Investment in real estate outside the state especially innorthern part of the country has been a growing passion among the local(J&K) investors. Most of these local investors, mostly Kashmiris, have twinobjectives to meet. First, they want to secure an alternative safe living placeat a time when the conflict intensifies and living a normal life becomes achallenge. Such kind of situation was witnessed in 2010 and 2016 when life andproperty witnessed destruction in the valley. Second, they simultaneously wantto secure high returns on investment as some time back investment in realestate was believed to be a golden investment.
Interestingly, the growing appetite of people here to havehousing property outside J&K attracted local property dealers and they toostarted expanding their real estate ventures outside the state, mostly inDelhi, Uttar Pradesh and Haryana. Thiscombination of local property dealers and the local investors has become aconvenient means of flight of capital from the state to other parts of thecountry. Initially, this looked prosperous for both. But over a period of time,the investment has lost sheen and many investors found their money locked inthe troubled waters of the real estate sector in the country. Those who haveinvested in under-construction properties are the worst sufferers.
A year ago, future of the Indian real estate market wasbelieved to be promising following the implementation of Real Estate(Regulation and Development) Act, 2016 (RERA). The best part of this Act is that it envisages safety to the buyers andimmediately led to fall in property prices in many cities. This way, realestate turned into buyers’ market. The falling prices lured the local investorsand they mostly invested in under-construction properties.
Now, the investment has turned a matter of worry for them asthe property builders/dealers have failed to give possession of the property tothem in the given time period. The builder has either failed to complete theconstruction or has got entangled into some legal dispute over the propertyunder-construction. In both cases, it’s the investor who is suffering as hismoney is at stake.
Last year in December, in this column, I had warned thatinvestment in the under-construction property may face stressful time. Gettingpossession of the property would be a major worry and investors will be left atthe mercy of the builders. Since then I have been receiving various nature ofqueries particularly from those who had paid property dealers in Delhi, Noida,Haryana or in Punjab for purchasing flats, particularly residential flats,under construction. They are yet to get possession of the flats as the buildershave been delaying completion of the flats for want of funds.
This is actually a unique situation all over the country.Buyers have paid almost 70 to 90% of the cost of the property underconstruction, but are struggling to get possession. The builders have left theconstruction midway as they have no funds in hand to complete the construction.
In a unique situation, reports are emerging where homebuyers who had paid for under construction flats have started completion oftheir property themselves. Some professionals like computer engineers,chartered accounts and other techies have turned ‘amateur developers’ bybanding together to see their incomplete flat constructions completed. Notably,according to a report, property market in the country is struggling to digestsome $65 billion worth of projects in various stages of completion – or, inmany cases, non-completion.
So, many delayed building projects have severely weakenedfaith in any under-construction properties and reviving buyers’ trust at themoment seems impossible. The potential of the market is in lurch as the newhome buyers would not like to get into the mess which the real estate market iswitnessing. That means, if buyers stop purchasing, builders will have a farmore challenging time to get funds from external sources for construction andresultantly the under construction projects will have remote possibility to getcompleted.
Even as law is in place with provisions of strictpunishments for building delays, a series of economic shocks are alsoresponsible for such delays. First, it was the unexpected demonetization inwhich high-value rupee notes of 500 and 1000 were declared invalid in 2016 andthen the implementation of goods and services tax (GST)in the following yearwas a tsunami for the property-market. These shocks destroyed the pillars ofreal estate market, leaving the property dealers/builders clueless.
(The views are of theauthor and not that of the institution he works for)