Delayed delivery of residential projects has become a significant issue on the real estate market, leading to high levels of ire among customers. In terms of the average delay in delivering residential projects across India, more than 25 percent of the committed supply has not been able to hit the market as per schedule.
The National Capital Region’s performance in terms of delivery of residential supply due in 2013 has been the worst across all the major Indian cities.
In Gurgaon, only one-third of the total committed supply for 2013 has been delivered so far. The situation has been even more alarming in other NCR regions such as Noida, where only about one-fifth of the residential supply committed for delivery in 2013 has been delivered so far.
In the West, Pune and Mumbai have shown a much better performance in terms of project completions - these cities could deliver more than 40 percent of the committed supply of 2013 as per scheduled delivery.
With delivery delays, inventory levels across India have risen significantly. The Pan India inventory of residential stock is now well above the comfort level of 14-15 months.
Mumbai has an inventory of close to 48 months, Delhi of 23 months and Bangalore of 25 months. These are close to the levels of 2007, when the residential real estate market's inventories were at an all-time high.
Why Project Delays Occur
The issues leading to residential project delivery delays are manifold. Poor project management is often one of them, but this is not essentially the prime reason. In fact, it is the current economic scenario - defined by high levels of inflation and escalating construction costs - that is the leading reason for delayed projects.
Developers are facing a severe liquidity crisis and do not have the capital to complete their projects. However, there are also other factors at play.
One of these often is nothing more than a lack of commitment to timely completion and delivery on the part of a developer. We are currently looking at an environment wherein developers are obsessed with launching new projects rather than making the completion of existing projects a priority.
There have been many instances where funds that were raised for a particular project were diverted for uses other than expediting the completion of projects under construction.
Delay in regulatory clearances is another critical reason for delays in project deliveries. In many cases of delayed projects in Delhi NCR, the water and sand crises as well as environmental regulations which developers have not been able to meet have played a role.
In quite a few projects, the lag caused by various bureaucratic processes has also been an operative factor in delayed project clearances.
There is no doubt that the new regulations pertaining to land acquisition have thrown a rather massive spanner in the works. In the NCR region, a significant number of residential projects in areas such as Noida have been delayed because of disputes with regards to land acquisition.
Advice For Property Buyers
In the current scenario, the secondary market seems to be a more promising avenue for end-user buyers, as they can get better price points there. However, transactions on the secondary market often require buyers to have higher initial liquidity so as to be able to meet the immediate capital requirements.
Also, in many of the projects, developers have put in prohibitive measures such as high transfer charges before the completion of the project. In such cases, the valuation might also not be very attractive at all.
Nevertheless, developers are feeling lot of financial pain and are now offering attractive construction-linked and payment plans, with the bulk of the payment phased towards the time of possession.
These plans allow buyers with limited liquidity to proceed with the purchase. Also, CLPs mean that buyers have reduced exposure to the risk of delays.
We expect that in the ensuing two quarters, developers will come out with more incentives and discounts to attract buyers. In other words, the primary market will continue to maintain its appeal.
Buyers are, as always, advised to do a complete and thorough due diligence of the credibility of any developer they seek to deal with. Especially in the current scenario, the delivery track record for previous projects is a vitally important guideline for investment in the primary market.
The author is the CEO-Operations at Jones Lang LaSalle India.