I. Home buyers should still avoid buying incomplete properties (Source:mint)

In the wake of the NBFC crisis, one of the few lending sources for the real estate sector has also dried up, which makes buying an under construction property a risky move.

The worse is not yet over for real estate developers (especially in the residential segment) who have been facing a slowdown since about five years now. After continuous slump in demand, regulatory changes, court cases and insolvency proceedings, the non banking financial company (NBFC)crisis has now come to hound the realty sector. The crisis is all about asset liability management mismatch,many NBFCs are facing liquidity issues and are unable to pay off lenders as they gave loans to borrowers for a longer period than the period for which they themselves borrowed money.

The current crisis will certainly impact under construction and upcoming projects adversely and property prices may take a further hit. Those who are planning to buy a house in the near future need to be more cautious while making a decision.

Execution risk

Typically, developers raise funds for a realty project through investors, private equity (PE) funds and banks, but in the last few years these investment sources have dried up and even banks are cautious in lending to realty firms owing to several cases of delay and default in repayment of loans. Already, lack of funding in the form of bank lending, PE investments and low sales have caused massive cash flow gap and financial crisis in the real estate sector.

In recent times, NBFCs were probably the only ones still lending to the residential sector. With NBFCs in trouble, it will be difficult for developers to meet their delivery commitments. In the absence of liquidity, either construction will stop completely or delivery dates will be pushed by over a year or even more in some cases.

In other words, this will impact the timely execution of projects. NBFC crisis could lead to substantial slowdown of fund inflow for the developers for at least next two to three quarters as NBFCs have now become cautious in lending. This may cause delay in completion of under construction projects and we might witness further consolidation in the realty market.

With low sales volume, developers will face severe cash crunch to fund the projects and other commitments. The financial crunch that the NBFCs are facing today will make it difficult for developers to keep funding themselves in absence of higher sales numbers.

Impact on price

For many developers, the only way to tide over the current crisis would be to somehow enhance the sales book and generate cash flow. Reducing property prices can be an option and experts believe that some developers may go for it.On a casetocase basis, there are likely to be cases where developers offer lower prices to attract consumers and manage liquidity position.

Even if developers do not reduce prices, there is certainly no scope for price appreciation. The supply as well as the prices have been under pressure for some years now. The current financial crunch will create further stress on the sector, especially for developers relying on debt financing. We believe the price growth will not happen for the coming 12-18 months.

However, some experts believe that the current crisis will escalate the cost of construction and developers may try to pass it on to the home buyers. Such delays will further increase the development cost for builders as escalation of cost will trigger in.

What should you do?

Project delay can create a lot of financial trouble for end users as a lot of such home buyers end up paying both the rent and equated monthly instalments (EMIs) until they get possession of their own house. We would recommend buyers to look for either ready to move in properties or projects nearing completion from reputed developers only.

There is a huge inventory lying unsold in each city, especially in National Capital Region and Mumbai Metropolitan Region. According to a report by LiasesForas, a Mumbai-based real estate rating and research firm, Inventory in tier-I cities stands at 40 months as of Q2 18-19. That means it will take 40 months to clear the unsold stock at the current sales volume. The report further states that an efficient market maintains 8-12 months of inventory. An inventory overhang of 40 months indicates a pressure on prices across all major cities in India.

In the current scenario, there are plenty of options in the ready to move in segment of housing to choose from. To top it up, these also come with easy financing schemes and freebies. Hence, an end user would be best positioned to buy into such a proposition.

Apart from eliminating the risk of project delay, there are various other benefits of buying a ready to move in property. Buying a house is often the biggest financial decision, make it worthwhile.

II. Home buyers still losers as RERA sits on complaints(Source: The Economic Times)

Not enough officers. Authority meant to protect home buyers unable to function efficiently

On November 17, more than 100 people gathered at a construction site on Sarjapur Road to stage a silent protest against a well known builder for delaying the construction of a residential complex where they had booked flats.

The 950house project, launched in 2012, was to be handed over to buyers by June 2016 or at least by December 2016, considering a six month grace period. But even two years after the deadline has passed, the work is incomplete and the buyer’s wait to get possession of their homes continues. Most of them have taken loans to buy the flats and the repayment on that has already started.

We are spending around Rs 75,000 per month on paying EMI and rent on the house that we are currently living in, one of the people who participated in the protest said. We feel cheated.

The protest was not only against the builder, but also over a delay in addressing their grievances by the real estate regulator, which is supposed to do that in a time bound manner.

In March, about 75 home buyers at the project filed separate complaints with the Karnataka Real Estate Regulatory Authority (RERA) against the developer. While the delay in handing over the property was their main grievance, they also complained to the grievance redressal authority about issues such as reduction in the floor area from what they said was promised and the quality of construction. They sought compensation from the builder for violating agreement conditions. Eight months since approaching the RERA, the case has not moved much, they alleged.

This is one among hundreds of such cases pending before the RERA. A year and a half of constituting the RERA in the state, the authority which is supposed to protect home buyers has not been able to function efficiently.Though the Karnataka RERA Rules mandate that complaints received for violation of the Real Estate (Regulation and Development) Act should be disposed of within 60 days, it is not happening. The reason is that there is only one adjudicating officer to handle complaints received from across the state.

According to sources in the RERA, the regulator has so far adjudicated 470 cases, while another over 900 are pending before it. In a majority of the adjudicated cases, builders are not paying compensation as no follow up or whiplash is done.

The cases such as over delay in handing over property do not require long hearing, especially when the complainants have submitted all documents and the case is well established. Yet, unfortunately, adjudication takes time. The RERA should have more adjudication officers to speed up the trial, failing which the whole purpose of the Act is lost.

While the state housing secretary, who is currently the chairman of the RERA, was not available for comment, an officer in the department said it would soon increase the number of adjudicating officers. We have recently issued a notification to set up a permanent RERA authority which was long overdue. We have been getting applications for the post of chairman and two members. Once the permanent authority is set up, the number of adjudication officers too will be increased.

In case, you have any clarifications on the above subject, you may revert back to us with your queries.

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