Er­rant com­pa­nies face up to three years in jail

New Straits Times - - Business -


IN­DIA’S no­to­ri­ously un­re­li­able prop­erty de­vel­op­ers have been put on no­tice: clean up your act, or you could end up in jail. Un­der laws that came into force on Monday, de­vel­op­ers have to use at least 70 per cent of sale pro­ceeds to com­plete res­i­den­tial projects, rather than fun­nel money to other jobs, and will no longer be al­lowed to start pre-sell­ing apart­ments be­fore all build­ing ap­provals are ob­tained. De­vel­op­ers who do not com­ply with the new laws face up to three years in jail.

The moves are aimed at clean­ing up an in­dus­try where more than 30 per cent of hous­ing projects run at least a year over sched­ule, and de­vel­op­ers are known for cor­ner-cutting tac­tics such as start­ing work be­fore all ap­provals are granted and using sub-stan­dard ma­te­ri­als.

De­vel­op­ers ac­cused of wrong­do­ing have seen their shares tum­ble, even as the main prop­erty index has surged this year.

The changes may wipe out thou­sands of small de­vel­op­ers who can’t com­ply, ac­cord­ing to prop­erty con­sul­tancy Li­ases Fo­ras Real Es­tate Rat­ing & Re­search Pvt.

“The new law was re­quired as a de­ter­rent,” said Pankaj Kapoor, founder of Li­ases Fo­ras. “Now de­vel­op­ers won’t be able to mis­use and siphon money as they did in the past. Many builders who didn’t have the net worth were lever­ag­ing them­selves be­yond their means”

Un­der the new laws, de­vel­op­ers will be re­quired to post quar­terly up­dates on the progress of projects on the reg­u­la­tor’s web­site, and any de­fects found within five years must be fixed by the de­vel­oper free-of-charge within 30 days.

The tougher regime ex­pands a crack­down on er­rant de­vel­op­ers that has seen ex­ec­u­tives from Unitech Ltd, Or­bit Corp and Hubtown Ltd ar­rested or jailed on a range of charges from fraud to fail­ing to meet dead­lines for fin­ish­ing houses.

The own­ers of Unitech, brothers San­jay and Ajay Chan­dra, were ar­rested last month on charges of cheat­ing home­buy­ers and de­lay­ing the build­ing of houses. Pu­jit Ag­gar­wal, the chief ex­ec­u­tive of­fi­cer of Or­bit Corp, was jailed in Septem­ber on cheat­ing charges, while Hubtown’s Vi­mal Shah was ar­rested for fraud and si­phon­ing money from a state-spon­sored hous­ing project.

Or­bit shares have slumped al­most 50 per cent since July, and Unitech has de­clined 32 per cent in the same time. How­ever, de­vel­op­ers have ral­lied this year, with the S&P BSE In­dia Realty Index gain­ing 55 per cent, out­strip­ping a 12 per cent ad­vance in the broader S&P BSE Sen­sex Index.

The new laws will in­crease house­buy­ers’ con­fi­dence in the in­dus­try by forc­ing out fly-bynight de­vel­op­ers, giving an edge to es­tab­lished firms, ac­cord­ing to JPMor­gan Chase & Co.

De­vel­op­ers have also wel­comed the changes. The laws will im­prove con­sumer con­fi­dence and push un­pro­fes­sional com­pa­nies from the sec­tor, said Ab­hishek Lodha, man­ag­ing di­rec­tor of Lodha Group . Bloomberg

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