No Escape Route

For builders, delays in handing over houses to buyers are nothing new. The courts, too, have of late asked several of them to return money to buyers affected by the delays. However, two prominent players, Unitech and Parsvnath, have told the courts about their inability to return the money, bringing to light the severity of the stress the sector is facing.

The $100-billion Indian real estate sector is facing the ire of beleaguered buyers tired of endlessly waiting to get possession of their houses. Information compiled by real estate analysts shows that more than 7,000 residential projects out of 9,591 launched between 2008 and 2010 in top cities that account for 75 per cent of the market are still unfinished.

Things are so bad that some projects have been languishing for as long as five years. Several top developers took huge loans for specific projects at high rates before 2010/11 but diverted the money - as well as buyers' funds - to build land banks and to launch other new projects. They are now bankrupt and without capital to finance these projects. The list of builders whose projects have been delayed include DLF, EmaarMGF, Raheja Developers, Jaypee Group and DB Realty.

According to real estate consultancy Knight Frank, the first half of 2016 saw the least number of new launches in the past three years in top eight cities, indicating weak consumer sentiment.

Though some sales are still happening, especially in affordable and mid-level housing projects, a big part of revenues of most Indian developers is going into paying interest on loans (some took loans at rates as high as 20 per cent). Many developers trying to reduce debt amid slowing sales fear they will go bankrupt if they are forced to refund buyers for delays. This is happening even as home buyers become increasingly confident about taking on developers. The story of Unitech and Parsvnath facing liquidity crunch is the beginning. As more and more customers move courts, many others could face similar music.

"The residential sector is undergoing a period of relative stress. The cash flow crunch has hit construction speed with many projects not meeting the committed delivery timeline. With the advent of the Real Estate (Regulation and Development) Act, many not-so-credible developers will find it hard to sustain, leading to consolidation," says Santhosh Kumar, CEO - India Operations, JLL India.

The implementation of the Act will improve the confidence of buyers by mandating transparency and time-bound completion of projects. This, though, will take some time, as states will be in a position to set up real estate regulators under the law only by 2017.