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Exit will not be easy, but it’s the best option for investors

Exit will not be easy, but it’s the best option for investors
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First Published: Tue, Jul 26 2011. 09 18 PM IST

Uncertain future: Homebuyers who have invested in projects at Noida Extension protest in Noida on Saturday. Photograph by Gajendara Yadav/HT
Uncertain future: Homebuyers who have invested in projects at Noida Extension protest in Noida on Saturday. Photograph by Gajendara Yadav/HT
Updated: Tue, Jul 26 2011. 09 18 PM IST
If you have invested in one of the projects in Noida Extension area and were waiting with bated breath for Tuesday’s Allahabad high court judgement on the land acquisition row in the area, your wait just got longer. The matter came up for hearing in the high court on Tuesday but was adjourned till 17 August with the court giving time to the farmers and the Greater Noida Industrial Development Authority (GNIDA) to reach a compromise.
At least 30,000 buyers may have to pay a price for the Uttar Pradesh government’s “mala fide use of powers”, as the Supreme Court (SC) put it in one of its judgements, in acquiring land from farmers at unbelievably low prices and selling the same to developers at much higher price. Farmers allege that the land was acquired from them at Rs 400 per sq. m and sold to builders at Rs 10,000-11,000 per sq. m. In an earlier judgement, the high court had called the land acquisition a “colourable exercise of executive power” unsustainable under the Land Acquisition Act.
Uncertain future: Homebuyers who have invested in projects at Noida Extension protest in Noida on Saturday. Photograph by Gajendara Yadav/HT
While the farmers of certain villages are celebrating their victory over the state government and some others are queued up in the court with similar demands, homebuyers who had invested their hard-earned money in projects of this area are left in a quandary.
If you are one among them and your money is stuck in a project situated in Noida Extension, the situation is unlikely to improve in the near future. Despite the fact that SC has asked developers to pay up or shift investors to other projects, it may take some time before you actually see your money back in your savings account.
The story so far
It all started with the farmers of Shahberi village moving the high court earlier this year against GNIDA, alleging illegal land acquisition and low compensation.
In May, the high court ruled in the favour of farmers, quashing the land acquisition by GNIDA.
On 6 July, the apex court upheld the high court judgement, cancelling the allotment of five builders. According to SC, the state government had indulged in mala fide use of its powers for “urgent” land acquisition to benefit developers rather than serving any public purpose.
While the ruling was welcomed by farmers, around 6,500 homebuyers across five projects—Amrapali Group, Panchsheel Buildtech Pvt. Ltd, Supertech Ltd, Mahagun India Pvt. Ltd and Gulshan Homz— were left in a quandary. Within a few days, SC swung into action and asked developers to either give a refund to buyers or shift them to other projects.
Inspired by the victory of Shahberi village, farmers of Patwari village in the Noida Extension region went to the high court with similar demands and got a ruling in their favour on 19 July. This ruling affected at least 20 projects and at least 25,000 buyers.
The second farmers’ victory was followed by a spate of similar demand by emboldened farmers from at least 9-10 other villages of the region. The HC then decided to club all such petitions in a single hearing on Tuesday, but the matter was adjourned till 17 August. However, the court has asked the farmers from Patwari village to renegotiate on compensation from GNIDA.
However, whether the matter will get solved by then is still to be seen. Says Pankaj Bajaj, president, Confederation of Real Estate Developers Association of India, NCR chapter, “The big question is whether the negotiations can happen till 12 August. Since farmers are demanding a very high rate of compensation, GNIDA may try and bring down the rate of compensation, where it can easily pay to the farmers. However, if farmers stick to their demands, only court will decide the fate of the land and projects in the area.”
Villagers have been demanding a compensation of Rs 5,000 per sq. m from GNIDA. In addition to this, they are also demanding 5% of developed land as compensation against their habitable land.
Exit is tough...
Though SC has asked developers to give an exit option to the buyers and refund their money, the process is likely to get delayed. In fact, the process hasn’t even started yet. A Noida-based buyer, who spoke on the condition of anonymity, wants to exit Supertech Ltd’s Ecovillage 2 coming up in Noida Extension. But in the absence of a formal letter in this regard, he doesn’t know how to start the process. On 19 July, the firm’s managing director, R.K. Arora, had announced that the company will contact its buyers soon. Many other buyers are finding themselves in a similar situation.
Most developers we spoke to said they would inform the buyers about the two options as soon as possible, but admitted that the process may take time. Says Manoj Gaur, chairman, Gaursons India Ltd, “We are in talks with GNIDA officials. Buyers should not panic. Exit will not be an easy one. This is because we have already invested significantly on construction till date. And if any buyer comes to us seeking refund, giving away the money is not just a ‘sign on a cheque’ and ‘subsequent encashment’ of the cheque.”
So you may have to wait for some months before the money reaches your savings account. But how long will be the wait? “The wait can be of six-nine months or even more, depending on the changing scenario,” says Smarjit Singh, managing director, Agni Property, a brokerage firm with a pan-India network. Agni is helping four-five buyers to exit from projects in the region.
He says the buyers would need to be patient or there could be further delay. “Buyers shouldn’t lose their patience and go to court with a fresh appeal for refund. Going to the court will further delay the process of refund,” he says.
...and so is shifting
The other option that developers have been asked to give is shifting homebuyers to other projects. However, this would work only if the shifts are happening outside the Noida Extension region. The reason: with more villages in the region moving court over the issue of land acquisition, other projects may also get affected.
For instance, for its Ecovillage 2, Supertech had given shifting options to Ecovillage 1 and 3. But on 19 July, when the high court ruled in favour of the farmers of Patwari village, the land on which Ecovillage 3 was supposed to come up went back to the farmers.
Here’s another example: When Panchsheel Gardens got affected by the 6 July SC ruling, the developer offered the shifting option in another project, Hynish, in Bisrak village of Noida Extension. But the farmers of this village, too, have filed a petition in the court and the matter is sub judice. The fate of the project Hynish, therefore, remains uncertain. Says Anuj Chaudhary, director, Panchsheel Buildtech Pvt. Ltd, “The whole project will go if the court rules in favour of the farmers.”
Financing may pose a hurdle too
With uncertainty looming over the region, banks may exercise caution in financing projects there. HDFC Ltd refused to answer our queries sent via email. Even ICICI Bank Ltd, which has a small exposure in this region, also refused to answer our queries. When contacted on telephone, Punjab National Bank’s (PNB) response was cautious. Terming the developments of Noida Extension as a Pandora’s box, PNB general manager S.K. Singh said, “We adopt certain basic measures and precautions while disbursing loans. Anything like developments in Noida Extension is completely not anticipated. There are more cases pending before the court.”
Moreover, even projects that are not affected in the region may face funding problems. Recently a reader from Ghaziabad, Ashish Dasgupta, wrote to us with such a problem. His lender, HDFC, refused to disburse the pending amount of loan for his project in Noida Extension even though the project is not affected by any judgement. Dasgupta has booked a flat in Mahagun Mywoods, Ebony Tower. He says, “As per Mahagun India Ltd, the booked flat is not affected.”
Dasgupta said his loan was approved by HDFC, Lohia Nagar, Ghaziabad. When he enquired with the branch about the status, the lender said that HDFC has stopped funding projects in Noida Extension. “They do not have any idea as to when they might resume. Builder, Mahagun India Ltd, is fully aware of the situation and currently is not asking for further payment,” says Dasgupta.
Mint sent queries regarding the case to HDFC via email, to which the bank replied that it didn’t want to comment. Mint also has a copy of the reader’s email.
If you are one of the affected homebuyers, tough days are ahead for you. So clinch the refund if the builder is offering it. Though there will be a delay, the money will come to you at some point. Opt to shift to another project only if it is in an area outside Noida Extension.
devesh@livemint.com
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First Published: Tue, Jul 26 2011. 09 18 PM IST