Half of residential projects hang fire

My colleague Promit Mukherjee co-authored this story appearing in DNA Money edition on Monday, August 27, 2012.

Projects moving at a snail’s pace are breeding anxiety among home buyers in the Mumbai Metropolitan Region (MMR), with Mumbai, Navi Mumbai and extended suburbs of central and western Mumbai reporting more than 50% of under-construction residential developments.

The June 2012 quarter data compiled by real estate rating and research firm Liases Foras only confirm those fears, indicating that 30% of residential projects in the island city, followed by 28% in central suburbs and 18% in western suburbs beyond Borivali are delayed by over 24 months.

In the case of projects running behind schedule by 12-24 months, the percentage is significantly higher in areas like Thane (37%), central suburbs beyond Thane (32%), Navi Mumbai (31%) and western suburbs up to Borivali (30%).

Pankaj Kapoor, founder and managing director, Liases Foras, feels the overall scenario could only get worse and that the research firm is in the process of updating the data to be released in September this year.

“The situation hasn’t really improved since June as we have been noticing a consistent gradual decline in construction activity / progress in Mumbai for the past 4-5 quarters. That is precisely how the state of the real estate market is at present. Interestingly, despite declining sales, there has not been a significant correction in the rates per square foot and prices have only been increasing,” said Kapoor.

Every big developer, including the likes of Lodha, HDIL, DB Realty, Runwal and Lokhandwala, to name a few, is facing delays. While securing regulatory approvals posed the biggest challenge, issues related to labour and non-availability of raw materials, among others, proved to be a major roadblock for a handful of developers.

Officials from DB Realty were not available for comment. The media agency representing the realtor, while confirming the slow pace of developments, attributed the same to the complicated nature of approvals and permissions. HDIL spokesperson had not replied at the time of going to print. Runwal and Lokhandwala remained incommunicado, too.

But a Lodha Group spokesperson was upfront, saying the Casa Royale project in Thane is facing a slowdown due to reasons beyond their control.

“Undue and long delays in making decisions by the authorities concerned in providing us approvals and other such unforeseen circumstances have delayed the project. We have given a representation to the Thane Municipal Corporation and taken the matter to the high court to provide us necessary approvals to complete the construction. The high court has issued directions to the authority concerned to decide our representation in six weeks,” said the spokesperson.

But for the buyer, the wait continues. In fact, one who booked a flat in the project somewhere in 2009, was promised that it would be delivered by January 2011, which was later revised to January 2012 and now has been postponed till June 2013. “We are neither getting compensation nor the penalty for the delay as promised since the company is saying the delay is related to issues beyond their control,” she said, refusing to be named.

Acknowledging customers have been adversely affected, the spokesperson said even the Lodha Group has run up huge losses due to input cost escalation and time overruns. While he maintained that there is no delay with the Casa Rio project at Khidkali on the Shilphata road and it’s progressing as per schedule, the buyers have a different story to tell.

“The delays are certainly impacting actual end-users who are finding it difficult to cope with financial pressures in the current marker scenario. It is always thus advisable to purchase in a ready to move in complex, if not buying for the investment purpose,” said Samantak Das, director - research and advisory services, Knight Frank India, a real estate research firm.

Developers are in a bit of a dilemma here, torn between a hardening interest rate environment and soaring input costs, and calls to slash prices as they are already hard-pressed to maintain their current operating margins of 30-35%. The cost of land is by far the biggest factor that has stopped a developer from cutting prices as the product prices need to be linked to the continuously increasing land prices.

“The assets being developed by realtors are proving unproductive which is why we are seeing high debt burden on the real estate companies. It’s a very inefficient scenario and a highly speculative one moving towards fall, making it look like the market is tipping off,” Kapoor added.