their part, say they are helpless - funds are hard to come by and costs are escalating by the day. Typically, the construction-linked payment schedule is front-loaded, with payments done with subsequent slabs getting constructed.

"If their projects don't sell and banks don't lend to them either, most builders will find it difficult to raise cash to complete construction in time," says Rohtas Goel, president of Naredco, a body of real estate developers, and the chairman of Omaxe.

Nearly half of the 930,000 underconstruction residential units in the country, scheduled for delivery between 2011 and 2013, are likely to be delayed by up to 18 months, says PropEquity , a property research firm. Between 2009 and 2011, the cost of construction material has risen nearly 25%. Steel, cement, bricks and labour constitute nearly 73% of the overall cost of an apartment.

Daily wages of labourers have gone up from `250 a day in 2009 to `325 a day in 2011. With increased construction activity in eastern India and the success of the government's rural employment guarantee scheme, there is a severe shortage of construction workers in west and south India. Since November, mirroring the negative news flow around the sector, the BSE Realty Index has slipped 47%.

In comparison, the Sen has fallen 13.7%. Within the realty index, shares of DB Realty fared the worst, falling about 83%, while Godrej Properties was one of the best performers with just an 8% decline. The problem has been accentuated by the sharp rise in delivery commitments. In Noida, the supply has risen from 23 million sq ft between 2008 and 2010 to 135 million sq ft to be delivered between 2011 and 2013, a jump of 487%.

In Gurgaon, the jump is 267%; in Navi Mumbai, it is 154%. When the real estate market bounced back in 2010, after the recession, demand picked up and builders launched new projects in a hurry. "This aggressive expansion has led to delays in projects, as they couldn't focus equitably on execution," says Mayank Himadri, manager, research & real estate intelligence service at Jones Lang LaSalle India.

Himadri says bigger delays are happening in the case of developers who focused on launching new projects or phases in their existing projects at lower prices to attract demand, hoping to sell existing projects at higher prices later.

While eventually they had to correct capital values in their existing projects, slow demand led them to focus on newer projects rather than existing ones. "These older projects can get delayed by 12-18 months, from their initial possession dates," he says.

"In many cases, the builders are also not in a hurry to deliver projects as the market conditions are not conducive and do not suit them right," says Kejal Mehta, real estate analyst at stock brokerage Prabhudas Lilladher. T Chitty Babu, chairman & CEO of Akshaya Homes in Chennai, says the projects in the south have slowed down and there are no major delays.

"The reason why projects are getting delayed in other belts is non-availability of skilled labour. There is a huge demand supply gap here. Many builders are working with just 60% of workers, which is a great threat. Many of them are going for technical help to finish work," he adds.

The builders have taken too much on their plate already - they have to deliver over 1,200 million sq ft over the next three years, say some analysts. They would not have the management bandwidth, support infrastructure, vendor capability or capital to execute projects on such a large scale.

"Even if 60% of this is delivered over the next 2-3 years, it will be a significant achievement," says Anckur Srivasttava, chairman of GenReal Property Advisers, a property consulting firm. The country's largest developer DLF will deliver 11-12 million sq ft of residential space a year for the next few years. "Some of our projects that were to be delivered in 2011 and 2012 may be delayed by 6-8 months on account of delay in approvals, labour shortage, increase in cost of construction and de-crease in cash flow during the slowdown," says Rajeev Talwar, executive director, DLF.

Many of DLF's projects that will see delays were launched in 2008 and 2009, at a time when several projects were stalled due to the recession and even buyers weren't able to pay instalments on time. In fiscal year 2011, DLF sold fewer homes than the previous year. This year, the company is planning to sell non-core assets to bring down debt. A few large real estate players such as Emaar MGF and Omaxe are also looking at alternatives like selling land to generate capital.

"We can also expect a consolidation with many smaller players selling their projects to bigger players," says Goel. Says Samir Jasuja, chief executive officer of PropEquity, "A majority of the projects that are expected to get delayed will be in the affordable and mid-income categories. There will be serious delays in these projects and there might be price escalations for buyers as developers pass on the increased cost."

While developers blame increasing costs and government approvals for their delays, Ernst & Young's real estate partner Rajiv Sahni says many developers today do not have resources to finish projects because most of the equity and debt that they had raised was used to acquire more land.

In other words, money was diverted from the project to other uses. "There are many properties languishing, especially of mid-sized builders," he says. Harleen Oberoi, executive director, project management India at Cushman & Wakefield puts the large figure in perspective. "To develop 1 million sq ft of space, a developer would require a labour strength of 800-1,000 on the site at any peak instance, shuttering of about 2-3 lakh sq ft, one tower crane and one crane, in addition to other plant machinery like concrete pumps, batch plants and digisets."

http://economictimes.indiatimes.com/markets/real-estate/realty-trends/builders-fail-to-meet-deadlines-as-home-buyers-pile-up-pressure/articleshow/8944444.cms


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  • साढ़े चार लाख सपनों की होम डिलीवरी में होगी देरी
    22 Jun 2011, 1002 hrs IST,इकनॉमिक टाइम्स

    नई दिल्ली ।। दिल्ली के निर्यातक राज कुमार जैन ने 2007 में नोएडा में यूनिटेक के ग्रांडे प्रॉजेक्ट में 2 करोड़ रुपए में एक अपार्टमेंट खरीदा था। उन्हें 2010 में फ्लैट की डिलीवरी का वादा किया गया था। जैन बताते है, 'मैं 95 फीसदी कीमत दे चुका हूं, लेकिन फ्लैट मुझे अब तक नहीं मिला है।' प्रॉजेक्ट साइट पर भव्य प्रवेश द्वार है। अंदर गोल्फ कोर्स और क्लब हैं। और ऊंची इमारतों के कुछ ढांचे खड़े हैं। निर्माण कार्य भी चल रहा है, लेकिन बिल्डर अब भी डिलीवरी की तारीख का वादा नहीं कर रहा है।

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    नई परियोजनाओं ने समस्या को और बढ़ा दिया है। नोएडा में 2008 से 2010 के बीच घरों की आपूर्ति 2.3 करोड़ वर्ग फुट थी। 2011 से 2013 के बीच यह 13.5 करोड़ वर्ग फुट हो जाएगी। यह 487 फीसदी की बढ़ोतरी है। गुड़गांव में 267 फीसदी और नवी मुंबई में सप्लाई 154 फीसदी बढ़ी है। मंदी के बाद जब 2010 में रियल एस्टेट बाजार में तेजी आई, तब बिल्डरों ने जल्दबाजी में नई परियोजनाएं लॉन्च कीं। जोंस लैंग लसाल इंडिया के मैनेजर (रिसर्च एंड रियल एस्टेट इंटेलीजेंस सर्विस) मयंक हिमादी ने बताया, 'आक्रामक विस्तार से परियोजनाओं में देरी हुई है क्योंकि बिल्डर परियोजना पूरी करने पर ध्यान केंद्रित नहीं कर सके हैं।'

    हिमादी बताते हैं कि ज्यादा देर वैसे डिवलपरों की ओर से हो रही है, जिन्होंने नए प्रॉजेक्ट लॉन्च करने पर ध्यान केंद्रित किया था या ग्राहकों को आकर्षित करने के लिए कम कीमत वाली परियोजनाओं को चरणों में पूरा करने के बारे सोचा था। उन्हें लगा था कि वे मौजूदा परियोजनाएं बाद में ऊंची कीमतों पर बेचेंगे।
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  • Delay is not necessarily bad

    1. Delay makes your cash flow easier and probably you can manage the purchase without a bank loan.

    2. Some of the areas are not yet developed fully, they are not livable or safe.... you would not like to move into an apartment at the middle of nowhere... that too with kids. Your maintenance meter starts from the time you take possession.

    3. I know many builders are delaying their possessions bcoz not many customers would take possession immediately. So the builder will end up in maintaining the complex at a loss. An under construction complex require much lesser maintenance than an operational complex. By doing that the builder is definitely annoying few customers but in fact is pleasing majority of the customers. Amazing but TRUE!!

    I know it depends on personal circumstances... but I am definitely one person who would love to have delays. I said delays, not stalled!!
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  • Originally Posted by ondabhai
    Delay is not necessarily bad

    1. Delay makes your cash flow easier and probably you can manage the purchase without a bank loan.

    2. Some of the areas are not yet developed fully, they are not livable or safe.... you would not like to move into an apartment at the middle of nowhere... that too with kids. Your maintenance meter starts from the time you take possession.

    3. I know many builders are delaying their possessions bcoz not many customers would take possession immediately. So the builder will end up in maintaining the complex at a loss. An under construction complex require much lesser maintenance than an operational complex. By doing that the builder is definitely annoying few customers but in fact is pleasing majority of the customers. Amazing but TRUE!!

    I know it depends on personal circumstances... but I am definitely one person who would love to have delays. I said delays, not stalled!!


    First time anybody logically say that how delay of societies can be beneficial for buyers, and points are practically true. There are more than 30% buyers in each society who do not care for delays as long as they are confident that finally they will get flat.
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  • True for those who are comfortable staying/paying for their existing shelter. However, for those shelling high amount as rent or those already availing loans, every passing month gives more reasons to worry!!
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  • Originally Posted by ondabhai
    Delay is not necessarily bad

    1. Delay makes your cash flow easier and probably you can manage the purchase without a bank loan.

    2. Some of the areas are not yet developed fully, they are not livable or safe.... you would not like to move into an apartment at the middle of nowhere... that too with kids. Your maintenance meter starts from the time you take possession.

    3. I know many builders are delaying their possessions bcoz not many customers would take possession immediately. So the builder will end up in maintaining the complex at a loss. An under construction complex require much lesser maintenance than an operational complex. By doing that the builder is definitely annoying few customers but in fact is pleasing majority of the customers. Amazing but TRUE!!

    I know it depends on personal circumstances... but I am definitely one person who would love to have delays. I said delays, not stalled!!

    Intersting facts and tru to some extent..but yeah that again depends on your builder, if it is only delayed or stalled....
    delay probably would save you from lending money from bank for a particular installment but somewhere you will be worried about the future of the project.
    so it's a mixed feeling and condition, i would say...but looking at the article above the real estate picture does not seem to be glossy..and my biggest worry would be the price increase if it is loaded on buyers...lets wait n watch....
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  • Delay always works in favour of the RE investor.

    But it is against interest of the end user.

    For investment, delay reduces capital requirement and removes the need for registration cost coming soon. Overall, you pay less money out over a period of time. So total capital cost of holding the investment comes down - sometimes drastically.

    For example, you might buy a 60L flat but pay only 15L for first 3-4 years, because of delays. By the time project is delivered after 6-7 years, prices may have gone up drastically and you can sell before registration - thus reducing cost in 2 ways.

    Otherwise with fast construction, you still need to hold for 7 years, but pay 60L within 3 years, then register it and then need to rent it out also - which might create problems and increases the "hard work" part of the holding cost - or you dont get a tenant - or you keep it empty anyway to reduce hassles. You also need to pay the building maintenance, club membership and numerous other maintenance related issues (water bill, electric bill etc), which push up cost in money and effort.

    Keeping finished flat empty also causes deterioration, seepage and other problems which cause depreciation.

    So for investor who is not interested in renting the flat out, delay is in favour.

    Only issue is that complete default in construction should not be there - so a very big builder who delays construction is the best for investment - since he will not vanish with your money (although all builders are crooks by default - there is no history of total default by a big builder to my knowledge - if you know of any, please highlight for our education.)
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  • Originally Posted by ondabhai
    Delay is not necessarily bad

    1. Delay makes your cash flow easier and probably you can manage the purchase without a bank loan.

    2. Some of the areas are not yet developed fully, they are not livable or safe.... you would not like to move into an apartment at the middle of nowhere... that too with kids. Your maintenance meter starts from the time you take possession.

    3. I know many builders are delaying their possessions bcoz not many customers would take possession immediately. So the builder will end up in maintaining the complex at a loss. An under construction complex require much lesser maintenance than an operational complex. By doing that the builder is definitely annoying few customers but in fact is pleasing majority of the customers. Amazing but TRUE!!

    I know it depends on personal circumstances... but I am definitely one person who would love to have delays. I said delays, not stalled!!



    Sir, Agree with all three point I have purchased in sikka expressway

    1-Not want any loan
    2-Not livable in before five year so delay good.
    3-Many alotee (50% )not interested to take possession if completed within three year
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  • But if the project is delayed then how would you get an idea that it won't be stalled? If the progress is too slow then it would make me nervous that eventually builder would give up keeping in mind the increase in cost of construction. So, it also depends how late it is and I think anything under 1 year is comfortable.
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  • Originally Posted by djvjain
    But if the project is delayed then how would you get an idea that it won't be stalled? If the progress is too slow then it would make me nervous that eventually builder would give up keeping in mind the increase in cost of construction. So, it also depends how late it is and I think anything under 1 year is comfortable.

    well then that depends on builder reliability and his market reputation...so i think before investing anything in RE, one must do all the ground work in studying the builder reputation, past projects, land etc cos after all its ur hard earned money and u cant put it on stake...
    and ultimately if any project comes to a stall then its gonna kill that builder in return and his credibility goes for a toss because he might not get the investor's trust in his next project...so stalling might not be the result of any delay....
    and for any builder if u r getting ur project delayed by one year then u shd think of urself lucky :)
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  • Originally Posted by kumar13
    well then that depends on builder reliability and his market reputation...so i think before investing anything in RE, one must do all the ground work in studying the builder reputation, past projects, land etc cos after all its ur hard earned money and u cant put it on stake...
    and ultimately if any project comes to a stall then its gonna kill that builder in return and his credibility goes for a toss because he might not get the investor's trust in his next project...so stalling might not be the result of any delay....
    and for any builder if u r getting ur project delayed by one year then u shd think of urself lucky :)


    Forget about builder reputation.. name one reputed builder who has given project delivery on time.. only one name would be enough...

    By the way, amrapali has uploaded latest construction status on their site..
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  • Originally Posted by ashokyadav
    Forget about builder reputation.. name one reputed builder who has given project delivery on time.. only one name would be enough...

    By the way, amrapali has uploaded latest construction status on their site..

    sir, please read the complete post....the discussion was abt stalling of project....and thts a fact no builder gives the flat on promised time ,a nd one hsoiuld be lucky enough if he gets his completed flat within the delay of one year....refer last sentence of the post :)
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  • Kumar Ji,

    I somewhat agree with what you are trying to say, but in this environment you can see even good builders doing very slow construction. Big names of the industries in the NCR area like Unitech, Omaxe, Parasvnath, DLF etc all have very slow construction going and infact most of them also have stalled project. My point over here is that it goes from project to project. We have seen big reputed builder slowing down the construction, which eventually got stalled but no one knows what the future says so it is just not one factor of reputation that buyers need to think before making a purchase.
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  • yeah jainji...one should always think about all the aspects before doing any investment....but i think the builder name is also a very important factor..choron ki basti mein jo sabse kam chori kare wo hi hamare liye bhala aadmi :) :) ..thts wht we can do...
    and to my surprise i did not know if any builder stalled any project after delay...could u pls put some project names if u remember which have been stalled by any builder because any project would include minimum 250 flats and to stall such things will create a panic situation...i agree with delays but stalls, i do not know about it at all....
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  • Originally Posted by Venkytalks
    Delay always works in favour of the RE investor.

    But it is against interest of the end user.



    Not fully true. I myself is an end user and I love delay as I do not have immediate plan to move in, neither I will rent out my brand new apartment to a stranger. Many people never like the idea to rent out a brand new apartment to someone ... specially when that house is meant for their own stay. Yes it does not make any economic sense but this has to do with tradition and belief.

    And I have reason to believe that I am not alone. If you look at any typical complex... not more than 20% owners move in immediately. In other words, just around 20% owners are desperate to move in.

    20% inventories are still with the builders and they sell gradually and those people move in gradually as and when sales happen.

    Other 40%, who purchased earlier, move in gradually, typically over a period of 1 to 2 years time.... many reasons such as auspicious muhurt, school, job, etc.

    The remaining 20% remain vacant for long time... either completely locked or some seasonal people/tenant comes in and goes out.

    And this is one reason, builder delay their project... they want to make majority of the customers happy.
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  • Quite agree to this . Close to the factual position .

    Delay in execution/possession is good for investors, as long as the safety of the investment is assured ( when, i said this for the time in the forum, which was 5-6 months back - this was made to be a big issue & i was accused of so many things . LOL:D )

    Originally Posted by ondabhai
    Not fully true. I myself is an end user and I love delay as I do not have immediate plan to move in, neither I will rent out my brand new apartment to a stranger. Many people never like the idea to rent out a brand new apartment to someone ... specially when that house is meant for their own stay. Yes it does not make any economic sense but this has to do with tradition and belief.

    And I have reason to believe that I am not alone. If you look at any typical complex... not more than 20% owners move in immediately. In other words, just around 20% owners are desperate to move in.

    20% inventories are still with the builders and they sell gradually and those people move in gradually as and when sales happen.

    Other 40%, who purchased earlier, move in gradually, typically over a period of 1 to 2 years time.... many reasons such as auspicious muhurt, school, job, etc.

    The remaining 20% remain vacant for long time... either completely locked or some seasonal people/tenant comes in and goes out.

    And this is one reason, builder delay their project... they want to make majority of the customers happy.
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