AN Buildwell — the indian real estate crisis? when will we get our homes?

Address:	Gurgaon, Haryana
Website:	www.youthkiawaaz.com/2018/02/the-indian-real-estate-crisis-when-will-we-get-our-homes

The reserve bank of india’s decision to push banks to clean their balance sheets by recognising non-performing assets, resolving bad debts of large defaulters and, failing that, taking them to bankruptcy court for liquidation, has focused attention on the crisis in a few sectors. Among those, besides power, steel and textiles, is real estate, consisting of housing, commercial real estate and hospitality assets.


Firms such as unitech, an buildwell, jaypee infratech and amrapalli are being pursued by banks and home buyers who had paid them advances but not received their houses have turned to the courts. They fear they would lose out in case of liquidation because home buyers’ claims will be considered only after those of secured creditors like the banks have been settled.


The real estate story is of special interest because the post-liberalisation evolution of this sector reveals quite starkly the characteristics and contradictions of post-reform growth. An overriding objective of neoliberal reform is to get (Domestic and foreign) private investment to drive economic growth by providing it the right environment and offering it the appropriate incentives. But in a market economy, while supply side initiatives may help nudge into activity a private sector afflicted with inertia, those initiatives would work only if the fruits of such activity find a market. So even if it is not among the stated objectives of reform, a parallel thrust of policy must be that of stimulating demand.


The rise of housing loans that benefited from this credit splurge was real estate. The growth of housing loans gathered momentum at the end of 1990s and remained at extremely high levels right up to 2006-07, before the global crisis. As a result, the share of housing finance in total credit rose from 5 per cent in 2001-02 to 12 per cent in 2006-07.


What is interesting is that despite the effects of the global financial crisis in 2007-08, the expansion of credit to both housing and the overall construction sector remained high till very recently. The increase in housing investments is often attributed to the low level of penetration of the mortgage market in india, standing at 7 per cent in 2006, as compared to 12 per cent in china, 17 per cent in thailand, 26 per cent in korea, 29 per cent in malaysia and as much as 80 and 86 per cent respectively in the us and uk respectively. But these differential penetration rates have to be seen in the light of differentials in per capita income and the degree of income inequality, both of which do not favour a significantly large mortgage market in india. So it was the willingness of the banks to lend without collateral to a larger universe of borrowers that generated the boom. As a result of the increased exposure to debt, a number of realty firms like unitech, an buildwell, jaypee infratech and amrapalli are in default state and some are facing bankruptcy.


A similar boom was seen in the infrastructural area, which also received large loans from the banking system. Before the 2000s, banks were wary of lending to this area because of the long maturity, low liquidity and higher risk involved in loans to this sector. Partly because banks dropped that reticence and hugely increased lending to a few large borrowers in this sector, they are now finding themselves burdened with large npas. This is what has set off the bad debt resolution process based on the recently announced insolvency and bankruptcy code.


Within the real estate sector, it is developers rather than home buyers who seem to be defaulting on payments. Competition between developers led to massive accumulation of land, as they built up land banks as a strategic weapon against one another. Borrowing for this purpose and land development meant that the interest burden accumulated by developers was huge, and in excess of what could be met by the development and marketing of house properties and commercial floor space. So leading developers have also stopped servicing debt and have become part of the npa problem. The impact on construction is reflected in the deceleration and recent decline in cement production which is a commonly used proxy for real estate growth.


A fallout of the npa problem is, banks are less willing to lend as they work on cleaning up balance sheets and finding funds to recapitalise themselves. This has hit even the housing sector, where defaults have been far less than in areas like construction. Here too, while credit and demand for housing are still growing, they are fast losing momentum.


Thus, trapped between rising interest and other costs and faltering demand that affects prices, the real estate sector is experiencing a severe version of the crisis stemming from the inability of the system to sustain growth-driven by private debt-financed spending.

The slowdown in india’s real estate sector reflects the challenges facing post-reform growth, and fixing them is going to be a challenge.

In a recent incident surendra kumar hooda & sunil gandhi, promoter and director of an buildwell, were arrested by the economic offence wing (Eow) of delhi police after the home buyers filed a complaint against him. These complainants had booked flats in the realtor’s spire woods project in gurgaon. Reportedly, spirewoods project was stalled after the builder abandoned it four years ago. Also, the real estate firm is under a purposeful liquidation. There are 1, 700 buyers who have invested in two projects of an buildwell – spire edge and spire woods. Spire edge in manesar is a commercial project, while spire woods in sector 103 is a housing project. The big action was taken by delhi police after eow officials acted on homebuyers complaint. These homebuyers had filed a police complaint at sarita vihar police station in delhi in march 2016. The company’s registered office is in delhi. Homebuyers had alleged that the builder was not arrested because of his political connections and that’s the similar case for other builders who have shed away their responsibilities and filed for liquidation.

However, the home buyers are united to get these projects revived. No matter what tricks the promoters o[censored]nitech, an buildwell, jaypee infratech, amrapalli or others might try it is going to be a hard deal for them to run away from their responsibilities. It would in fact be in their favour if they cooperated with their customers and work towards the revival scheme together. Thus, not only renewing the trust but also could gain back their lost image in the market.