The real estate sector in the country is currently going through a tough phase. The number of stuck housing projects has gone up since April 2019 and hundreds of developers are behind bars or are out on bail for not delivering homes on time, according to a recent report released by Propequity.
Sources from Nasscom and Credai have also confirmed to CNBC-TV18 that the number of builders facing legal action has crossed 150 across India.
According to Vivek Kohli, senior partner and co-founder of Zeus Law Associates, the NBFC crisis is only a part of the problem. Putting promoters behind the bars is essentially adding to the chaos, he says.
It may be noted that Monty Chadha, the promoter of Wave Group, was arrested from the Delhi airport last night by the Economic Offenses Wing of Delhi Police. He is accused of cheating people by making fake promises of giving flats at cheap prices. The Chandra brothers of Unitech are in Jail, and so are Amrapali directors and there's a warrant out for the Pranav and Sushil Ansal, promoters of Ansal API.
Despite these arrests, none of the stuck projects has any visibility of completion. In fact, as per Propequity data for April 2019 versus June 2019, the number of delayed projects with no sight of completion date has increased from 1389 to 1473. Units stuck have gone up to 4.52 lakh from 4.20 lakh and the value of these stuck units has gone up from Rs 2.79 lakh crore to Rs 3.15 lakh crore. This clearly has a connection to the lending taps from NBFCs closing up.
“Now you have these bunch of companies which are completely headless and you have a group of customers who are absolutely aggrieved, but nobody understands where the situation is going to go. As it is completely chaotic, it is completely headless and there is no direction to this crisis at the moment,” Kohli noted.
“The direction can come only if there is a comprehensive policy statement from the government. The NBFCs are now out of the picture, the banks are not lending to the projects, so who is going to complete these projects? Until the projects are completed and a habitable home is available for the customer, we are looking at a crisis which is deepening without any direction, we are not at the bottom yet,” he added.
Says Shobit Agarwal, MD and CEO of Anarock Capital: “The crisis is deepening and it is only at the surface yet and all the numbers that you spoke about are sort of known to the industry. We need a comprehensive solution and until that is visible we do not know how NBFCs are going to start funding. It is not that there is no money with NBFCs, I think the issue is how much of that can - should it go into emergency capital if I might use that word or should it go into funding Greenfield projects. It is not just about money, it is about customer hesitation, it is about land title getting challenged, it is about approvals not coming, so it has several layers.”
Agarwal pointed out that all the projects were not stuck because of capital shortage. "If the project is doing well and it is only the capital which is required I think there are solutions to it. The problem comes when the projects are unviable, may be because selling price has gone down, sales have gone down or there are legal issues related to approvals,” he opined.