How can home buyers trust real estate again?


In the quest to serve the interests of the investors the builders have historically taken the buyers for a ride. The buyers’ trust deficit is now affecting their execution cycle and bottom lines as the investors proved to be fair weather friends. Ravi Sinha looks into the anomaly to assess how could the home buyers be brought back to the market with their interests safeguarded.   

A lawyer friend handling some of the high profile cases against the builders privately admits that he too is a victim of stuck up project. His predicament is that if his plight is exposed, no home buyer would find him worthy of taking up his case against the builder. 

A property consultant from a leading brokerage firm is similarly questioning with what face he could tell the market that he has his major savings almost lost in the property market. Isn’t he supposed to advise others? 

Most of the journalists are either victim of housing delays or suffering with the broken promises of the builder and sulking with a sub standard house. Can’t do much about it as in majority of the cases the builder is the major advertiser with the media house that they work for.

Ironic but true! Now the question is when everyone is a victim in the housing market of India then who is the perpetrator? Is it the builder? But then the builder has his own sob story as to how much is he harassed by the government agencies. Ask the government agencies and they express helplessness with the excuse of builders’ non-payment and applying for the clearances without merit.

The Indian housing market is a vicious cycle of broken promises, trust deficit, sulking participants and non-delivery. Statistics only tell you half the story. For the developers, market trackers and the government agencies it is all about numbers – how many units have not been delivered. What these raw statistics don’t tell you that there is a sordid saga of drying emotions of one family with each housing unit. Probably the stakeholders are least bothered about the plight of an average middle class home buyer who has exhausted his lifetime savings, taken up home loan and now reeling under the burden of both the EMI and the rent.

I get many horror stories and often question whether there is any method into this housing madness. Can there be any solution to the delays and defaults? What is the fault of a gullible home buyer who got his child transferred to the locality school on the promise of the builder that he will get the possession next month? For what mistake he is now forced to travel 20 kms to drop the child to school and further travels that far to his office?   

It is not about statistics anymore. It is about humanitarian concern; story of helplessness against the exploitation. It is time to correct the wrongs. Unfortunately, the voices that I hear from the larger stakeholders is more about the concern for unsold inventory and liquidity crisis. Irony is that when there was no liquidity crisis and the investors were not leaving the inventory unsold then also the track record of the developers has been pratty poor. Yes, the buyers were not as agitated, not as vocal and not as bitter because the over-confident developer was ready to return the money anytime, since the appreciation was way higher than the delay penalty.

All that has changed in the last few years. A recent report by real estate research firm Liases Foras finds there are 12.76 lakh unsold houses in India’s top 30 cities. Of these, 9.66 lakh unsold houses are in the top eight cities. It will take another 42 months to clear the inventory.

These statistics might appear alarming to everyone, whether an emotionally attached home buyer or someone who is emotionally detached and looking at the sector as pure business. However, I find it another piece of statistics that does not delve deeper into the psychology of the Indian housing market; something that has increasingly turning the buyers away from the market.

After having studied the property markets in many countries, I am personally very detached from the statistics of the inventory now, especially if it is ready to move property looking for the buyers. There could be many reasons why a ready to move house is not attracting the buyers. The slowdown in the economy could be one reason, though I feel that would be too simplistic assessment of the market reality.

I have been witness to the standing inventory of ready apartments in many countries, from China to Dubai.  In most of the cases it is the fault of the developers. They have either created more inventory in a given market than what could be absorbed, or the project has certain defect at the conceptual level to be accepted by the home buyers.

There could as well be locational disadvantage and the project could be far away from the job catchment areas or the demand & supply dynamics is screwed up with developers’ intent to exploit the maximum permissible density norm leading to far bigger apartments than what the market could afford.  

For me where the statistics matter the most is the under-construction and sold housing units. This is where the core of the trust deficit lies; where the human emotions have been shattered; where the developers have done injustice to the buyers; where the sector has done irreparable damage to its own cause.   

As per reports, the number of delayed projects with no sight of completion date has increased from 1389 to 1473 today. Units stuck have gone up to 5.6 lakh from 4.20 lakh and the value of these stuck units has gone up from INR 2.79 lakh crore to INR 3.15 lakh crore. Mind you! These are only the statistics of the top eight housing markets of the country.

The situation at the national level is even more alarming. Construction of over 23 lakh houses across India is running behind schedule and these units are spread over 16,330 projects.

Where have things gone wrong? What has actually happened is that when the sales are slow builders delay and over-leverage in the process, creating a vicious cycle where fresh sales proceeds are diverted to serve the debt. More the delay and more the project is financially unviable for the builder.

The Big Question today is what can be done to bridge the trust deficit, bring the buyers back to the housing market and end the vicious cycle of uncertainty in a business that has the potential to reignite the economy as well.  Today, more than lack of demand, lack of capital and high interest cost, what is turning the buyers off the property market is the trust deficit.

There are only three ways India’s housing conundrum could be brought back to a level of trust. One is self-discipline on part of the builders where they have done nothing more than lip service and taking a moral high ground. This option is completely self-congratulatory to the builders and not acceptable to the home buyers today.

Second is the strong regulation which in the Indian context seems to be highly optimistic. It is not a market like Dubai where if you announce a fancy “Only 25% upfront payment and rest on possession” RERA will question your source of funds and direct to deposit the construction funds into the escrow account before you could be given approvals. In the Indian context, in many States the RERA members have themselves gone public with their anguish over lack of teeth to the regulatory body.

Then there is the question of multiplicity of legal options for the home buyers. There have been instances where the RERA has been approached by one group of buyers while another group has dragged the builder into NCDRC. Then there are NCLAT and courts. What it leads to is multiplicity of litigations, and thus an excuse for the builders to say matter is sub-judice now.  

The one option that could be worked upon but vehemently rejected by the developers at large is to mandate by legislation a new market economy of “Build & Sell” from the present business model of “Sell & Build”. This will put an end to many blame game and win the trust of the buyers. You only buy what you can see yourself and evaluate. You buy a product and not a promise.

Broadly, there are three areas of builder & buyer conflict: Delivery Delays, Unmet Promises and Post Possession Maintenance. The Build & Sell Model eliminates the first two conflicts and the third could easily be transferred to the apartment owners, if they are not happy with the builder. This is no more an option but the only option. Better the builders look for its viability as the buyers have by and large made up their minds. Change before you are being forced to change and fall in line.

Next: How Build & Sell Model is feasible in the Indian housing market?   

Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.  

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