Timely delivery of residential project to uplift realty market

Developers of many residential projects across all major cities in India are facing the ire of buyers due to inordinate delays. Protest marches are being held across all major cities by buyers who had partly invested in such projects and are still awaiting the completion of projects scheduled to be completed much earlier. Besides, many buyers are also expressing their indignation through various forms of social media to garner support against this rising trend.

Construction delays of residential projects are quite common in India with most developers including a grace period of up to six months in their agreement with buyers. Despite this, most buyers take it for granted that there would be a delay of approximately 6-12 months. However, when construction gets delayed beyond this then the patience of most buyers is tested and they go in for action against such errant developers. They demand a refund of the initial amount that they paid or seek compensation for the delay in project completion, even moving the consumer court to uphold their claim.

Project delays across major cities

As per the study conducted in 2013 by a renowned national real estate subscription, it was observed that as much as 65 per cent of the promised supply across 15 major cities in India remained undelivered even after seven months of the calendar year. This included 77 per cent units in Delhi-NCR, 65 per cent units in the Mumbai Metropolitan Region (MMR), 60 per cent units each in Chennai, Kolkata and Ahmedabad, 59 per cent units each in Bangalore and Hyderabad, and 56 per cent units in Pune.

Developers in the dock

Some of the developers who faced the wrath of buyers due to delayed projects included renowned realty developers like Oberoi Realty, DLF, Unitech and Supertech, among others. They included projects mainly across Delhi-NCR, Mumbai, Bangalore and Chennai. Among these, NCR’s performance in terms of completion of residential projects was the worst with over 25 per cent of the promised supply still remaining incomplete. In Gurgaon alone as much as two-third of the promised supply in 2013 still remained undelivered. In Delhi alone which has the largest number of investors, the list of delayed projects included those from DLF, Raheja Developers, Unitech and Jaypee Group.

Reasons for project delays

Developers, on their part, blame funding costs along with the slowdown in the sector for the delays. Most of the developers who are struggling with projects had launched projects under the construction-linked plan, under which the buyer has to pay a particular amount upfront as a booking amount, with the remaining amount to be paid as the construction progresses. However, the slowdown in the economy resulted in the spiralling costs of funding and raw materials, thereby leading to project delays.

The delay in payments by many buyers due to the meltdown also led to a financial crunch to many developers. As a result, the progress of many projects was hindered. Inability to source funds from banks due to the tightening of credit conditions for the realty sector forced many developers to resort to sourcing funds from NFBCs at an interest rate between 16-18 per cent and through PE funds at rates between 20-24 per cent. There were factors beyond the control of developers that also resulted in project delays. Land acquisition issues like the Noida Extension land acquisition issue hindered the progress of many projects in the region. Clearances by government authorities being a long-drawn process forced many developers to put on hold their projects.

Precautions to be taken by buyers

To safeguard against project delays it is essential that buyers take the following precautions:

·  Look for approved projects with sufficient bank funding to tide over construction costs

·  Delve into historical data with regards to the standing of the developer as well as to the previous projects that he has undertaken

·  Go for completed or almost-completed projects even if there is an attractive discount for pre-sales projects

·  Opt for projects which have a 100 per cent funding from foreign private equities and investors with a solid financial backing

·  Ensure that a copy of the project drawings duly stamped by the municipal authorities is obtained

·  Ask for the construction schedule and construction progress report from the developer for construction-linked payment

·  Understand the rights and obligations as mentioned in the booking agreement

·  In case of any doubt, seeking the advice of a legal expert would be beneficial.

How to ensure timely delivery of projects?

Considering that there a vast number of projects across all major cities that have exceeded their completion date dead-line by far, it is imperative that various steps are taken at the government level so as to enforce stringent practices so as to prevent project delays. Firstly, it is important to get the Real Estate Regulation Bill passed in Parliament which will bring in more discipline with regards to completion of projects. It proposes the installation of a sector regulator who outlines the obligations that need to be met with regards to project delivery. Streamlining clearances from government authorities with regards to land acquisition issues is important to prevent project delays where the developer is not at fault. Moving the consumer court in case of inordinate project delays will act as a deterrent for errant project developers. Cancellation of licenses of developers who err frequently will also ensure that they are more vigilant.