Stay away from projects in a controversy

If you know that the controversy is about to be settled, you may consider it

At least 100,000 homebuyers in around 30 projects in Noida Extension, stuck in a land controversy since May 2011, can now heave a sigh of relief. With the National Capital Region Planning Board (NCRPB) approving the draft Master Plan 2021 of Greater Noida Authority on 24 August, they can expect faster delivery of their units.

The NCRPB has sent its letter approving the master plan to Uttar Pradesh Housing Department’s principal secretary, who will forward it to the Greater Noida authority. The authority will then submit it before the Allahabad high court. As soon as the court approves the master plan, construction work, which stopped in October 2011, will resume on project sites. In October 2011, the court had ordered that work on Noida Extension projects couldn’t continue till the plan was approved by NCRPB.

While the uncertainty may soon be over for homebuyers in Noida Extension, buyers in some other projects that are now stuck in a logjam may not be so lucky. For example, even before the Suraj Kund area of Faridabad obtained environment clearance, a well-known developer started a high-end project, which eventually got stuck because of the issue. There are similar examples in Ghaziabad and Noida.

Then there are projects that are really delayed due to lack of infrastructure development in the area. For example, those in the Nehar Par area of Faridabad. Moreover, it was recently in the news because of a face-off between one of the well-known Delhi-based developer and its homebuyers in the area. The controversy was that the builder had altered the layout of the project and was demanding more money from the homebuyers.

Apart from mental harassment and looming uncertainty, buying into such projects can have some negative effects on your investment.

Low saleability

Price-wise, these projects may look attractive since they are low priced compared with other projects in the same area and some brokers even offer discounts on them to clear their inventory.

But once you are into it, you may really find yourself stuck with it. While most buyers would not like to lock their money in a controversial project, as a result of low demand and uncertainty around its construction, the price appreciation is also nothing to talk about.

For example, in the past one year, the Noida Extension area saw little appreciation as compared with projects in adjoining areas such as Greater Noida. Says Santosh Kumar, chief executive officer (operations), Jones Lang LaSalle India, a property consultant firm, “Before the controversy stirred, the average rate in Noida Extension was 1,800-2,000 sq. ft, which is now in the range of 2,800-3,200 per sq. ft." This is much lower than the average price range in Noida—which is around 3,500-4,500 per sq. ft. Some of the recent launches are even touching above 10,000 per sq. ft.

Different price points

Projects stuck in a logjam are usually delayed and the longer a project gets delayed, the more number of price points it sees since prices keep appreciating from time to time. While a person wanting to get rid of such a project may offer a lower rate, another person may still want to exit at a profit.

For example, a number of projects in the Noida Extension area or Faridabad’s Nehar Par area have multiple prices for similar apartments. Take the example of Supertech Ltd’s project Eco Village in Noida Extension. The project got hit when the controversy surfaced. At that time, the units were priced in the range of 1,800-2,100 per sq. ft. After almost a year, it is now selling at 2,900 per sq. ft. Confirms Supertech Ltd’s managing director, R. K. Arora, “The units are now available at different price points. However, we have to factor in the pressure due to increased land compensation and inflation."

Delivery issues and more interest outgo

There is always a possibility of long delays in projects that are in a controversy. Usually, cases go to the court and the judiciary quintessentially takes its own time on cases.

If you have taken a home loan for the apartment, delays would mean you end up paying a higher interest amount compared with a project that gets completed on time. This is an additional cost that you have to bear over and above your regular equated monthly instalment (EMI) that will begin once the full loan is disbursed. “The interest payment continues if the project is stuck at a particular stage," says Anil Sharma, chairman and managing director, Amrapali Group.

If you are on a construction-linked plan for the repayment of your loan, in case of a delay, the pre-EMI gets fixed at the last number and the cycle restarts only when the construction restarts. Since banks disburse the loan based on the completion certificate, you will continue to pay the pre-EMI interest based on the previous disbursed amount till the time the developer resumes construction. The longer the delay, the later would the disbursement cycle start and in the interim, you would continue to pay additional interest on the amount already disbursed.

What’s worse, despite the high cost, there is uncertainty.

What should you do?

We wouldn’t advise you to take risk and invest in a project, which is stuck in a controversy. However, if you come to know that the controversy on its settlement course, such as in the case of projects in Noida Extension area, and you are getting a really good deal, you may consider it. However, even here we advise caution.

But remember that even if a project comes out of controversy, the existing buyers would have to make some adjustments. For example, most developers in the Noida Extension area will go for the maximum floor area ratio (FAR) available for construction. FAR denotes on how much area a developer is allowed to construct on a given plot size. The draft of the master plan of the Greater Noida Authority has proposed to add 0.75 to the existing FAR of 2.75. This can be bought if required.

Says Santosh Rastogi, director, Savouir Builders, a Noida-based developer having projects in the Noida Extension area in collaboration with Gaursons India Ltd, “Most developers will buy this additional FAR. This would mean that they will be able to increase the height of the new upcoming towers." For exiting homebuyers, this would mean that developers will increase the number of floors. So if you have booked an apartment on the top floor, be ready to have some more floors on your top. This would also mean an increased population density on the same resources. This reformatting may also increase the super area and thereby your cost in some cases.

For new buyers, the rates will increase with the controversy getting sorted out. Says Sharma, “The price rise will also be a consequence of the increase in the input cost due to rise in the raw material cost."

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