Mumbai’s top builders face reckoning over delayed projects and incomplete delivery

There has been a wave of protests on social media about projects executed by ‘branded developers’ or ‘famous builders’. The concerns range from delayed possession to incomplete delivery to amenities being inadequate. (Representative image)

In the last few months, social media has been buzzing with disgruntled home buyers. Buyers who believe they have been deceived by their builders. That in itself isn’t rare. Mumbai has the second-highest number of stalled and incomplete projects in India. Hence there are far too many stranded buyers willing to voice their frustration.

However, what is unique about the recent wave of social media protests is that it is largely directed at projects that are being executed by ‘branded developers’ or ‘famous builders’. The concerns range from delayed possession to incomplete delivery to amenities being inadequate.

In itself, these are not major issues for an average home buyer in India. Numerous exceptions exist but the builder community has successfully lowered expectations to the point that mere delivery of an apartment is considered an outperformance. Delays are acceptable to most as long as it is within 18-24 months. Incomplete delivery is hardly a major issue as long as the basic needs in a project are met. Amenities being inadequate is almost a first-world problem.

So, what went wrong then? The simple answer: Expectations

Tall Promises

In the wave of consolidation that occurred in the post-RERA world, top builders gained disproportionately. They promised near-certainty of delivering the project on time and quality lifestyle experience. For offering these twin features, the builders priced their offering at a steep premium. In many locations, their pricing was at a whopping 20-30 percent premium to the market. Customers took the bait. They raised their budget and raised their expectations as well.

This is the part where it started to go wrong for many buyers. They did their bit by raising the budget. But unfortunately for them, many of the top developers could not meet the expectations they themselves had raised. In response, buyers have started voicing their concerns and grievances. It has not yet found sufficient focus in traditional media but is finding its feet rapidly on social media.

The response of developers is on expected lines — government approvals were delayed, new regulations emerged or the economic environment turned for the worse. These are lazy arguments. In a life-cycle of a project that can range from 3-15 years (or even more), norms and environment will keep changing. In some cases, developers gain substantially. For instance, the increased floor space index (FSI) has provided a windfall to builders but also resulted in many projects looking and feeling like vertical chawls. On the other hand, developers are stifled in some cases through new norms and admittedly nutty regulations.

The equation is simple. If a builder charges his customers a steep premium assuming the best-case scenario for a project, why shouldn’t the customer expect the best-case scenario if he has paid for it?

Scaling Up

For me, this is an internal battle between scale versus delivery. Top developers routinely take on multiple projects within a city and even across cities. That needs a healthy mix of delegation supported with close monitoring. It’s no secret that most real estate companies have a corporate structure wherein the promoter is all-powerful while the rest are toothless. For the promoter to be functioning at his desired 100 percent capacity, the staff has to operate at 35 percent capability. (Note: It’s capacity versus capability)

On the other hand, there are developers where almost all functions are delegated. It helps in garnering scale. Unfortunately, this model of corporate structure results in higher costs as well as a limited sense of ownership given the employee churn in organisations.

What happens then? I think we are just at the beginning of the unravelling of this delivery cycle. The coming 1-2 years will see a lot of promised delivery by branded or reputed builders. I see limited defaults by top builders in delivery. But I suspect many will be unable to justify the steep premium they charged home buyers at the time of sale. There will be a backlash and subsequent brand dilution. Given the learnings in social media handling, none of them will react with silly sharpness. If anyone does, they will almost instantly realise the hazards and backtrack.

I hope the bigger impact will be seen in the marketplace. Top builders will either raise their standards in execution. Or, lower expectations — something that Lodha has done in recent years. Both outcomes are healthy for the market as they will result in better value for money to the home buyer.

But before the market reaches that stage, reputable builders will learn that it was easy to get the customer but tough to satisfy him because once you charge a steep premium, there is no margin for disappointment. Price wisely.

Vishal Bhargava is a real estate enthusiast who views and reviews new projects, when not busy with his newstoon platform Snapnews. The views are personal, and do not represent the stand of this publication.