Real Estate Projects on False Promises by Developers

March 8, 2010 - PRLog -- Timely delivery of projects is a big issue in the Indian real estate industry. According to a victim of a much delayed project. If you have had the experience of investing your hard-earned money in a project and finally not see the project come up in that time frame, while your money has been all taken up, you would know how cheated and defeated you feel. One is unsure if ever the house will be delivered; and if you want to fight it out, what are the options you have. You either move the courts, which also suffer from lack of timely delivery in dispensing justice, or stage a dharna and go to news channels.

A recent instance of a delayed project is one commercial project, which was launched two years ago. Leave aside completion of construction, the builder has not even obtained a certificate for change in land use so far. Investors are now demanding a refund from the developer, alleging the latter with not obtaining a “change in land use” clearance, which is required since the commercial project is being developed on land meant for industrial use. This is not the first time that a developer has been in trouble with buyers who want a refund on account of delay in the project.

According to one of the investor, There is a compelling need for a real estate regulator. Telecom sector is doing well with a regulator and the end user is the beneficiary. Also, it provides a level playing field for market players. It’s high time that the real estate industry was regulated. It would hugely help in creation of a more transparent market with accountability for developers and lend a voice to consumers. Besides, it would help curb monopoly in certain pockets and push for quality norms in product, delivery and construction practices.

Typically, in India, a builder takes on too many projects simultaneously, stretching his bandwidth, and the pace of construction is slow. According to an industry insider: “We have not learnt how to do faster construction. Builders need to introduce better technology, spend more money, and ensure construction at the sites happens round the clock.” In developed countries, construction happens round the clock without inconveniencing anyone. Pace of construction is fast, which allows the developer to recover the money he has invested in land quickly and reinvest it in the next project. The expert adds that in India, there is a disincentive to build fast as, if a builder holds on to inventory, prices go up and so do profits. Since prices keep going up, developers hold inventory and go slow on construction.

An investor in a prestigious project of a big-ticket developer: “All of us (owners) have paid up 95% of the price to the developer more than four years ago. Still, actual construction at project site hardly matches 60%. It is clearly evident that revenue from this project in Gurgaon has been diverted to new launches/properties elsewhere.” He adds that they have been approaching various officials of the firm over the last two years regarding completion/possession date of these residential towers. Every time, the developer apparently sends them away by citing a new date of completion, which is always “3-4 months hence”; but the project is nowhere near completion.

In the same project, says that one of the major reasons cited by the developer for delay in the project execution was the credit crisis facing the industry. “But, now, with credit crisis being put to history and real estate sales facing northwards, we are very disappointed to see the builder focusing on new projects rather than completion of its delayed projects. Also, they have posted higher Q4 profits, and raised enormous amounts of money through various channels in the last 3-4 months. These were, namely, QIP share sales, stake sales in two projects, etc. While some part of this money was used to decrease debt ratio, unfortunately, almost no money seems to have been pumped into completion of delayed/stalled projects.” When contacted, the builder did not respond to this correspond.

Similarly, investors in another big-ticket real estate project at Mohali also have a tale of woe to recount on how construction was stalled for a year in a township project there. Developers in turn blame it on tardy approval process from the development authorities, or the liquidity crunch due to global downturn.

So, whether it is poor construction technology employed or sheer greed of builders or lack of penalty in this unregulated sector or a combination of all these, the bottom line is that delay in projects is pretty rampant in India and end users have a tough time dealing with it.

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