MUMBAI : On 23 July, the Supreme Court finally brought real estate developer Amrapali to book. It scrapped Amrapali’s registration under the Real Estate (Regulation and Development) Act, or Rera, and ordered a probe by the Enforcement Directorate into money laundering and diversion of funds. Besides, it directed government-owned NBCC India Ltd to complete all incomplete projects.

The intent is noble. But the need of the hour is that all this quickly translates into action. Regulatory tightening through implementation of Rera hasn’t progressed as well as hoped.

“It has been three years and most states have failed to implement it in complete letter and spirit of the law," said Samantak Das, economist and executive director at JLL India. So, the Amrapali case is also a wake-up call for speedy implementation of existing rules.

Das also adds that the Model Tenancy Act proposed in the Union budget, too, is well meaning, but the key lies in implementation.

In the particular case of Amrapali, the stakes are high as well. There are 42,000 homes to be handed over to buyers. So, it raises questions on whether NBCC can deliver. To begin with, buyers have been asked to deposit balance payments due in a separate escrow account.

“Funding for completion of this project may hit a stumbling block if all the homebuyers in the project don’t deposit the balance amounts in the escrow within the stipulated time. It is worth considering that many of these homebuyers may have exhausted their savings and may not have the required funds readily available with them," said Ghulam Zia, executive director, valuation and advisory, retail & hospitality, Knight Frank India Pvt. Ltd. Many homebuyers may also be wary of further infusion, after being singed already.

True, authorities are expected to liquidate personal assets of directors and those who were involved in the fraud.

But if these deals are stuck for long, weak cash flows can also impact project completion.

It also needs to be noted here that while the NBCC option may be viable in this case, subject to availability of funds, it may not work every time.

“NBCC’s ability to take up other such projects will have to be considered, and, hence, it can’t be taken as a standard solution to all stuck projects," said Zia.

Apart from regulatory challenges, a liquidity crunch fuelled the crisis of excess supply in residential markets. The slump in demand and rising inventory of unsold homes strangled small and mid-sized developers, some of whom have vanished.

A complete halt in new launches as builders and buyers were crippled with poor liquidity is the only reason why inventory of unsold homes is slowly ebbing.

That said, according to data from Anarock Property Consultants Pvt. Ltd, over 570,000 homes across the country are delayed (started during or before 2013) leaving buyers in the lurch.

Worse, 174,000 units, valued at a total of 1.77 trillion, have been stalled with no activity.

What recourse would buyers have on these pre-Rera projects, given that litigations are known to take a long time before redressal.

Meanwhile, as the first half of calendar year 2020 saw green shoots of recovery, the recent ban on interest subvention scheme could drag the recovery, with some respite only in the commercial property market.

About 10-12% of mortgages were routed through such offers, especially for projects under construction where several frauds have shaken the confidence of buyers.

To be sure, there is hope that the sector will revive, given that inventory has been gradually coming down. Demand side stability is the current focus. Accountability and transparency is already seeing a consolidation in the sector.

Large developers—especially those in the listed universe such as Oberoi Realty Ltd, DLF Ltd, Prestige Enterprises & Projects Ltd, Phoenix Mills Ltd and Sobha Ltd—are among those who have put their balance sheets in order so as to lure both buyers and private equity funds.

Some of these firms have drastically cut debt through asset monetization and promoter funds infusion.

With this, equity investors’ confidence towards the sector, is slowly returning.

The Nifty Realty index has outperformed the broad markets this year on the back of lower inventory and rising sales in the affordable homes category.

That said, it is time to create a good ecosystem for the supply side. As large projects are fraught with large risks, financial institutions, once bitten, are shying away from funding the sector.

“Developers must have access to funds at the right time. Project fund sizes are down to about half the level seen a few years ago," explains Das.

A delay in implementation of regulations could again put the sector in a tailspin.

The recent news that Piramal Real Estate Investment Trust fund has sought an extension of tenure as six projects worth 562 crore are stuck, does not bode well for the sector either.

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