Mess in under-construction properties

Investment in real estate outside the state especially in northern part of the country has been a growing passion among the local (J&K) investors. Most of these local investors, mostly Kashmiris, have twin objectives to meet. First, they want to secure an alternative safe living place at a time when the conflict intensifies and living a normal life becomes a challenge. Such kind of situation was witnessed in 2010 and 2016 when life and property witnessed destruction in the valley. Second, they simultaneously want to secure high returns on investment as some time back investment in real estate was believed to be a golden investment.

Interestingly, the growing appetite of people here to have housing property outside J&K attracted local property dealers and they too started expanding their real estate ventures outside the state, mostly in Delhi, Uttar Pradesh and Haryana.  This combination of local property dealers and the local investors has become a convenient means of flight of capital from the state to other parts of the country. Initially, this looked prosperous for both. But over a period of time, the investment has lost sheen and many investors found their money locked in the troubled waters of the real estate sector in the country. Those who have invested in under-construction properties are the worst sufferers.

A year ago, future of the Indian real estate market was believed 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 and immediately led to fall in property prices in many cities. This way, real estate turned into buyers’ market. The falling prices lured the local investors and they mostly invested in under-construction properties.

Now, the investment has turned a matter of worry for them as the property builders/dealers have failed to give possession of the property to them in the given time period. The builder has either failed to complete the construction or has got entangled into some legal dispute over the property under-construction. In both cases, it’s the investor who is suffering as his money is at stake.

Last year in December, in this column, I had warned that investment in the under-construction property may face stressful time. Getting possession of the property would be a major worry and investors will be left at the mercy of the builders. Since then I have been receiving various nature of queries 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 builders have 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 under construction, but are struggling to get possession. The builders have left the construction midway as they have no funds in hand to complete the construction.

In a unique situation, reports are emerging where home buyers who had paid for under construction flats have started completion of their property themselves. Some professionals like computer engineers, chartered accounts and other techies have turned ‘amateur developers’ by banding together to see their incomplete flat constructions completed. Notably, according to a report, property market in the country is struggling to digest some $65 billion worth of projects in various stages of completion – or, in many cases, non-completion.

So, many delayed building projects have severely weakened faith in any under-construction properties and reviving buyers’ trust at the moment seems impossible. The potential of the market is in lurch as the new home buyers would not like to get into the mess which the real estate market is witnessing. That means, if buyers stop purchasing, builders will have a far more challenging time to get funds from external sources for construction and resultantly the under construction projects will have remote possibility to get completed.

Even as law is in place with provisions of strict punishments for building delays, a series of economic shocks are also responsible for such delays. First, it was the unexpected demonetization in which high-value rupee notes of 500 and 1000 were declared invalid in 2016 and then the implementation of goods and services tax (GST)in the following year was a tsunami for the property-market. These shocks destroyed the pillars of real estate market, leaving the property dealers/builders clueless.

 (The views are of the author and not that of the institution he works for)