MoS Corporate affairs Anurag Thakur said the govt is aware of the problem of pendency at NCLT to high number of cases being filed by homebuyers against builders for even small defaults.

NEW DELHI : Homebuyers have filed more than 1,800 cases against builders under the Insolvency and Bankruptcy Code (IBC) since June 2018, the government informed parliamentarian in the Lok Sabha.

These are the number of cases pending before the National Company Law Tribunal (NCLT) as on 30 September.

Citing the information received from NCLT, Minister of State for Corporate Affairs Anurag Singh Thakur said that a total 1,821 cases have been filed by homebuyers against builders since June 2018 under the Code.

On whether the government is aware of the problem of pendency at the tribunal due to high number of cases being filed by homebuyers against builders for even small defaults, the minister replied in the affirmative.

"The matter is under consideration of this (corporate affairs) ministry," he noted.

According to him, data regarding cases filed against builders for defaults of less than a month is not available with the NCLT.

Around 14,000 home buyers in Ghaziabad can be handed completed flats, if builders in the city get access to the ‘stress fund’ announced by the centre, the Confederation of Real Estate Developers Association of India has said.

Approximately 30,000 units, which are in various stages of completion, are pending in Ghaziabad, realtors’ apex body Confederation of Real Estate Developers Association of India (CREDAI) said, adding that the average delay in projects here is two to three years. “The Rs 25,000-crore stress fund announced by the government, is going to help around 40 to 50 projects in Ghaziabad, meaning benefit to 12,000 to 14,000 buyers awaiting delivery of their homes,” CREDAI Ghaziabad president, Gaurav Gupta said, on November 19, 2019.

“Our only request, is that the modalities of this fund should be brought out soon, so that the funds could be availed. A delay of six or 12 months in the modalities could mean several other projects, which are not stressed but on the verge of it, would be impacted,” he said. The body also reiterated its demand for an amendment in the law, seeking consent of at least two-thirds of home buyers of any project, for initiating insolvency proceedings against any promoter. It added that the Real Estate Regulation Authority (RERA) should be the first contact point for any buyer, instead of the National Company Law Tribunal (NCLT) or the Consumer Forum.

Jatin Khemani

Whether it is real estate as physical assets or as stocks, there has been a lull for many years now. Will the two always move in tandem? Can real estate stocks do well even without real estate assets picking up?

Before that, let’s understand why the real estate business and stocks are so out of favour.

How real estate went out of favour

- It is an extremely asset-heavy business with significant upfront investments needed for buying land and for project development, necessitating the use of borrowed money or settling for a lower return on equity. Further, each project has a long gestation period of 7-10 years.

- To make economic sense, the project size has to be meaningful, in which case even one or two projects going wrong on location/timing/pricing can push the company behind by a few years with significant resources getting stuck.

- It takes decades to build credibility in one geography. However, the moment a company enters a new geography, it has to start all over again in terms of building customer trust and working with the local ecosystem. For instance, the brand and operations of a successful Mumbai-based developer cannot be leveraged greatly in Pune. You don’t believe me? What else explains the largest developer in the country, a so called ‘national’ brand, deciding to restrict itself to only five cities?

- So, to keep the growth momentum going, a company has to keep capturing higher market share in its existing geography or geographies, but it can hit a ceiling when it becomes too large – think DLF in Gurgaon – and this also adds to the risk of geographic concentration.

- Thanks to multi-year projects, the accounting has been too complex – revenue booking as well as cost assumptions are at the discretion of the management. Difficult for even a seasoned investor to judge if reported financials of developers depict the true and fair picture of the underlying operations. This makes valuing a real estate company a speculative task – you can’t use any P&L metric such as operating profit or earnings and valuing based on net present value of on-going projects, land bank etc. involve a whole host of assumptions around volumes, realisation, cost, and timing.

- Long-term investors struggle to see too far into the future as a project’s life is typically about seven years and life beyond that would depend on new projects, which you may not know about right now, and these may or may not work in the same way. It’s like being on a treadmill – you got to constantly run even to stay at the same place, unlike a Nestle or a 3M which add growth on top of a sticky base business.

- It’s a sector marred with corruption & red-tape; there are 50-plus approvals a developer needs from different government authorities before he could commence a project. It is not easy to find clean promoters operating in a sector in which being clean is a disadvantage.

- An apartment is a capital good and the biggest investment in a customer’s lifetime; typically, he/she will be your customer just once or twice in his/her lifetime, no matter how happy he/she is with your product, unlike companies selling consumables where customers keep coming back for repeat purchases.

- Among buyers of real estate, there are home buyers and there are investors. The latter come in herds and only in a good cycle, adding fuel to fire, which leads to asset prices gaining further momentum.

- All these factors make it a classic cyclical industry, which does well for a few years, with higher volumes, higher pricing, higher margins leading to higher market valuation, followed by a bad cycle, resulting in lower volumes, lower prices, lower margins and thus lower market valuation. In a good cycle lasting 3-5 years, the price-to-book multiple for a respectable developer could move from near book value to 3-5 times book, while the book value itself could double in that period, leading to phenomenal gains for shareholders who catch the cycle right, ride along and make a timely exit (even if it’s 15-20 per cent below the top).

A vicious cycle

So, where are we in the cycle? While it is impossible to point that out with any precision, when one sees the data over the last 5-6 years with real estate transaction volumes being weak, flattish to negative pricing trend being prevalent across key cities and dismal performance of large real estate stocks, it becomes pretty apparent that we have been in a negative cycle for a while now. This vicious cycle has been further exacerbated by path-breaking (& back-breaking for real estate) policy actions such as demonetization, GST and RERA, all happening in the last couple of years.

Mind you, the sector remains extremely important for the enormous employment it generates, the linkages it has to core economy, including consumption of cement, steel and building material, the revenue it brings to the exchequer through registrations etc. The Government very well understands this, as is reflected from  the remedial measures taken – incentives offered to first-time home buyers, including interest subvention, increased tax benefits, exemption from GST on ready-to-move properties etc. as well as a host of similar sops extended to developers & JV partners (land owners), including tax exemption, tax relaxation, according infrastructure status, among others.

One of the strongest drivers for real estate demand is interest rates – the lower the differential between rental yields and home loan rates, the higher the probability of people living in rented premises turning home buyers. In other words, when the EMI isn’t going to be too much higher than the rent you pay, it makes sense to own the asset rather than continue on lease. The home loan rates over last few years have fallen from 11-12 per cent to as low as 8 per cent and it continues to fall further based on the repo rate cut from RBI. Add to that government incentives and tax benefits, the adjusted rate falls to around 5 per cent compared to 2-3 per cent rental yield. The differential is close to being the lowest in a long time and is expected to induce demand.

However, the bigger problem hasn’t been the lack of demand; rather, it has been a case of over-supply. The previous cycle saw the influx of new entrants who expanded recklessly with customer advances. About 70-80 per cent of these developers are stuck in the slowdown and many may not be able to keep up with new operating ways under RERA. Many leveraged developers holding illiquid land banks and incomplete inventory are going bankrupt.

New launches have also slowed down sharply and are lower than units being sold, which is slowly but surely clearing the excesses built-up over the previous cycle and this shall pave the way for the next upcycle. Whether that happens in the next one year or two remains to be seen; however, the direction seems clear.

Am I implying the next boom in real estate asset class is around the corner? The answer is NO. I think despite the time correction of the last few years, the prices are still elevated, considering the rental yields. To my mind, this could be a rare cycle where stocks of real estate developers could do well, even though prices of underlying assets may not move much. This is because the 20 per cent surviving developers will cater to the entire market (including what’s vacated by the other 80 per cent) and grow volumes exponentially over the next 4-5 years.

Either ways, it is far simpler and convenient for investors to deploy capital in stocks of real estate developers rather than buying underlying property – one can deploy smaller amounts, spread it out, can diversify across developers and geographies, and still enjoy the liquidity without maintenance overheads, and transaction costs of brokerage and property registration.

Some key micro-markets have one or two-well managed listed players that fit the criteria of market leadership, long and credible track record of execution with on-time delivery and customer trust, a strong balance sheet and sensible capital allocation history. Some of these are trading close to their book value – implying that we are getting an entry with the same terms as the promoter did decades ago and deriving all the goodwill and potential growth for free.

Thanks to new accounting standards, developers have moved to project completion method, taking away all management/auditor discretion - the revenues and costs are now being accounted for only at the time of actual possession by the buyer.

Thanks to the underperformance of the last few years, listed real estate is an under-owned and under-researched sector with hardly any representation in frontline indices. When things indeed turnaround, they shall be scope for re-rating for those showing swift execution capabilities.

The Supreme Court has extended its ban on felling of trees in the Aarey Colony area of Mumbai, for setting up of a metro rail car-shed, till the date of the next hearing in December 2019.

The Supreme Court, on November 15, 2019, extended the interim order by which it had stayed further cutting of trees in Mumbai’s Aarey Colony, for setting up a metro car-shed. A bench of justices Arun Mishra and Deepak Gupta said it will hear the matter at length in December, 2019. On October 21, 2109, the top court had clarified that there was no stay on the construction of the Mumbai Metro car-shed at Aarey Colony but the status quo order was only applicable on felling of trees there.

The SC had asked the Brihanmumbai Municipal Corporation (BMC) to submit a report on the number of trees cut, afforestation and transplantation being carried out, in lieu of felling of trees at Mumbai’s prominent green lung. Mumbai Metro had claimed that they had transplanted over 5,000 trees and assured the court that absolute status quo was being maintained, with regard to felling of trees in the area.

The currency in circulation has jumped a whopping 20.14%, to scale Rs 21.59 lakh crores, show the latest RBI data, released on the third anniversary of the government’s controversial demonetisation announcement.

Data from the Reserve Bank of India (RBI), released on November 8, 2019, showed that the currency with the public grew 15.2% to Rs 21.59 lakh crores, as of the fortnight to October 25, as against Rs 17.97 lakh crores on November 4, 2016. However, the growth of currency in circulation seems to be slowing down as it grew 21.1% in the last year, over the previous year. On November 8, 2016, the government and RBI pulled out Rs 500 and Rs 1,000 denomination notes from the system in a surprise move. Apart from prodding the people to move to digital, which would have helped arrest the growth of black money, the demonetsation move was also aimed at curbing fake currency and restricting insurgency activities.

According to the RBI data, there has been a 5.2% addition to the cash economy with the public between April 1 and October 25, 2019, which is slower, compared to 6.6% growth a year ago.  After falling massively post-demonetisation by nearly Rs 10 lakh crores, the currency in circulation has recouped at a faster pace, and it took over 16 months for the levels to go back to the pre-demonetisation levels. Digital payments have grown manifold over time and the UPI volumes hit the 1 billion transactions-mark in a single month, in October 2019.

Finance Minister Nirmala Sitharaman on November 6 announced another set of measures to boost the beleaguered real estate sector and infuse confidence among hassled homebuyers.

"The move will help relieve financial stress faced by a large number of homebuyers. This will also release a large number of funds stuck in these projects for productive use in the economy," Sitharaman said at a press meet.

Here are the key points from the press meet:

- SBI Cap will prioritise projects as per viability,

- Net worth key factor for disbursement

- SBI Cap will manage real estate AIF through an escrow account

- Projects can be NPAs/incomplete to be eligible, but not marked for liquidation by NCLT

- Projects must be net worth positive to avail funds, percentage of completion not a criteria

- RBI to soon issue clarificatory note on realty fund

Mumbai: The government’s next round of reforms is likely to be focused on real estate, with finance minister Nirmala Sitharaman saying that the prevailing slowdown in the sector needs to be addressed soon.

The government is working closely with the Reserve Bank of India (RBI) to address issues faced by the sector, Sitharaman said at an event marking the silver jubilee celebration of the National Stock Exchange of India on Tuesday.

“Real estate sector requires a lot more attention because the sluggishness which prevails there has got to be addressed," she said. “The government is very keen and is working very clearly together with Reserve Bank of India (RBI) to see how best we can make necessary tweaks to the existing blocks to help the people who are affected in this one sector which I have not really completely addressed till now."

The real estate industry has failed to recover from the twin shocks of the ban on high-value currency notes in November 2016 and the goods and services tax that was introduced in July the following year.

This has resulted in piling inventory, stagnant-to-falling property prices and dwindling funding for developers.

Real estate projects worth ₹1.8 trillion are stalled across India, according to Anarock Property Consultants.

The focus on real estate is part of the government’s broader plan to kick-start economic growth, which has slowed to a six-year low of 5% in the quarter ended 30 June.

“There are drastic measures that are needed now to infuse liquidity into the sector. If there is zero GST implemented for real estate projects at least for six months, it would make a marked difference. There is an urgent need for active lenders in real estate, with existing banks not lending enough," said Niranjan Hiranandani, co-founder and managing director of Mumbai-based developer Hiranandani Group.

The finance minister said alternative funds have approached the government with proposals to invest in the sector as long as there is some support mechanism available for reviving the real estate sector.

Sluggish demand and the consequent liquidity crunch in the real estate sector have also affected non-bank lenders and banks through increasing slippages in their loan books. Several realty firms are struggling to repay loans.

According to a Fitch Ratings report in October, around $10 billion of development loans are coming up for repayment in the first half of 2020 and this may impact mainstream banks that have lent money to shadow lenders or invested in their bonds. Sitharaman said the government wants to ensure that the crisis in the real estate sector does not spill over to other industries.

Defaults by Dewan Housing Finance Corp. Ltd and Altico Capital have aggravated the issue, making banks excessively cautious in extending loans to housing finance companies (HFCs) and non-banking financial companies (NBFCs).

Private sector lenders, including Yes Bank Ltd and IndusInd Bank, have the largest direct exposure to the commercial real estate sector and would be susceptible to “asset-quality difficulties" if the sector continues to struggle, according to a mid-September Moody’s report.

A study jointly conducted by industry body Ficci, National Real Estate Development Council and consultant Knight Frank has stated that the outlook for the country’s real estate sector in the September quarter has fallen to the level that was recorded during the uncertain times before general elections in 2014.

The number of property developers reporting bankruptcy has doubled during the past nine months, which has added to the woes of NBFCs, according to a 14 October Reuters report.

As of 30 June, 421 developers are under the corporate insolvency resolution process, up from 209 as of September-end of last year, according to data from the Insolvency and Bankruptcy Board of India.

Sitharaman said that India is still dependent on banks for debt functions. “Banks alone cannot serve that cause. And that is why I am very happy that even as I stepped into this ministry, there were enough efforts being made by the bureaucracy—and I credit them for it—for looking at deepening the debt market in India," she added.

In September, Sitharaman announced a ₹20,000 crore special funding boost for stalled projects that are in the affordable and mid-income category, those that are 60% complete and aren’t non-performing assets or in the National Company Law Tribunal.

Essentially, the government cherry-picked the safest options among stressed projects, said property analysts and experts. Also, that is yet to be implemented.

“The money needs to reach the hands of the developers. Demand is slowly coming back in residential, but projects are stuck because there is no liquidity. If the government could encourage banks to start lending again, that would be a huge boost," said Ramesh Nair, chief executive and country head of JLL India.

New Delhi: Housing sales declined 9.5 per cent during July-September period across nine major cities to 52,855 units on low demand as economic slowdown and liquidity crisis weighed on buyer sentiment, a PropEquity report said. This is the fourth such report that has shown fall in housing sales during the third quarter of the 2019 calendar year.

As per the PropEquity data, housing sales fell in seven cities and increased only in two cities.

Chennai saw the maximum fall of 25 per cent in housing sales at 3,060 units during July-September 2019 as against 4,080 units in the year-ago period.

Housing sales dropped 22 per cent in Mumbai to 5,063 units from 6,491 units, followed by Hyderabad that saw 16 per cent decline to 4,257 units from 5,067 units.

Kolkata witnessed a 12 per cent fall in sales to 3,069 units from 3,487 units, while Noida saw 11 per cent decline to 990 units from 1,112 units.

Sales in Bengaluru, too, went down by 9 per cent to 9,843 units from 10,816 units. Thane saw 9 per cent dip in sales to 10,714 units from 11,773 units.

However, Gurugram witnessed 7 per cent rise in sales to 1,190 units from 1,112 flats and Pune saw one per cent increase to 14,669 units from 14,523 apartments during the period under review.

PropEquity, which is owned by P E Analytics, is an online subscription based real estate data and analytics platform covering over 1,15,225 projects of 32,745 developers across over 44 cities in India.

According to data analytics firm PropEquity, housing sales stood at 52,855 units during July-September 2019, down 9.5 per cent from 58,461 units in the year-ago period.

PropTiger and Anarock, which are a major brokerage firms in housing segment, have reported 25 per cent and 18 per cent fall in housing sales, respectively, during July-September period. Real estate consultant JLL India, which is a dominant player in leasing of commercial properties, saw one per cent decline.

"Demand has been definitely impacted in the last quarter with buyers delaying their decisions," Samir Jasuja, founder and managing director at PropEquity said.

"The downtrend observed was mainly due to the economic slow down as well as the liquidity crisis in the market," the report said.

PropEquity said that real estate market is currently an end user-driven market with customers preferring ready to move-in or nearing completion properties.

"Furthermore, consumers are now looking for developers with excellent track records in terms of quality and execution," it added.

New launches too fell 24 per cent to 32,834 units. Unsold housing stocks came down to 6,01,785 units from 6,21,806 units at the end of June quarter.

Real estate players in the National Capital Region said on Friday that the ban on construction till November 5, 2019, will have an adverse effect on their pace of work, resulting in delay in handing over flats to buyers.

Builders in Noida, Ghaziabad, Gurgaon and Faridabad also hoped that a “permanent solution” be found to the annual practice of banning construction in Delhi-NCR during this time of the year and other steps be taken round-the-year to prevent such alarming levels of pollution.

“However, such disruptions are unfortunately not added to the committed possession dates for the homebuyers. Even if work is officially stopped for just 10 days, it may take another two weeks to fully remobilise the site.

There are at least 7-8 such episodes in the construction cycle of a typical project in NCR. Hope this is seen as a factor beyond the control of builders,” Bajaj, the managing director of Eldeco, told PTI.

Developers are already doing their bit towards environment and are employing means that can help contain the pollution, said Ashok Gupta, CMD of Ajnara India, which has projects in Ghaziabad, Noida and Greater Noida.

“However, stopping work for 4-5 days is a bit too much and should be avoided at a time when we are working towards achieving the goal of delivering as much as possible,” he said.

Dhiraj Jain, the director of Mahagun Group, which has projects in Ghaziabad, Noida and Greater Noida, said the EPCA’s step is an indication that the situation of pollution is bad.

“Every year we see this happening around November but this step is good only for a few days. … We hope a permanent solution comes up that does not hamper the pace of construction which is important to deliver houses to everyone,” Jain said.

Sagar Saxena, the project head for Spectrum Metro, described the decision as a “setback” to the overall pace of development.

“A sudden brake of a week does affect the construction. I strongly feel that there are other steps that should be taken round the year so that this yearly phenomenon of pollution should not happen,” he added.

Ghaziabad-based Vasu Infrastructure’s director Rakesh Aggarwal felt the EPCA’s decision to completely stay all construction activities in Delhi-NCR will adversely affect the management of labour and said it becomes difficult to keep workers unoccupied for four to five days at a go.

“Almost a week’s time without work will disperse the settled labour which in turn will affect the flow of work in the coming days even after the ban is lifted. This has a bearing on the overall efficiency and adversely affects the productivity of a project,” he said.

Ghaziabad-based Vasu Infrastructure’s director Rakesh Aggarwal felt the EPCA’s decision to completely stay all construction activities in Delhi-NCR will adversely affect the management of labour and said it becomes difficult to keep workers unoccupied for four to five days at a go.

“Almost a week’s time without work will disperse the settled labour which in turn will affect the flow of work in the coming days even after the ban is lifted. This has a bearing on the overall efficiency and adversely affects the productivity of a project,” he said.

Ghaziabad-based Vasu Infrastructure’s director Rakesh Aggarwal felt the EPCA’s decision to completely stay all construction activities in Delhi-NCR will adversely affect the management of labour and said it becomes difficult to keep workers unoccupied for four to five days at a go.

“Almost a week’s time without work will disperse the settled labour which in turn will affect the flow of work in the coming days even after the ban is lifted. This has a bearing on the overall efficiency and adversely affects the productivity of a project,” he said.

“Increase in the level of pollution is a matter of grave concern and everyone should pitch in to mitigate the effects but there should be some permanent solution to it rather than all such stop gap measures as it is a yearly problem and almost happens around the same time every year,” Aggarwal, also the vice president of Credai Ghaziabad, said.

A spokesperson for BPTP, which has projects in Gurgaon, Faridabad and Noida, said, “We will comply with the government order and stall all construction. Our focus has been on enhancing green cover at our sites.”
The EPCA, a Supreme Court-mandated panel, on Friday declared a public health emergency in the Delhi-NCR and banned construction activity till November 5.

It also banned the bursting of crackers during the winter season and directed that all coal and other fuel-based industries, which have not shifted to natural gas or agro-residue, will remain shut in Faridabad, Gurugram, Ghaziabad, Noida, Bahadurgarh, Bhiwadi, Greater Noida, Sonepat, Panipat till the morning of November 5.

With hearings in the Ayodhya case drawing to a close, the Supreme Court bench has agreed to hear pleas against the Bombay HC verdict that quashed the CRZ clearances for the Mumbai Coastal Road project.

Supreme Court has agreed to hear, on October 25, 2019, the appeals challenging the Bombay High Court verdict, which had quashed the CRZ clearances granted to the Mumbai civic body’s ambitious Rs 14,000-crore Coastal Road project. A bench comprising chief justice Ranjan Gogoi and justices SA Bobde and SA Nazeer, was told by solicitor general Tushar Mehta on October 21, 2019 that the matter, which was last heard in July 2019, required an urgent hearing.

Mehta, appearing for Mumbai’s civic body, said as the court was busy with the Ayodhya matter, this case could not be taken up on August 20, 2019, as assured and it may now be listed for hearing. “We are still busy. We can transfer this to some other bench,” the court said. The solicitor general, however, insisted that as this bench was aware of the facts, so, the appeal may be heard by it only. “All right, we will see,” the bench said.

It had said earlier that it would hear, on August 20, 2019, the appeals in which had sought an interim stay on the high court’s verdict quashing the CRZ clearances the Mumbai’s coastal road project. The bench was hearing the appeals filed by Municipal Corporation of Greater Mumbai, Larsen and Toubro Ltd and HCC-HDC JV. The municipal corporation had submitted that CRZ clearance was granted on the undisputed land and the HC’s order be stayed. However, the apex court had said that it will hear the parties concerned first, on the pleas.