Will court-monitored housing supply help rationalise real estate prices in Noida?

Greater Noida West (Representative image/Wikimedia Commons)

While the initiation of insolvency proceedings against a few builders in Noida of late as well as in the past has had homebuyers worried on whether the delivery of their homes will be delayed further, there have also been instances, such as the Amrapali case, where houses are being completed under the court’s supervision and readied units being sold in the market to raise money for completion of remaining units.

The Uttar Pradesh RERA website shows that over 70 projects across the state are facing insolvency proceedings and are being heard by the National Company Law Tribunal (NCLT). The UP RERA chief has also been quoted as saying that NCLT proceedings benefit homebuyers and that timely resolution of such cases can help restore homebuyers’ confidence.

It’s also a fact that once these projects are completed through the insolvency route or under supervision of the apex court, as Amrapali’s case, a large amount of inventory will get released in the Noida-Greater Noida market which some real estate experts say may have an impact on housing prices. While housing prices may increase in other micro markets due to the hike in raw material prices, the case of Noida will be unique because a large number of projects that are currently stuck or are facing legal issues, once resolved and completed will help rationalise residential prices.

As per ANAROCK Research, as of Q1 2022-end, Noida and Greater Noida together, have 45,030 units available for sale in the market, of which Noida has approximately 13,800 units, and the remaining 31,230 units for sale in Greater Noida.

As many as 1.17 lakh units, including by Jaypee, Amrapali, etc. were completely stalled in Noida and Greater Noida. These units were launched in 2013 or before. Individually, Greater Noida has 58,870 units while Noida has 58,140 units that were completely stalled.

The Noida market is currently undergoing a cleansing process, says Anckur Srivasttava of GenReal Advisers.

“While the construction cost of real estate projects across the country is increasing due to a rise in cost of raw materials, we may not witness an increase in values of the unsold inventory in Noida even after they are completed (in the long run) by third-party developers through the insolvency process or through the court-monitored process. In fact, once this inventory is complete and released in the market, it will play an important role in rationalising prices in the Noida market. It will help check residential prices and in some cases compete with conventional (builder-led) residential supply,” he says.

In the long run, it may also pave the way for establishment of a fundamentally strong real estate market in Noida, he added.

A Noida-based broker told Moneycontrol that currently there is traction only for ready-to-move-in inventory where registries are taking place. He agreed that demand has been impacted for projects against whom insolvency proceedings have been initiated.

He also points out that in places where registries are not taking place, there are some units being bought by homebuyers who are currently residing on rent. These buyers are preferring to purchase a house as interest rates are low and they are able to save on rent by moving in after receiving fit-out letters from builders.

The case of revitalised Amrapali projects by NBCC – will it set a trend?

If one were to specifically consider the Amrapali projects which are being completed under the supervision of the Supreme Court-appointed court receiver, as many as 150 housing units of the embattled Amrapali Group have been sold for Rs 70 crore within a month by Anarock, the channel partner for the sale of the 5,000 unsold Amrapali apartments.
NBCC has undertaken the completion of over 650 units in Noida and more than 4,500 units in 23 projects in Greater Noida under the aegis of Amrapali Stalled Projects and Investment Reconstruction Establishment (ASPIRE) and supervision of the Supreme Court of India.

As for the cost, there is a price difference of at least 10-15 percent between these and other projects by good developers in the same locality. The starting price for a 3-BHK unit of 1,100 sq. ft. area is approximately Rs 40 lakh, and a 2-BHK of 800 sq. ft., Rs 31 lakh.

“In terms of the buyer profile, mostly working class people who are looking for self-use are now coming forward to buy in the Amrapali homes being built by the NBCC. These buyers have been hoping to buy since the last two-four years but due to the pandemic or other factors, they had gone into a wait-and-watch mode. Affordability is one of the major factors driving buyers towards these projects,” points out Santhosh Kumar, Vice Chairman - ANAROCK Group. 

Also, since construction of the project is being monitored by the apex court, buyers are assured of its timely completion. Moreover, since projects in the same locality by big developers is at least 10-15 percent costlier, buyers see this as a viable option. So, rather than buying from smaller developers, they are preferring to purchase here since minimal risk is now involved, he said.

“Interestingly, we are also seeing some interest by investors who are looking to purchase here at Noida Extension because of the price advantage (relatively lower than the market price) they are getting. They would probably buy it as an investment now and once ready, could put it up on rent or sale later,” he adds.

Will prices of court-monitored houses be similar to government housing?

Unlike other real estate markets which are witnessing robust housing demand and have touched pre-pandemic and even decadal peak levels, the Noida-Greater Noida markets are still reeling under pressure and have not shown much improvement since 2011-2012, say some experts.

Some real estate experts are of the view that the court-monitored supply that will hit the Noida market will, in all likelihood be gradual – at not more than 35,000 to 40,000 units, especially if one were to consider only the unsold/unclaimed ‘completed’ units.

“The court-monitored supply would be a trickle compared to the conventional builder-led inventory. The magnitude of that supply would be to the extent of around 35,000 units (unsold proportion) of which only about one-third may be released into the market every year. Also, this supply will come into the market over a period of time. Hence, the impact on the conventional builder-developed inventory would be minimal,” said Pankaj Kapoor of Liases Foras.

Also, the inventory that will get completed either through the insolvency process, RERA or via the apex court, may witness a rush of buyers similar to that of any government housing board scheme which is priced lower than the market.

“A similar thing may happen here. These units may be available at lower than the builder developed conventional inventory and just as is the case with a government housing board lottery, there may be a surge in sales. We are a housing deficient country and if supply comes in at a reasonable price, there is bound to be traction. Having said that, this supply will not play the role of a price stabiliser as conventional builder-led inventory will command its own price,” he said.

Also, if one were to consider the availability of conventional ready supply which say, stands at 8,000 units compared to the one lakh under-construction supply, the court-monitored supply that were to hit the market will impact only the 8,000 ready units and not the one lakh units which are under varied stages of construction, he explains.

Besides, almost 50 percent of housing supply in Noida and Greater Noida is in inhabitable locations. “Therefore, the demand for these court-monitored completed units will depend largely on where the project is located. If it is a livable location, the housing units will see traction,” he adds.

Why is the pace of housing units getting completed through insolvency route slow?

Last April, the Noida Authority had appealed against the resolution proceedings of Shubhkamna Buildtech Pvt Ltd, Ltd, a group that had floated a project in Noida, Sector 137. The appellate tribunal had rejected its plea to be considered as financial creditor and refused to entertain the argument that its lease deed with Shubhkamna group should be treated as a financial document, observing these papers could not be categorised as such under the Indian Accounting Standards.

“The uncertainty over the land dues of the authorities and the legal status to be accorded to them under the Insolvency Code are yet to attain finality and the same is hampering the finalisation and implementation of the resolution plans for the projects in Noida and Greater Noida which have undergone the CIRP process. We only hope the courts will step in and clear the status so that all these stuck projects are completed as soon as possible,” said Kumar Mihir, advocate, who has been representing several homebuyers in Noida and Greater Noida, including the Amrapali matter.

While the aim of court-appointed supervisors is to complete stuck projects as soon as possible and generate liquidity by selling the unsold stock and utilise the proceeds for project completion, projects that are acquired by conventional developers through the insolvency process work differently.

“When a developer comes in, he tries to arrange for finance from the financial market, banks, etc. Therefore, there is a cost of capital which is involved, which means he cannot sell the units at a low price. Therefore, a third-party developer will try and sell units closer to the market value. Hence, he cannot sell the unit at any price,” explains a developer who has acquired several stuck projects through the IBC process.

As for property prices, experts say that the cost of units in stuck projects has not increased even though there has been a rise in raw material prices. This is because of the debt on the books of developers. Developers are choosing to liquidate their ready inventory and pay off debt rather than increase the unit price, says the developer who did not want to be named.

He explains that RBI had restricted the restructuring of debts and has not allowed restructuring even during COVID-19. They had given strict guidelines under which a project can be restructured. “Since these companies are not in a position to refinance their debt, they can at best repay by liquidating their inventory.”

The major issue for most developers who have acquired stuck projects through the insolvency process is that the authorities are not clearing schemes approved by the insolvency courts on the pretext that they have not been served notice or that their dues should be paid first.

“They are going in for appeal, either filing for review or a curative petition in the Supreme Court where they are asking the court to set aside these schemes and to make a provision for complete payment to the authorities first,” he said.

He also points out that a third-party developer getting possession of a stuck project through the insolvency process is different from a court receiver managing a stuck project. The former’s motive is certainly to make profit. “Usually investors exit first either at the price at which they had bought the unit or at a price which is slightly higher. At the time of their exit, prices of units in the project are generally subdued, but once they leave, the pace of construction improves. Also, one should remember that if the stuck project that is taken over is strategically located, it may in the long run command a premium,” he explains.

As construction of a stuck project picks up, demand is bound to increase and the units in the project may command a premium in the long run, especially in case of stuck projects that are in habitable locations, he adds.