The Hindu Business Line
‘Unsold inventory in ongoing projects spells a crisis’
Maharashtra was one of the first States to establish a Real Estate Regulatory Authority in 2017. Two years on, in spite of the presence of MahaRera, Maharashtra has one of the highest unsold inventories in the country, with close to 48 per cent houses lying unsold. Chairman of MahaRera, spoke to BusinessLine about the challenges and how the regulator is trying to ensure projects are completed on time even when builders go penniless. Excerpts:
Gautam Chatterjee, What are the key challenges before RERA?
The transition from legacy problems to moving towards a cleaner professional environment will take longer than I expected. The macro situation over liquidity and stress in the financial sector has added a new pain point. We are aware of instances where the money deposited by home buyers is being taken away by the financier to meet debt requirements.
We also have a highly unsustainable 48 per cent unsold inventory. In the 13,000 ongoing projects, if half of them are unsold, it’s a major crisis. If the product is as per the requirements of the people, then people book flats and developers don’t have to look for institutional investors. Today, at the rate at which we are going, the unsold inventory will take at least two years to get utilised. So far, half the money in the sector was coming from investors and that has gone away now. Most buyers are still in a wait-and-watch state, hoping for prices to drop further, putting more pressure on the sector.
Has this squeezed new projects?
Interestingly, we are seeing 1,000 new projects or 100,000 homes getting registered per quarter. This audacity of developers is a little puzzling. Most of these projects are from developers with existing large parcels of land and who are using them to build affordable housing. The new projects are fulfilling the actual needs of home buyers while the earlier projects, now lying unsold, were targeted at investors. We could be seeing a correction in demand and supply.
Are projects getting done on time?
When we analyse the 13,000 old projects, about 8,000 at the time of RERA registration were projects that had time over-run already. Other 5,000 were ongoing. All these 13,000 had the option to come up with a new project completion timeline. Some of them came up with a weird timeline of 2025, not realising that all this information is in the public domain. We have created a website which gives such details of projects across Maharashtra. Some builders understood and revised the timeline to 2023. We have also seen about 2,000 projects asking for an extension of one year. Even after the extension, there are problems with several projects.
RERA has ordered 253 projects to be auctioned to recover investor money. How long will this take?
These developers are in financial trouble. In all these projects, it is the case of 2-3 buyers trying to stall the project by asking for a refund of their money. The RERA Act allows buyers to walk out of a project with interest if the project is delayed. If everybody tries to take advantage of the price arbitrage and try to exit the project with interest, the project will come to a halt. Once we pass the order to collect the money from the developer, it goes to the collector who has to auction the property to recover the money to give it to the buyer. An auction will never fetch you the right amount. In these 253 cases, two collectors have started the auction process by locking down the project. Now because of some five people who wanted to exit the project, 500 buyers are stuck.
How will you solve this situation?
We have to work out a blueprint to see how the project can get completed, where the money will come from and where is the gap. Then we tell the buyers that ‘ultimately, you have to meet that gap.’ We tell them to first focus on getting the home by meeting that funding gap, and then whatever extra money they spent. RERA will look at whether there are unsold flats in the project that can be auctioned through the collector and the money paid to the buyers. We have created resolution panels under MahaRera. This panel will interact with all stakeholders.
Read RERA factbox, full interview online