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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  • There is a difference between stalled project and delayed project.

    Project stalls because of three key reasons

    a. Legal issues : This is the extreme case, where the great "Sam, Dam, Dand Bhed" principle fails to work ... Adarsh society, the tall building between Dahisar and Mira Road, the two tall buildings in Goregaon film city road and so on. It can happen to any builder, small or big, reputed or tainted.

    b. Fraud builder : From the very beginning, these people has ill intentions. They are for quick gain, not for longer term. Generally smaller builders falls under this category, none of the big builders will be in this category.

    c. Going Burst : These are the builders, who want to be BIG in very short time... they swallow more than they can bite. Many of the NE builders immediately comes in mind.
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  • 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.


    I am in the same boat, but I consider myself a long term investor.

    If you buy a flat you are going to need 15 years later only, that makes you a RE investor - you are buying today for the distant future.

    You can either sell the flat after 15 years or stay in it, you are acting like an investor only - and since you are depending only on capital gain and not rental gain, you and I are both not even investors but speculators.

    (buying any asset without underlying yield based on value going up is a speculation - investment is buying an underlying yield - interest, divident/earnings or rent. SO buying futures/options, gold, unrented RE are all speculations). Nothing wrong with speculation.

    And yes, most of Sohna Road, Dwarka and other newer flat complexes are full of flats bought for future use and are lying empty. Who wants the headache of a tenANT?

    So slow construction makes majority happy. Ideally builder should be interested in quick delivery because he gets better revenue and cost of construction going up can be a problem.

    But builder is more interested in taking his profit upfront and speculating with it in RE deals. MArgins are so high in RE that escalation in cost of construction is a negligible cost to the builder anyway
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  • Originally Posted by ondabhai
    There is a difference between stalled project and delayed project.

    Project stalls because of three key reasons

    a. Legal issues : This is the extreme case, where the great "Sam, Dam, Dand Bhed" principle fails to work ... Adarsh society, the tall building between Dahisar and Mira Road, the two tall buildings in Goregaon film city road and so on. It can happen to any builder, small or big, reputed or tainted.

    b. Fraud builder : From the very beginning, these people has ill intentions. They are for quick gain, not for longer term. Generally smaller builders falls under this category, none of the big builders will be in this category.

    c. Going Burst : These are the builders, who want to be BIG in very short time... they swallow more than they can bite. Many of the NE builders immediately comes in mind.


    Good analysis. Yes, delay and stalled are two different things.

    Strange, but all three reasons are applicable to NE !!!!

    Land is in dispute, permissions are dodgy, govt is backtracking to prevent election loss, courts are interfering, builders were mostly small time and probable frauds, many have unviable economics and can go bust at any time.
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  • Originally Posted by kumar13
    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....


    Travini project in Faridabad is Stalled project sale the project in the year 2006 still construction going in for few towers.
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  • Sir I have seen incomplete building in front of American Bank at Barakhamba Road before Lalit Hotel Connaught Place same condition from 1985.
    CommentQuote
  • Originally Posted by pgarg6868
    Sir I have seen incomplete building in front of American Bank at Barakhamba Road before Lalit Hotel Connaught Place same condition from 1985.


    :D:D:D , I see this building every time whenever I cross CP once in a fortnight , or in a month. and several time I also think why it is like that at worlds costliest land rate location. No initiative to get it finish.
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  • Originally Posted by pgarg6868
    Travini project in Faridabad is Stalled project sale the project in the year 2006 still construction going in for few towers.

    these small time builders are utter crooks and their sole intention to launch a project is to earn some money and ditch the customers....may god save innocent bueyrs like us from these croosk :D :D
    but as u said the construction is under progress so i am hoping that the bueyrs could finally drink a cup of tea in their balcony some time 5 years down the line with this project :)
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  • Court mai atak gaya to latak gaya
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  • Originally Posted by kumar13
    these small time builders are utter crooks and their sole intention to launch a project is to earn some money and ditch the customers....may god save innocent bueyrs like us from these croosk :D :D
    but as u said the construction is under progress so i am hoping that the bueyrs could finally drink a cup of tea in their balcony some time 5 years down the line with this project :)


    Construction work going on for four towers out of 20 and 16 tower still in basement.
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  • UNCERTAIN HOMES: Delayed Projects Are Common And Some Are Even Scrapped Midway. Here’s How To Deal With The Situation

    CommentQuote
  • About 50% homes due for 2013 delivery to be delayed on slow construction approvals, liquidity issues


    Nearly half of the 323,000 homes to be delivered in 2013 are lagging behind construction schedule, with a third not ready for a housewarming before 2014.


    NEW DELHI: Here's a shocking piece of news for those waiting to take possession of their homes next year. A new survey has found that nearly half of the 323,000 homes to be delivered in 2013 are lagging behind construction schedule, with a third not ready for a housewarming before 2014.

    In addition, nearly three of every four homes promised for delivery in 2014 are also likely to be delayed, real estate research firm Liases Foras has found in a nationwide survey conducted recently.

    "There have always been delays, but it is a bigger concern today as the quantum of homes being built is much larger now," says Deepak Parekh, chairman of India's biggest mortgage lender HDFC Ltd.

    "Everyone's money is stuck. It is not only bad for homebuyers, but also for the economy," adds DK Mittal, secretary, department of financial services.

    The problem that began in 2010, when the economy started to weaken, has aggravated in the last one year due to paucity of funds as well as delays in securing approvals. Home sales have slowed down, private equity has dried up, the primary market is subdued, and banks have been reluctant to lend to builders. A combination of consumer activism, agitation by farmers, bureaucratic delays, labour shortage and legal wrangles has also contributed to holding up projects.

    The delays leave lakhs of homebuyers to grapple with another problem in the midst of rising prices and a slowing economy. "Individual homebuyers have the option of taking recourse to the law, but almost no one does so as it is a cumbersome process and may lead to further delays if the builder digs in his heels," says Vaibhav Gaggar, partner at law firm Gaggar & Associates, which helps clients in real estate disputes, among others.

    "If they choose, buyers could invoke a clause that is part of most standard contracts, to terminate the contract and get back their money with interest. If the person chooses to retain the property, he could file for compensation and damages by proving that he has been injured financially," added Gaggar. At present, contracts between buyers and builders provide for a per sq ft compensation in case of delays. "But the amount is minuscule," he said.

    Builders in the Delhi-National Capital Region have been the biggest culprit, with a 74% late delivery rate, followed by Mumbai and Chennai at 61%, Bangalore at 59% and Kolkata at 57%. "Data indicates that there would be more delays going forward because of the stress on cashflows of developers," says Pankaj Kapoor, managing director at Liases Foras, the firm that carried out the survey.

    Supply, Demand Both a Concern

    This non-brokerage real estate research and rating firm services banks like HDFC, Axis Bank, Deutsche Bank and Standard Chartered as well as big real estate companies and private equity funds.

    Experts say there are liquidity concerns both on the supply and demand side. Many developers are faced with a liquidity crunch and cashflow issues due to slowdown in home sales, and this is turn is impacting their ability to finance construction of new properties.

    "Home sales are down nearly 40% because of the very high cost of homes. This is becoming a vicious cycle," says Anckur Srivasttava, who heads GenReal Property Advisers, a property consultancy. Adds Anshuman Magazine, managing director of CB Richard Ellis: "There is a liquidity concern on both the supply and demand side due to high interest rates and high prices. The impact of the slowing economy is reflecting on the ground now, in demand slowing down and execution of projects being hit."

    According to a recent report by real estate consulting firm PropEquity, the number of unsold properties in India's top seven cities at the end of December this year is expected to be around 32,000 units and valued at over Rs 21,000 crore.

    Developers argue that liquidity issues are just one of the reasons for the delays. More pressing is the issue of getting approvals on time to get on with construction.

    "After the first approval, subsequent no-objection certificates and approvals like water, electricity connections, completion certificate and others get delayed," says Lalit Kumar Jain, president of the Confederation of Real Estate Developers Associations of India (Credai), the national association of builders. The regulator will, however, have the right to give an extension to the builder on a case-to-case basis.











    About 50% homes due for 2013 delivery to be delayed on slow construction approvals, liquidity issues - The Economic Times
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