Unitech, whose promoters were arrested on Saturday, is battling lenders, customer complaints, slow market; the new real estate law may make things even tougher
The arrest of Unitech Ltd’s promoters has added to the woes of the realty firm, which has been struggling to sell land assets and raise money to complete projects as 17,000 buyers wait for their houses to be delivered.
Once India’s second largest developer, after DLF Ltd, Gurugram-based Unitech is battling customer complaints, lenders and litigation besides a slow real estate market. Its core market—the National Capital Region (NCR) centred on Delhi—has been the worst hit by the slowdown.
With the new real estate law being implemented to ensure fair practices and protect customers’ interests, developers like Unitech may find it tough to survive in the new regime, said analysts.
On Saturday, the Delhi Police’s Economic Offences Wing (EOW) arrested Unitech’s managing directors Sanjay and Ajay Chandra for alleged money laundering. Following a hearing at Delhi’s Patiala House court, the duo was sent to two days’ police remand, till 3 April. However, as investigation progresses in the case, Delhi police officials said nothing conclusive could be said about the direction the case would take.
The Chandra brothers were arrested “for failing to deliver on a project, Anthea Floors, at Gurugram", a senior Delhi police official said, declining to be named.
The official said that if by 3 April the police were satisfied with the interrogation and if they owned up to the allegations, then “bail could be a possibility. However, after that, they have to appear each time they are summoned by the police for questioning."
The official added that if the police were not satisfied with the direction of the interrogation, they would put forward a request to extend the police remand by another two or three days, when the matter is heard next on 3 April.
While 91 people invested a total of Rs35 crore in the project in Gurugram, formerly known as Gurgaon, the Chandras are alleged to have neither delivered the flats to the buyers nor returned the principal amount with interest.
Unitech is also embroiled in litigation for delaying flats to buyers. The National Consumer Disputes Redressal Commission and the apex court have directed it to refund the money with interest to buyers in its Vistas project in Gurugram.
Last January, the Chandra brothers, Unitech chairman Ramesh Chandra and director Minoti Bahri were sent to a day’s judicial custody in cases of alleged cheating filed by two investors, after which they were out on bail.
“Unitech has been continuously delivering apartments to buyers every month, but it needs to do much more. It is trying to look for partners but these transactions are taking time to materialize. What is critical right now is that the promoters are out to manage the company, which is going to be tough if they are not around," said a person directly familiar with the situation at the company, but didn’t wish to be named.
The company hasn’t commented publicly since the arrests.
Unitech’s market capitalization is down 92.96% (or Rs19,248.10 crore) from Rs20,705.41 crore in April 2010 to Rs1,457.28 crore today. Its share price is down 93.44% from Rs84.90 to Rs5.57 during the same period. Unitech was the second largest developer till 2010, until the 2G telecom spectrum scandal broke and Sanjay Chandra was arrested in connection with it in April 2011.
“Both Unitech and DLF were in the same boat after the 2008 economic crisis, but while DLF used its resources to bolster its real estate business, Unitech deployed its cash in the telecom business. Then the 2G crisis happened and from then on, it only spiralled down for the company," said a top executive of a property advisory familiar with the developments in the company. He declined to be named.
Unitech’s net loss widened to Rs74.96 crore in the first nine months of 2016-17, compared to Rs35.75 crore in the same period a year earlier. As of September 2016, its debt was Rs5,818 crore.
Unitech, which has a large land bank and has been trying to sell it, sold only 11.55 acres in Gurugram for Rs55 crore and another 19.5 acres in Chennai for Rs66.86 crore during April-December.
“The promoters being sent to jail is not a solution for customers who are waiting for their homes to be delivered. We have been waiting for eight years now, why can’t the government take control of the situation?" said Vivek Pachauri, treasurer of Residences Apartments Buyers Association. Residences is a large project in Sector 33, Gurugram, where only 400 of 1,310 apartments have been delivered so far.
Meanwhile, a special Central Bureau of Investigation (CBI) court in New Delhi is hearing final arguments in a case related to irregularities in allocation of the 2G spectrum licences.
The CBI chargesheet names Unitech’s Sanjay Chandra and others and involves three telecom firms, Unitech Wireless (Tamil Nadu ) Ltd, Swan Telecom Pvt. Ltd and Reliance Telecom Ltd.
“The loss of credibility has been the biggest setback for Unitech. The new real estate law will result in a churn and many developers like Unitech may find it difficult to survive but it’s also the only way the market will mature," said the property consultant cited earlier.
Apurva Vishwanath in New Delhi contributed to the story.