Under RERA, delivery is a measurable target and non-compliance leads to clear-cut penalties, said a developer. Photo: Indranil Bhoumik/Mint
Bengaluru: Rising awareness levels among homebuyers, stringent regulatory norms and a pro-customer judiciary have compelled real estate firms to focus on timely delivery of projects and being accountable to promises made.
At a time when many developers are fighting disgruntled customers in courts of law, delivering homes on time is no longer a matter of choice. To deliver what one has promised is the essence of the new Real Estate Regulation and Development Act (RERA).
What this is likely to do is, put the customer at the centre of the business and improve accountability, and also change the way the sector operates—typically, home sales have always been more important than staying true to what’s promised.
The capacity and intent to be honest to buyers are the qualities that will set good developers apart from the rest of the pack, say developers and analysts.
“Meeting project delivery targets is a matter of survival for developers today. There are penalties today and the regulator has the power to take over the project,” said Anuj Puri, chairman, Anarock Property Consultants.
Over the past year or so, many large real estate developers in India’s largest property market, the National Capital Region (NCR) centred around Delhi, are embroiled in insolvency proceedings initiated against them following a four-year slowdown in the sector, and court cases initiated by buyers over non-delivery of homes. Jaiprakash Associates Ltd’s (JAL) Wish Town township project in Noida, which was launched in 2007, has 24,000 homes yet to be delivered to its buyers out of a total of 32,000 units.
The company is currently facing insolvency proceedings and a resolution process is on.
Noida-based Amrapali Group in February sought the Supreme Court’s permission to bring in co-developers to help build and deliver around 41,000 flats to buyers.
“In the boom years, developers promised they could deliver a project in three years, a promise which can never be met because it takes 5-6 years. Courts have stepped in, launching projects has become increasingly difficult with the RERA regime pushing firms to focus on building and selling homes to existing customers,” said Rajeev Talwar, chief executive of real estate firm DLF Ltd.
The real estate sector witnessed a boom during 2005-08.
The global economic slowdown did put the brakes on the sector, but business was back to normal by 2009, and until 2012, it witnessed robust expansion. In all of this, the key stakeholder in the business—the homebuyer—was never accorded pride of place, leading to a fundamental loss of faith in developers.
“There is a lot of negative sentiment among homebuyers today over not getting possession of homes on time. The real estate market is down with no price appreciation and slow sales. We have had delays in our projects which is why we decided let’s complete and deliver projects that were launched 4-5 years back,” said R.K. Arora, chairman, Supertech Ltd.
“Delivery is also important because the final payment of the buyer comes on possession of homes and generates liquidity and we expect to generate Rs1,000 crore through it,” Arora said.
In the new RERA regime, delivery is a measurable target with no ambiguity and therefore non-compliance leads to clear-cut penalties where the developer is liable to multiple consequences, said Ram Walase, managing director and CEO, VBHC Value Homes Pvt. Ltd.
“We have been focusing on accelerating our project delivery. One needs to keep up the execution pace on the ground, have the financial back-up to complete projects without relying on customer payments and have all approvals in place,” Walase said.
Delivery issues have ailed the sector due to which homebuyers have now moved towards ready-to-buy homes (rather than under-construction ones). While sales have been tepid, the return of buyers’ confidence is critical, say developers.
“…In the last three years, we have put in even more resources towards execution and delivery. Our delivery record establishes the credibility we have as a developer. We understand that once consumers get a home or office delivered from us, they will buy more,” Abhishek Lodha, managing director of Lodha Group said.
Executing and delivering projects on time is expensive. Lodha Group, for instance, has spent Rs4,200 crore on construction payouts alone in 2017-18.