Tuesday, April 14, 2009

The real estate cookie crumbles

From today's Rediff.com article.

The story of Sashwat Brahma is an interesting one. His story, unverified by me, appears as a post on www.consumercomplaints.in and goes like this.

He applied for a 4 BHK apartment in DLF's New Town Heights in Gurgaon and put money down. A year has passed; but there is no sign of the project, launched in February 2008.

He then says that DLF delayed in sending the agreement, thanks to which there was a delay in payment of loan instalments from his bank. DLF, according to him, charged him interest for the delay, saying had the disbursal come in time, then he would have paid the finance company interest and hence he should pay DLF interest even though the delay was at their end!

I am only hoping I am not getting something here.

Sashwat says he has a signed agreement with several unsigned pages and the witness page unsigned. He wants to exit, as do a few other potential apartment mates. DLF's response: 'Feel free to take us to court.'

'DLF has charged customers when they have not even started work. Why should I pay them if the project has not taken off?' he asks.

If you think I am being led down the garden (pun not intended) path by one biased property speculator, well, you can visit an entire Yahoo group(http://in.groups.yahoo.com/group/Newtownheights/) which has apparently rallied 300 prospective owners saying, 'This (group) is to bring all future residents of DLF New Town Heights and DLF Express Greens residents together. We all need to need to be together to make it happen,' they say. The web page says there are 672 new messages.

Unitech, the other Delhi-based giant, is facing similar ire for delays over its World Spa project, delivery date for which was mid-2006, and is still not done.

There are similar tales in Mumbai where scores of home buyers hold ownership papers, without the keys to their homes. And the wait has been pretty tough, particularly for those whose EMI clock has begun ticking. Though there are very few of those and more of the speculative variety.

From a layman's perspective, it was, just to recount a fantasy all over again, an amazing run. The big builders who already owned land at close to throwaway prices were getting funded both ways, by the banks, private equity players and hungry small investors on one end and the other, well, you and me, funded in turn by the banks.

It's a miracle that the banks, at least some of them, have not blown holes in their balance sheets. Or have they?

All the money, believe it or not, was being collected upfront, to fund other grandiose projects, of four and five bedrooms, with extensive landscaping, water bodies and modern security systems. And of course, most home buyers were also diving in, thinking prices would appreciate 400 per cent all over again. And most of them have first-owned homes already.

So the law of the unregulated market says buyers must pay the price for trusting the DLFs and Unitechs and scores of builders across the country. Yes and no. Because rising real estate prices have created a level of arrogance in the developer community unseen or unheard of in any other business.

Keep paying up, buddy, or go to court. Because the fine print in our contract says you have no choice.

Now this is not about disgruntled second and third home owners banding together on the internet or wherever they are. This is about how India's real estate industry lacks any body or regulator that can haul up realtors who take buyers for a ride.

And let's be fair -- DLF and Unitech are soft targets because they are visible. There are hundreds of cases in Mumbai which never make it to Yahoo Groups, or anywhere, for that matter. Except in some corner of a consumer court where they can grind on unnoticed for years.

Let's assume a regulator will not come about in a hurry because the real estate industry --which wants a return to the golden era of 7 per cent interest rates so that they can make you pay for their delays -- will howl in protest.

Don't be surprised if the protests hit home because most politicians are inextricably linked to real estate, at least in the city of Mumbai where I often find it difficult to separate one from the other.

What are we doing in the meanwhile, is the question. Let's face it. Assume the grand gong signalling the downturn went off in October 2008. But many of the projects in question, including in Mumbai, were supposed to be completed even before that. There was no real funding problem as I see it. So where were the glitches?

Well, this is where the arrogance of the builders (and the stupidity of the buyers) sets new benchmarks. Turns out the delays were more to do with land clearances, lack of occupation certificates and the like.

Puneet, writing on indianconsumercomplaints, says DLF told him they have no environmental clearances. When he said he wanted to back off, they asked for a Rs 5 lakh (Rs 500,000) penalty!

Now, DLF is apparently willing to renegotiate with buyers. Which it should have done in the first place, without the media shindig.

So this is how the real estate cookie is crumbling. But let's assume, as we always optimistically do, we can't do anything about anything, legal or otherwise. Surely we should not be listening to the real estate sector's demands on interest rates. Clearly we know where the problem is.

The writer is editor of UTVi Business. He is not chasing any half-constructed properties, for himself or anyone known to him.


Anonymous said...

New York Area Home Prices to Fall 15%, Rosen Says April 14 (Bloomberg) -- Home prices in the New York City metropolitan area will fall as much as 15 percent as Wall Street firms cut jobs and slash bonuses, according to Kenneth Rosen, an economist at the University of California, Berkeley.

Luxury vacation markets such as the Hamptons on the east end of Long Island, New York; Lake Tahoe in California; and Aspen, Colorado will also suffer as the recession deepens, said Rosen, chairman of the Fisher Center for Real Estate and Urban Economics. Prices may fall 20 percent in those areas.

“These declines are happening but aren’t showing up in the data yet,” Rosen said in an interview. “Any place hit by the financial crisis will have substantial declines.”

The S&P/Case-Shiller index of prices in 20 U.S. cities fell 19 percent in January from a year earlier, the biggest drop on record. New foreclosures, a glut of unsold homes and eroding household wealth are driving down prices amid the worst housing crisis since the 1930s. The U.S. economy shed 663,000 jobs last month and the unemployment rate rose to a 25-year high of 8.5 percent, according to the Labor Department.

In New York City, apartment prices fell 19 percent in the first quarter from a year earlier to an average $805,000, the Real Estate Board of New York said last week.

Rising Unemployment

City Comptroller William Thompson predicted in March that 250,000 jobs would be lost in the five boroughs before the recession ends. New York City’s unemployment rate rose to 8.1 percent in February from 6.9 percent in January, a record month- to-month increase, according to the state Labor Department.

Bharat said...

The crisis is going to fully explode in 09. People who think that the global economy has turned around are irrational optimists. US will experience a lot of pain before bottoming maybe in 2011. India's RE will experience a very sharp drop in the coming 6 months. The drop in share prices usually preceded by 6 months the actual drop in real estate prices. So the share prices of DLF, Unitech, Shobha and others is just reflecting what is going to happen to Apartment prices and the fall is going to be severe to make an understatement. The next shoe to drop will be banks and other support institutions showing a sharp decline.

I have a question, newspapers are saying that we have a sharply dropping inflation (even if its in WPI terms). From what my friends and relatives inform me that actual reality in ground is that prices are still very high and possibly may go higher..So is the inflation really dropping or is the govt. cooking up figures in order to find an excuse to drop rates and print money? There was an article sometime back saying the UPA govt. has already printed some 200,000 Crores...which means galloping inflation times for India up ahead.


This article is very timely and relevant. As I quote Cameron Muir, an economist, "Home sales are unlikely to fall much further..That being said we expect home sales not to decline much further."

But it's never too late, with the right business plan set up, it will lead to valuable outcome. This is what most counselors would give as an advise.

Anonymous said...

The real estate sector should be opened up to foriegn players. What technology does DLF have that some company in US doesnt have ? Atleast, branded players and international competition will force these guys to behave. I think it is the same with all Indian companies with monopolies, until 20 years back Bajaj used to make junk scooters and tell the customer off in much the same way