2018 could be the turnaround for the real estate industry
India took a long time to get over the socialist hangover of the post-Independence belief that houses were to be provided by the government. It happened in the early 2000s. Billboards and advertisements offered myriad schemes to own a home in the city: “no EMI until possession”, “pay 20% now and 80% at possession”, “get 3BHK at the price of 2”, “get assured rentals for 2-3 years”, “up to 95% financing available”, “free modular kitchen and wooden flooring”.
A Delhi-based employee of a public sector company, who prefers to be called Roy, was due to retire in 2011. With both his daughters settled, he had hoped to move into a home with his wife of 40 years. As a prospective home buyer, he soon became “hot property” for realty developers. The euphoria was high.
Property agents started hounding him. Roy says he booked a flat from the Amrapali Group in 2010. Eight years on, after paying 80% of the cost, Roy alleges that he still doesn’t own the flat and continues to stay in a rented accommodation. Amrapali has yet to deliver 40,000 flats across its 10 housing projects in Noida and Greater Noida.
“Land being a fixed asset gives the sector a high capacity to leverage. It works on a model where a business can be started by taking loans multiple times the value of the underlying asset. Most developers have built their model based on the high perceived value of the underlying asset and not the proven capacity to execute,” says an official of Noida authority on condition of anonymity.
The Rise & Fall
The macroeconomic environment was also conducive. India’s GDP grew 8.4% in 2010-11. Banks offered easy home loans to buyers, and funds to developers, over leveraging the sector. Projects were launched without the 15-odd necessary clearances and authorities looked away. With historical annual returns of 20% (1991-2014) on real estate, who would have thought the realty will bite one day?
Vis-a-vis real estate, gold, equity and bank FDs gave returns of 10.9%, 15.5% and 8.8% respectively, according to a Resurgent India report. The house of cards fell in 2013-14 as the GDP contracted to 4.7% (the baseline revision later pushed it to 6.9%). As the bubble burst, buyers stopped paying and banks stopped funding. The liquidity crunch saw developers delaying projects: a few went bankrupt and litigation and bad deliveries followed.
Some 40,000 buyers each of the Jaypee Group and Amrapali and 19,000 of Unitech have been reportedly left in the lurch — doubly burdened with EMIs and house rents.
“The banks invested, builders gained and buyers like us are facing losses,” says a hassled home buyer of Unitech. Getamber Anand, CMD of ATS Infrastructure, says: “In the past 7-10 years, many new aggressive players with no experience thought of making easy money. They kept on buying land and launching new projects. However, I would say the intention of developers such as Jaypee was noble but they could not manage cash flow and got caught in a debt trap.”