Sunday, March 01, 2009

Bringing down the house

DLF Chennai buyers have shown how group activism can cause builders to buckle to their knees. Developers have been milking the buyer for too long with overnight double digit price increases. It is time they get paid back in their own coin. I particularly like the line
"It is an unfortunate situation in which buyers are going back on a signed contract,” a senior representative of the developers’ association said. If customers take unfair advantage of the market situation then they would have to face the consequences of the breach of contract"

If the market was still in the bullish phase, developers would care less and cancel lower priced bookings and resell at a higher price. We need a lawyer to clarify what is a breach of contract ? What happens if someone cannot make payments due to job loss ? The Hindu has to be commended for its quality reporting.

Bring down prices or else….’

A worrisome trend developers are facing is of buyers wanting to pull out of a contract after construction has started.

Breach of contract fears.

R. Balaji

“During two decades of our doing business in Chennai never have buyers wanted to cancel after a contract was finalised and construction started,” says Mr R.V. Shekar, Managing Director, Lancor Holdings.

A leading developer in Chennai , Lancor Holdings is among those feeling the heat of a slow market in the form of buyers trying to back out of a deal midway.

Breach of contract

Earlier, the company has accommodated buyers who wanted to back out because of personal or professional problems. But now Mr Shekar says it is the ease with which customers are considering a `breach of contract.’ Their demand is: Bring down prices or else… they threaten to walk out and take others. And these are people who have signed on the dotted line and made more than one initial payment.

As of now it is not a major issue for Lancor but is certainly worrisome. Developers and buyers may end up spending time and money on litigation, says Mr Shekar.

For instance, at a Lancor project on NH 45 where over 230 of the 640 apartments planned have been sold, all the approvals are in place and work has started. Over 150 buyers have signed the agreement and the property has been registered for 58 more customers. But about 30 buyers want to back out even after making a firm commitment, he says.

The reason: if one developer cuts down on prices why cannot another?

Mr Shekar has explained to the customers the rationale behind the pricing — basic price of Rs 2,100 and an all-inclusive (covered car park, registration, club membership, taxes) price of Rs 2,640 but some are in no mood to listen.

When there is a proper contract in place and the company is keeping to its commitment, the law will have to take its course, he feels.

Lancor is among the victims of the fallout of DLF Homes’ controversy where a large group of buyers have come together to enforce a price cut. An unprecedented event in Chennai that has grabbed wide attention. Leading builders dismiss the DLF issue as an aberration. But if it sets off a trend then they would have to depend on the judicial system to come to their aid, they say.

According to representatives of the Confederation of Real Estate Developers Association of India-Tamil Nadu, developers are now keen on having an arbitrator in place. Next week the association hopes to empanel an independent body headed by a senior advocate to look into buyer-seller disputes. “It is an unfortunate situation in which buyers are going back on a signed contract,” a senior representative of the developers’ association said. If customers take unfair advantage of the market situation then they would have to face the consequences of the breach of contract.

‘Time delay’

According to Mr Chitty Babu, Chairman and Managing Director, Akshya Homes, a developer who has delivered over 600 apartments on the OMR , the problem is partly due to the delay in statutory approvals and due to builders and buyers transacting unapproved projects.

A major factor is the time delay when the customer makes the initial payment in an unapproved project. When there is a long wait customers develop cold feet. If approvals come on time, the banks clear the loan and start sanctioning funds and the customers will be fully committed. Fast approvals will save nearly a fifth of the project cost for the customer, he says.

A Bill Maher video on the how badly F**** the US economy is


Anonymous said...

Greedy Builders who gave a damn for clients or their hard earned money are getting paid back in their own currency! No need to shed any tears for these hoarders. Market forces have taken care better than any hypothetical regulator could have. After fighting all this while against any regulations/regulator is it not ironical that they now want a regulator! Look at the fate of hundreds who have invested their lifetime earnings in projects like Adarsh palmreteat in Bangalore- even after 4 years even the approvals for T2 to T4 are not through- management has simply taken the buyers on a big ride with lies after lies-(See the yahoo group of adarsh palmretreat)
Flat buyers in b'lore who have invested in projects which are yet to see the light of day should also group together and fight these monsters- chennai DLF buyers have shown the way forward.

DhImAn said...

Well, this is going to get more and more common as the recession worsens. We are in a downward spiral - as people get laid off, they cut their personal spending, and this reduces the gross revenue of companies, causing them to layoff even more people. This does happen once every oh-so-often, and try as one might, nobody has been able to ameliorate the effects without causing pain elsewhere.

From the builders' point of view - if they don't reduce prices today, they take a risk that people will forego their deposits and walk out. Breach of contract - who cares when people don't have the money to pay? So if the builders have any sense of their own welfare, they will reduce prices immediately to keep sales volume up even as profit margins decline.

If a builder is foolish enough to not drop prices, his survival will become an issue because he will be stuck with inventory that is priced too high and that nobody wants to buy. No cash flow is death.

So sit back, relax and watch prices drop.

Anonymous said...

RE have a couple of associations, regional (PBAB etc), national (CREDAI, CII etc) then Delhi RE lobby (Unitech, DLF, Parshwanath etc) to fill the politicians pockets. But the sad fact is that buyers don’t have any association, why? This lead to same suggestion by VIK, a few days back that buyers should at least form a group & do a collective bargaining.

In olden days money lenders (Savkar/Mahajan) exploited the society. If people didn’t have money, they will pursue the people to buy goods on loan & then loan will keep passing on generation after generation called generational accounting. In 21st century the money lenders took the form of Banks & RE has taken the role of seller & the govt. is formulating the policies to pursue the people for this scam.

Adam Smith (Wealth of Nation) is already crusaded in the modern economy. The demarcation between ponzi scheme & efficiency/productivity is getting thinner & thinner. Were the citizens of Iceland inefficient, who became the victims of sub-prime crisis? Do you call it wealth creation & banks as the life blood of economy, though
few banks have more debt than nations income(GDP). This is a financial terrorism.

While explaining the price rise, the RE used to explain that in past to buy a new apartment the price used to be 10 times of a person’s salary, now it has become 2
persons salary. It means after couple of years you have to sent your kids on work to
buy an apartment.

I whole heartedly support the buyers who are fighting against DLF.

So guys let it fall then only pick up minimum 50% price cut is guarantee.


Venkatesh Babu K R said...

Hope the realestate thing stabilizes well and becomes fair for all people...

People should get united and check all forms of artificial price increases.

Anonymous said...

I am a bit dejected.

I have been waiting for the prices in Mumbai to correct. In Suburban Mumbai like Kandivali or Marol from unrealistic prices . However builder or resellers are still quoting very very high prices

Like in Charkop in Kandivali West, 1BHK flats for 45 lakhs.

In Marol 1BHK flats for 55 lakhs.

Also In India, the buyers who buy from builders/developers have to settle for terms and conditions which are not at all favourable to the buyers

Then there is the sad story of Black component in all dealings

I know of a big south mumbai based developer who is big time into redevelopment asked for 70% black component.

When will these things change

When will Mumbai prices come back to affordable.

When the govt or builders talk of afforable housing , they are actually tell mumbaikars that the entire city of mumbai is only for the elite and affordable will be in places like Virar and Karjat where the elite have their farm houses.

Bharat said...

Well the builders are holding out, since they have to adhere to the prices they committed to investors, banks and PE folks. Markets are supposed to hold out and even be bullish till they suddenly crash. Corrections are steep. The phase before that is unrealistic prices and a sense of uncertainty. I think we are clearly at that phase, now the question is when would the decline come?
In US the Fed and Govt. tried to orchestrate a soft landing for the RE market. What they have managed to do is visible to all..
In India too we are now talking of lowering interest rates to "stimulate" the economy. Which implies that we would run a govt. sponsore ponzi scheme. Take money from elsewhere and pump into Real Estate. So the crash/correction might be some time away or it might happen in couple of months time...we will have to wait and see. But all indications are that its imminent.

Anonymous said...

Please hold on to your hard earned and well earned money,your life savings.Don't even think of buying right now.Patience is a virtue.

Anonymous said...

India is due for a major crash. All the party time and good salaries for fresh graduates is over.

Sensex is going to 6000 in the next month or two. Dow will soon be touching 6000. Salaries are being cut in half. People were getting all over in India and US more than their worth.

Housing is also going to be hit big time. Prices in India will crash by 70% and there would be no one to buy even at 30% reduced prices.

Buyers, wait and don't buy for at least 3-4 years. Don't get into the family or peer pressure to buy.

Save your jobs first.

shailesh said...

Banks have reported that frauds have been committed in home/mortgage loans using fake title deeds/inflated valuation reports.

Builder-borrower-advocate-chartered accountant nexus is believed to be the root cause of banks falling prey to home loan frauds. In view of this problem, the Indian Banks’ Association has come out with a procedure for lodging complaints with the Institute of Chartered Accountants of India and State Bar Councils on malpractices/professional misconduct committed by erring chartered accountants/advocates in their dealing with banks.

What is baffling bankers is that the same flat is sold by some unscrupulous builders many times over, with the banks left holding the empty bag. For instance, a flat in Navi Mumbai was financed by around 20 banks involving a fraud of Rs 1 crore. Then, there is the case of a single borrower duping 27 banks to the tune of Rs 8 crore for buying flats across Mumbai.

Anonymous said...

This real estate farce will end sooner than expected.By the end of this year, we can see some good amount of correction and into next year, an equal amount.

After 2 years from now, we would have got atleast 70% from the peak prices. May be its unbeleivable.But depressions are merciless and a price slaughter has been initiated just in time. And it has a long way to go.

Sunil Thomas.

shailesh said...

MBAs, engineers take up call centre jobs

Mumbai: In this market, I'll do any job. Beggars can't be choosers... This is the sentiment echoing in the mind of fourth year engineering student Manoj Mehta (name changed).

India has about 1,383 engineering institutes and 1,083 MBA institutes, affiliated with the All India Council for Technical Education, catering to nearly 500,000 and 300,000 students respectively.

Those number of students coming out every year is astounding. I remember days when there were only 2 colleges in Mumbai offering Computer Science.

bravo said...

India is worst possitioned in this world wide crash. The reasons ar being all develpements inthe last 10-15 years are in IT,ITES,Auto,textile expoerts to USA,Japan,Europe and China. USA and Europe will change their policies soon to protect their citizens jobs. India and china will be hit hardest since they soly depend on export. Strip the export from our economy it will go back to year 1985 . Govt job holders will eat their honey now.

THE PARTY IS OVER MY DEAR FRIENDS. Get ready for plowing.