2014 H2 may bring cheer for otherwise tough realty sector

DLF'S Gurgaon project hit a court roadblock earlier this year when DLF Park Place residents association filed a suit against DLF Ltd for having violated development norms. However, later the Supreme Court did put a stay on a high court order restraining DLF from selling and marketing properties in the project.

Recently HDFC, which had invested Rs 500 crore in Hirco Plc's subsidiary Hiranandani Palace Gardens in Chennai and Panvel, declared the projects as an NPA, while Tata Capital filed a winding-up petition in the Bombay High Court against them for having defaulted on a term loan of Rs 76 crore.

Also, private equity firm Sun-Area Property Partners filed a case against Rustomjee, alleging fraud, misutilisation of funds and default in payment of interest, among other violations, as per the shareholders' agreement and the case only just recently reached an out of court settlement.

Boman Irani, Chairman, Rustomjee, says: "We have learnt a lot about governance, we have got very robust systems into play; we have got an organisation structure that is now resilient and is now capable of taking on most of the challenges that real estate goes through. We learnt international traits through them, there was a rough patch.”

But the redressal seems to be coming too late. Analysts say it’s not just the end user, even domestic and foreign funds are now are wary of re-investing in India… Infact, the large number of financiers exiting projects say it all.

Sanjay Dutt, executive MD - South Asia, Cushman & Wakefield, says: “Developers who have not delivered, developers who have not created value or they have delivered something inferior or they have not kept their promise have lost a bit of credibility with the investors and the buyers and they have suffered. In the market like today when it is extremely difficult to do business you will see developers with credibility will continue to do well. Infact they will do better because more buyers will be attracted to the few credible in today's scenario."

So what should you as a consumer watch out for if you're are trying to buy a home

Ameet Hariani, Property Lawyer, says: “It is called a commencement certificate, that is to say you can start your work subject to certain conditions. So, you have to make sure that those conditions have been fulfilled by the developer. Look at the commencement certificate and then continue. So, you have an agreement for sale which sets out the terms and conditions of how or what rights you have. Typically that agreement says that the builder has to deliver by a particular date and ofcourse there is some force measure clause but more or less that is the date. If they don't deliver by that date then there is a clause which says that you are entitled to your money along with interest. The rate of interest is a minimum of 9 percent. You can negotiate it higher if you have to negotiating power.”

Several property developers blame the slowdown as well as the complexities the real estate business brings with it. But with REITs in the pipeline, combined with elections round the corner, the hope is transparency will improve and sentiments will finally turn a corner next year.