DB Realty offers to compensate home buyers in Dahisar project

Buyers who were promised delivery of their homes in DB Realty's Dahisar project by December 2012 are still waiting for possession. Around 3,600 families are said to be in the lurch due to the delay.A recent report in the mid-day newspaper says that the project completion dates have been getting postponed without any official confirmation on the date of possession.Protests by the buyers have now forced the management to make an offer to return their money with the cancellation fee of 9 percent interest rate per annum. It must be noted that most developers charge home buyers 18-21 percent penalty if payments due to them (developers) are delayed.To clear the air around the delayed project that has already created much heartburn for the buyers, NM Gattu, the CFO of DB Realty confirmed to CNBC-TV18 that project saw a lag due to its massive size of 2.8 million square feet and phase-wise construction format. "It is not right to say that the project has not taken off. All the 25 buildings are fully constructed now," Gattu confirmed. The market price around Dahisar area is now around Rs 8,000 -9,000 per sq ft whereas DB had charged Rs 2500-2800 per sq ft and to alleviate the angry buyers Gattu said that the buyers can sell off the flats to get price appreciation.When asked about adhering to the accountability of giving fair compensation, Gattu said that change in development regulations necessiated redesign of projects and led to the delay.It may also be recalled that one of the group companies of DB Realty, Swan Telecom, was caught in the 2G telecom spectrum scam in 2012, leading to the arrest of DB Group promoters Shahid Balwa and Vinod Goenka. That contributed to the delay in many under construction projects of the group.  Below is the verbatim transcript of NM Gattu’s interview with CNBC-TV18's Anuj Singhal and Ekta Batra. Anuj: Do you think it is fair to return money with none percent interest rates for those who have been waiting over five years now considering that if you see the contracts of some of the real estate projects the realtors actually charge about 17-18 percent for defaults. Do you think it is fair on part of DB realty? A: It is incorrect to say that the project has not taken off. The entire 25 buildings is all fully constructed there. You can visit the site to have a look at it and finishing is getting completed in a phase wise manner. It is a large project of 2.8 million square feet. It is not a small one. Every building is already completed in civil structure, there is no labour for the civil out there. Now the point is that what we have sold like the way you are saying that we have charged interest at 18 percent and whether is it right to give back 9 percent at the same time we had sold all these price at a price of Rs 2,500-2,800. Today the market price there in this location is Rs 8,000-9,000. So, if they want to sell it they can always sell in the secondary market and get the price of differentiation. As a developer I am not going to ask you have got four fold multiply of investment and that you pay us any money. So, while that is incorrect this is also that these are the terms and conditions which the law prescribes and this where it stands at. Anuj: That is a market factor that prices have gone up four or five times. From your point of view you had an understanding to deliver the project by 2012 and it has been a delay of four years. So, it doesn't matter whether the buyers are enjoying a four times price surge. From the company's point of view there has to be some accountability in terms of giving a fair compensation? A: There are reason out there. We have listed out there why it has got delayed. The change of regulations in Bombay itself had taken about 24-36 months for everybody to get delayed, designs have to be changed and all. So, nobody will be able to be kind of sympathetic to us because our investments also go into it. It is not that my project has not taken off at the ground level, which is not the case, right? Flats are already ready, finishing is under process. During the course of the next 12-15 months we will deliver the entire project. We have a schedule which we have said there is a delay but there are reasons for that. All delays are not in our hands. Ekta: In the same time how many other projects actually came on stream for DB Realty between 2012 and now? A: Every project during that period because of regulations, everybody had to go to the drawing board to redesign a project. Ekta: So, what was the average rate of delay for your other projects as compared to this? A: It cannot be counted in time of delay. There is a force majeure clause so that everybody has to wait for the delay. Delay is what we have committed minus the force majeure whatever is the delay then that is attributed towards the delay part of it. Ekta: Have any of the people who have bought houses in the Dahisar project even asked or have they agreed to pay that nine percent cancellation fee? What is the status of that? A: These are the running operational matters which will be dealt with the sales department. There are no cancellations as such on the table for refunds which are pending as such. Because of the sheer increase in the price generally nobody will come to surrender their right of the flat at the original price plus nine percent. Anuj: Finally in terms of your numbers, I was just looking at your numbers as well. For the last quarter there was a bit of an earnings before interest, taxes, depreciation and amortisation (EBITDA) loss. For full year as well you reported a loss. What is the outlook for FY17 if you move away from this Dahisar project controversy? A: Our numbers are in line with what we have been discussing quarter-on-quarter (Q-o-Q). There is a very marginal profit that we declared, Rs 7.77 lakh. That is primarily because my existing projects or revenue recognition was getting over and new projects is yet to come on to the revenue recognition mode and because of the accounting standards all the period expenses like salaries, administration cost, various other expenses in the general running of the company has to be written off. So, there is always a pressure on the bottom-line in the results as per the accounting framework but from cash flow point of view it is quite healthy and positive. Ekta: How much do you have in terms of reserve in the company or how much money have you put aside in case of a worst case scenario and if in case you do have to return money how would you be funding it? A: As I indicated there is no application pending with us for refund primarily because of the sale price of Rs 2,500-2,800 of what we have sold versus the current market prices in that region. When that flat is completely visible you can actually step into your flat and feel your flat. It is all done, the water tanks are all casted, the lift machine rooms are already casted. There is no civil work pending. So, the current market price going there is Rs 7,000-8,000, so there is nothing that has come to us in cancellation. Anuj: You are offering helicopter tour for south Mumbai premium project DB Crown but you don't have enough money for completing Dahisar project. A: No, it is incorrect to say that because you can visit the site and see for yourself whether the work is going on or not. There are delays we agree with that, but there are reasons for that which we have explained.