Politics
After Noida demolition, what remains to be cleaned up in real estate
Summary
- It may take a long time to clean up the excesses of the past, particularly in the National Capital Region. Mint explains:
The demolition of Supertech Ltd’s twin towers in Noida was a visual spectacle, and may act as a deterrent for errant developers in some ways. However, it may take a long time to clean up the excesses of the past, particularly in the National Capital Region (NCR). Mint explains.
What does the demolition imply?
Many actors in the real estate sector have always believed that every irregularity in construction can be regularized. The sector is also notoriously opaque. The fact that there are too many stakeholders in any real estate project has been used by builders to their advantage. The Supertech demolition is a starting point. Visuals of Sunday’s demolition change perceptions somewhat. It creates the impression of a level playing field for homebuyers, even though the Supreme Court had to step in to give the final order in the Supertech twin towers case.
Is the worst over for NCR’s property woes?
Far from it. According to data from Liases Foras Research, of the 149,000 unsold residential units in India’s largest real estate market, about 90,000-95,000 are in projects that are stalled with no ongoing sales bookings. The future remains uncertain in many of these developments. Most of these are located in uninhabitable locations. It will take an estimated 49 months to clear NCR’s unsold stock. Homebuyers in the Noida-Greater Noida property market are the worst affected, with the maximum chunk of stuck projects. Given the massive scale of stuck projects, the resolution process may take 3-4 years.
What went wrong in the NCR real estate market?
Unchecked realty expansion for years led to funds diversion from projects into non-real estate ventures. The past decade also saw a land-buying frenzy and the euphoria of short-term investors and speculators. The nexus between builders and authorities led to illegal structures and the misuse of the floor area ratio —the amount of construction permitted on a given plot.
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Is there any resolution for the sector in sight?
The pandemic has triggered consolidation, reduced launches and created genuine demand for homes. Stronger developers are gradually taking over projects. Projects in bankruptcy courts will see resolution at some point, and creditors are hiring development managers to get them completed. There are cash flow issues still, but good developers have access to capital. Banks have shown interest in funding some stalled projects. The resolution process has begun but it’s still a long way to go.
What about real estate outside NCR?
While delayed projects are not unique to NCR, the scale is relatively less in other markets such as the Mumbai Metropolitan Region (MMR) and Bengaluru. The key reason why MMR suffered was the lack of affordability. As soon as prices dropped and the state offered incentives during the pandemic, sales shot up. Even though MMR has around 1,28,870 stuck and unsold units, they are not in uninhabitable locations like in NCR, and could be revived far more easily. Bengaluru, too, has fewer stuck projects.
Elsewhere in Mint
Vidya Mahambare & Praveen Kumar explain why feelings of prosperity are likely to be the highest in Gujarat. Dhruv Garg writes on the conundrum Indian online gaming firms face. Kirit P. Solanki & Sumit Kaushik tell what can speed up India's Amrit Kaal journey. Long Story narrates how Sunil Bharti Mittal turned Airtel around in Africa.
