As a result of the series of economic shocks in the past three years, from the unexpected demonetisation in 2016 to the sales tax introduced in 2017 have dented property-market sentiment and also dried-up developers’ funding. Due to lack of the funds, now buyers of under-construction flats are taking on the functions and the role of a developer to finish building homes.
A computer programmer from Mumbai, Lalit Vazirani has never figured out on having to turn into a nonprofessional property developer. But a decade after putting down a deposit for an apartment near the city’s airport, dealing with architects, taxes, various planning permissions and even court hearings now he has turned into an amateur property developer This happened due to the fact that the developer behind the $50 million project has gone bust and nobody else has stepped in to finish the work.
Vazirani, aged 45, who bought the two-bedroom unit before construction started, said, “We never in our wildest dreams imagined one day we would take on the functions and the role of a developer. But fate had other plans.”
Few things illustrate the discomfort in India’s property market as contradictory as would-be homeowners having to dedicate untold hours to complete the flats for which they spent years saving up. While no estimates exist for the number of people in Vazirani’s position, India’s property market is struggling to digest some $65 billion worth of projects in various stages of completion or even non-completion.
Anuj Puri, the chairman of Anarock Property Consultants Pvt. Said, “So many delayed building projects have severely weakened faith in any under-construction properties and reviving buyers’ trust is a Herculean task. If buyers stop purchasing, builders will have a far more challenging time to get funds from external sources for construction.”
Two years ago, India introduced a law with strict punishments for building delays.
An analysis of about 11,000 home builders by research firm Liases Foras in February showed that developers on average have to repay twice as much in debt each year as the income they generate that can be used to service it. This comes as property prices in India’s biggest cities are flagging. Home values in Mumbai sank 11 percent last year following a 5 percent decline in 2017. They ran up 32 percent in the four years through 2016.
At a housing development in the state of Uttar Pradesh, purchasers will monitor construction after a local regulator stepped in. The buyers of the unfinished project had approached the state’s real estate regulator seeking a handover of the project to them after it had been stuck for three years and the builder had run out of money.
Orbit’s former Chief Executive Officer Pujit Aggarwal says he’s trying to help by providing the group with construction and regulatory expertise. Aggarwal was taken into custody in 2016 for allegedly cheating apartment purchasers. He wasn’t convicted and the Bombay High Court granted him bail in July 2017. Soon after, his company was referred to a bankruptcy court.
Aggarwal said, “It’s a collaborative effort between buyers, myself and other stakeholders to make sure there’s an end in sight. Buyers are putting in the money and have shown tremendous resilience to take over and move ahead.”
It was “just bad investment decisions” that resulted in Orbit’s undoing, he said. The company had bought some large land plots that dented cash flows and trying to fund long-duration projects with short-term loans aggravated the situation. Regulatory changes also affected building plans.
The Orbit homeowners’ group hope that home-price gains since they paid their initial deposits, teamed with the development’s good location, mean they’ll eventually come out ahead.
Vinay Sah, the managing director of LIC Housing Finance said, “Owners coming forward to take up the stalled projects and complete them looks a viable option. It would be a win-win situation for all stakeholders concerned.” LIC also had to take a haircut on its loan to Orbit.
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