The supply-starved office market will probably take the biggest hit as the much-needed new buildings slated for a 2021-22 launch will not be able to meet their delivery timelines
The water crisis that has engulfed Chennai has led to slowing down of construction activity and could eventually result in a six-to-nine month project delay, say real estate experts.
Poor water management, despite warnings by satellite images, is believed to be the main reason for this crisis.
Water scarcity is bound to impact residents and economic activity, including real estate.
Construction is a water-intensive industry. An estimate by a global consultancy states that one lakh sq ft of construction consumes over 9,000 million litres of water. This quantity is enough to cater to the water requirements of 50 households for a year.
Chennai’s water crisis has impacted the construction industry. The only way developers can meet their requirement is through private water suppliers, who in turn have increased prices. This has impacted the cost of construction and resulted in a six-to-nine month delay in project deliveries, says Mudassir Zaidi, Executive Director – North, Knight Frank, adding such delays will significantly impede the already stressed real estate market.
The supply starved office market will probably take the biggest hit as the much-needed new buildings slated for a 2021-22 launch will not be able to meet their delivery timelines, he says.
Chennai’s daily water requirement is 1,300 million litres. At present, the water supply has fallen to 500-525 MLD a day. Besides, the ground water table is alarmingly low.
Bengaluru too is grappling with a depleting ground water table and shortage of drinking water. The state is in the process of discussing with developers about ways to tackle the water crisis and ensure adequate supply for new projects. There is a growing conjecture that the government may evaluate imposing a construction ban for five years, but further clarity is awaited on the matter.
“Water crisis is not just about the water, it is also about the possibility of a lot of people not deciding to shift to the city, or first-time buyers deciding not to buy houses in that area. If any drastic measure such as the ban being proposed in Bengaluru were to take effect, it can severely impact the real estate market and create an artificial shortage, eventually leading to shortage and rise in prices,” he says.
Suresh Krishn, President-elect Credai-Tamil Nadu, says the halt in construction in the city due to the water crisis would lead to at least a five-to-seven month delay in completing projects. "Even the price of private tankers has shot up from Rs 1,500 to Rs 5,000. Prices may not get impacted immediately, but there is a pressure from customers for timely delivery,” he adds.
Pankaj Kapoor, Managing Director of realty consultancy Liases Foras feels the water scarcity has far-reaching impact on property valuations. It is after all about the ease of living. Any struggle with basic resources such as water or pollution is bound to have an impact. The capital and rental values of a project, where there is intermittent supply of water, is usually half of that of a project where there is 24X7 supply. People are bound to vacate properties where there is water scarcity.
If a solution to the water crisis is not found, prices are bound to go down by 10-15 percent, says Kapoor, adding construction delays are expected to impact the supply pipeline and that may impact prices.
Some experts believe the Chennai crisis has had no impact on property prices. In the case of Bengaluru, if a construction ban of five years were to be imposed, the move may have a negative impact on the real estate market as demand for homes in the city is massive.
“With limited new supply entering the market, demand for ready properties will go significantly. Builders sitting on ready inventory will immediately increase property prices of these homes by at least 10-15 percent. This will keep inflating over the years of the ban. However, homebuyers with new ready properties, whose prices remained stagnant over the last two-to-three years may have a reason to cheer this move, as finally the values of their property will rise.
Additionally, builders sitting on ample land banks -- or even those waiting to launch their projects in the near future and who were almost ready with all their project planning and designing -- would face issues with this move. “The cost incurred on project design and planning and seeking necessary approvals will all go in vain,” says Anuj Puri, Chairman – ANAROCK Property Consultants.
Instead of opting for such an extreme move to quell the water crisis, the government could take adequate alternate measures to conserve water, manage its sources and ensure that concepts like rainwater harvesting are strictly imbibed by housing societies and builders. It can also work on rejuvenating hundreds of lakes in the city for which Bengaluru has been rightly famous for. The government must penalise builders (of both existing and new projects) heavily for not implementing water-conserving techniques, including rainwater harvesting, he adds.Can developers take recourse to the force majeure clause to escape the delay penalty?
Some legal experts are of the opinion that real estate developers may take recourse to the force majeure clause for the delay in meeting construction timelines due to the water crisis. Others feel they may not be able to seek protection under it as it is more of a man-made crisis than a natural calamity.
Rahul Choudhary, lawyer, Legal Initiative for Forest and Environment (LIFE), India says some developers may seek protection under the force majeure clause but whether it will be accepted is subject to debate. At present, any project that is over 20,000 square metres requires an environment clearance. What is missing is a stringent assessment of whether adequate treated water (STP) is available in an area for completing construction for a project of that size. This should be a made mandatory for grant of clearances to builders.
According to Suresh Krishn, since developers have not mentioned the water crisis in most agreements with customers, they may not be able to take protection under this provision. A CREDAI delegation is planning to meet the RERA authority to seek an extension in construction timelines because of the water crisis.The way forwardThe way out is to set up waste water treatment plants at construction sites to avoid or minimise the use of potable water for construction, rain water harvesting plants at project sites to replenish groundwater and use of innovative technologies that minimise water usage, say experts.Some developers have already started using gypsum plaster instead of sand cement plaster and self-curing concrete for construction. More environment friendly practices for construction are the need of the hour, experts add.