A drive from the edge of Delhi to the Taj Mahal’s gate takes roughly two-and-a-half hours now-a-days.
The Taj Expressway, one of India’s showpiece road projects, is prefaced by a six lane thoroughfare connecting Noida with Greater Noida, making the journey smooth and relatively bump free. Gulmohar flowers, bougainvillea florets and neem trees pepper the route on both sides.
But, a peep through the multi-hued shrubbery unmasks an unpleasant picture: towers and towers of unfinished apartment blocks.
Protruding iron rods, semi-plastered walls and unpainted facades have created an ugly urban geometry that even the growing glitz of high street malls and busyness of corporate towers across Noida, Greater Noida, and Gurgaon, have not been able to hide.
The National Capital Region (NCR) has become India’s central district for incomplete housing projects. Moneycontrol reviewed data collated by two research firms on delayed projects. The statistics are telling.
It is not just about stuck projects of the Unitech Group, Amrapali Group and Jaypee Group that are getting mainstream attention because of ongoing court battles.
According to Anarock, a real estate consulting and research firm, more than 2 lakh housing apartments worth Rs 1.31 lakh crore are currently delayed by at least a decade in the NCR region.
Nearly four out 10 (39%) delayed housing projects in the country’s top seven cities—NCR, Mumbai Metropolitan Region (MMR), Bengaluru, Chennai, Hyderabad, Kolkata and Pune—are in the NCR region.
At 1.92 lakh delayed housing units, MMR is a close second. The areas in and around the national capital and the financial capital account for a disproportionately high 77% of stuck projects in these seven metropolises, according to Anarock.
In comparison, Bengaluru, Chennai and Hyderabad together account for a mere 10 percent of the overall stuck housing units, worth Rs 41,770 crore, says the data.
There are only 8,650 delayed housing units in Chennai, 86,700 in Pune, 9,600 in Hyderabad, and 40,450 in Bengaluru.
Data collated by PropEquity, a Gurgaon-based real estate research and analytics firm, mirrored a similar pattern. According to its report, as of last year, more than 4.65 lakh housing units valued at over Rs 3.3 lakh crore across India are significantly behind their delivery deadlines with daunting construction delays.
Of these, 39% or 1.81 lakh units worth Rs 1.22 lakh crore were in NCR, and another 22% or 1.05 lakh units worth Rs 1.12 lakh crore were in MMR. South Indian cities reported the least number of delayed projects.
There’s no one single reason behind NCR’s notorious construction record.
Fund diversion, no regulatory oversight, puzzling land buying rules, abundant supplies, credit crunch and collapsing returns have pulled to the turn large parts of Noida, Greater Noida and Gurgaon into unfinished, deserted ghost towns.
According to experts, real estate in NCR enjoyed its rosiest period as a highly attractive asset class during 2005 to 2011 where investments jumped nearly threefold in value.
Thousands cashed in on `pre-launch’ offers, a muddy concept where apartments could be booked at heavy price markdowns. The prices were raised immediately after the projects were actually launched with all necessary approvals.
This hatched a whole new class of investors who hurriedly parked surplus funds in these offers, drawn by healthy returns. This was the time when one could book an apartment by paying only 10% of its value, and then exit by `transferring’ it to another buyer at a premium of 30% or more.
Experts sometimes describe such investors as ‘flippers,’ who booked properties by paying 10% amount at the launch stage and exited to invest in another project after making neat returns from the first.
This created a false sense of demand, and a fragile financial pyramid of sorts. As people flocked to park surplus funds to earn a quick buck, realty companies went on a launch binge, announcing projects by diverting funds from existing ones where bricks were still being laid.
“It was the same pack who was launching projects across NCR. The problem of stuck projects faced by NCR was therefore widespread unlike in other cities,” said Samir Jasuja, founder and managing director of PropEquity.
The cycle had to end, because eventually the houses had to be handed over to owners who wanted to stay in these. Moving funds across projects meant most builders fell short of funds to complete many apartment blocks, leading to the piling rubble of unfinished projects.
Also, realty companies were, perhaps, taken in by the `investors’ high interest in projects as a sign of actual demand for houses. This buoyed them to launch even more projects to meet the extra demand, which actually did not exist, setting off a `chicken-and-egg’ cycle.
“These projects were launched without a proper demand and supply analysis and now these are stuck. A major issue is that some of the developers lacked the will to complete the project and preferred fund diversion, the tightening credit crunch has also been a major problem,” said Anuj Puri, chairman, Anarock Property Consultants.
“It has become a ‘chicken and egg’ situation, buyers have, understandably, stopped releasing funds to developers, who claim they have no funds to complete the projects.”
It also took a few years to call the bluff of `pre-launch’ offers. Many builders launched greenfield projects and collected booking amounts from unsuspecting buyers without the requisite approvals in place. As clearances took a long time coming, projects got delayed even further, compounding the problems.
As returns on real estate slackened, even the investors refused to pay the developers, leading to high defaults, and plummeting sales. Housing sales dropped 28% between 2014 and 2018 – from 3.43 lakh units in 2014 to 2.48 units last year.
As long as property prices were rising, the investor community remained interested. But, the slide in demand and the resultant fall in prices since 2014 led to a rush of exit by investors and defaults, said Pankaj Kapoor, managing director, Liases Foras, a Mumbai-based real estate rating and research firm.
“We have spread NCR far too much to realise our vision of urbanisation. Over-leveraging, launching projects without approval, regulatory road blocks and failure to anticipate how the market would perform are the reasons why these projects have been running behind schedule,” Kapoor said.
Mudassir Zaidi, executive director, (north), Knight Frank (India), echoed similar views.
“During the bull run from 2005 to 2012, prices doubled every three years and investors made returns of almost 20% on an average. After 2014, the market has corrected by almost 30% and the returns are either flat or negative,” Zaidi said.
According to Zaidi, Gurgaon, which houses offices of the crème-de-la-crème of Fortune 500 companies, faces a peculiar problem where demand exists, but not many can afford the houses that are on sale. “The inventory that came up or exist are primarily in the premium segment and was therefore unaffordable,” he said.
WHO TOOK MY LAND?
Noida is also suffering from a baffling policy that, experts believe, allowed builders an easy run. A 2007 policy allowed builders to possess land by paying for it in a staggered manner. The policy allowed realty companies to own land and launch projects by paying just 10% of the land cost to authorities. They were allowed to pay the balance in instalments over several years.
As demand dipped, prices plateaued and investors started leaving in hordes, builders started defaulting on paying for outstanding land dues. Authorities in Noida are now struggling to recover Rs 11,000 crore in land dues from 90 builders.
That’s not the case in the other markets such as Gurgaon, Mumbai or south India where builders are required to make an upfront payment for land.
Yet another reason for NCR’s massive inventories is that many of the areas where these projects have come up, the ecosystem for habitation is missing.
“The basic social fabric is missing. This was not a big issue as long as the market was thriving due to investors’ demand who put in money only to exit. But with the market now depending only on end-users’ demand, sustainability of some projects is a big problem for some developers,” said Zaidi.
Currently, with only end-users scouting for best deals in the market, that too only in ready-to-move-in properties, developers are getting hurt where it hits the most: their cash book.
“Developers have land banks to sell but not many buyers. They are asset packed but have no liquidity. Besides, they have to struggle with massive legacy issues,” says Zaidi.
The biggest task is to restore faith in buyers about builders’ intent as well as authorities’ regulatory teeth through institutions such as the Real Estate Regulatory Authority (RERA).
“Delayed projects have severely weakened faith in under-construction properties and reviving buyers' trust is a herculean task. If buyers stop purchasing under-construction properties, builders will have a far more challenging time to get funds from external sources for project construction,” said Puri.(This is part of a series of pieces on issues plaguing the real estate sector)