NEW DELHI|MUMBAI: Indian courts have been twacking one builder or the other for not delivering homes they promised buyers of late. The Supreme Court hauled up Unitech and Parsvnath asking them to refund monies. The High Courts too are seized of builder versus buyer cases and the national consumer court is now the default go-to option for home buyers in distress.
Builders have been hobbled by financing issues aggravated by a slowdown in home sales. Home buyers seeking a refund or complaining about delays are justified, but some builders have told court that refund it is not feasible and they would rather complete the project. The counsel for Parsvnath had told Supreme Court that the order passed by NCDRC asking it to refund entire amount paid by 70 home buyers in its Ghaziabad project with 12% interest would “amount to a mad rush and everybody will come to get the money back.” He said Parsvnath will instead complete the project and hand over apartments to buyers.
The push and prod by courts is finally goading builders to find a way to complete their projects, one brick at a time, and many home buyers are happy to work with the builder if the builder is willing to deal fair.
A spokesperson for Unitech says that the challenges that the company has been facing include working capital, lack of some infrastructure in the areas as well as outstanding amount from customer.
Unitech has started to work in tandem with Resident Welfare Associations (RWAs) on a plan to expedite construction at various sites. “It has been a collaborative effort with the support of the government as well. Government has assisted by the way of speedy clearances on pending issues. The RWAs have helped by persuading other home buyers to pay the outstanding dues,” a spokesperson for the builder said. The company says it has opened escrow accounts with members nominated by RWAs as signatories. The progress is being monitored by members.
“We have also persuaded some of financial institutions to give us last mile funding to be able to expedite the progress,” says the Unitech spokesperson. “In our case, in the pending projects to be delivered, the value of the receivables is in excess of balance construction cost to be incurred.”
Unitech says it will raise around Rs.300 crore from financial institutions as well as by selling land for initial working capital to complete over 40 housing projects in the next two years. The rest of the money will come from customer receivables.
A spokeswoman for Parsvnath, on the other hand, says they realise that once construction activity restarts, the large outstanding yet to be received from home buyers will start flowing into the Exotica project in Ghaziabad.
The company says it is confident of completing the under-construction towers in the project and offering of possession within 12-15 months from the receipt of building plans from Ghaziabad Development Authority (GDA) which are pending with them for revised approval/renewal.
“This has been the reason that has led to such a delay in completion of the project,” she says. A spokesperson Emaar MGF says the company’s projects have now been fast tracked for completion and the schedules are being shared transparently with customers. “Post initiation of reorganisation process for demerger, all necessary financial and operational/management resources have been made available to complete the projects at the earliest,” he said.
Bankers and lenders say it isn’t easy for builders to restart stalled projects as it requires re-mobilisation of funds as well as labour and materials.
What are the options?
The easiest option is to reach out to a lender, as long as all approvals are in place. “That money can then be put in an escrow, like the real estate regulatory act now stipulates, and used to restart construction,” says Amar Merani, chief executive officer at NBFC Xander Finance. Rajnish Kumar, managing director, national banking at State Bank of India says existing project can also be sold to some other builder willing and able to complete the project. “But, this may mean some price escalation and the process may be complex. It will also require some sacrifices on the part of all the stakeholders,” he explains.
Merani suggests that apartment buyout funds can also be brought in to buy bulk apartments at a discounted value where the builder gets money to complete construction of the project. Unitech says that with some additional working capital it will be raising either from financial institutions and/or sale of surplus properties, it will expedite construction of projects across the country and deliver faster.
Vaibhav Gaggar, partner at law firm Gaggar & Associates, says in most cases courts take up on behalf of home buyers, (and) without exception, send a notice to the builder asking him to sit across the table and find an amicable solution so that home buyers are not forced into litigation. “Most home buyers are willing to give money they owe to the builders if they see fair dealing,” he says.
But the fact is that builders hardly respond. In cases that do move forward, Gaggar says, they have suggested setting up an escrow where both parties can be signatories. “Here there is a possibility of bringing in a lender/investor to bridge the funding gap along with an independent monitoring committee to reinstate transparency and confidence in the process,” says Gaggar.
He says that a pre-litigation mediation can also be used in these situations through the courts, but it is hardly ever sought.
Unitech spokeswoman says that the transparent and collaborative relationship and dialogue they are following now is helping the company gain confidence and revive most of its pending projects. But Gaggar also warns that while buyers have been able to push builders into a corner in some cases, buyers will now have to realise that it is important to work with builders rather than just litigating. “Many of the builders will not survive the legal ramifications, which in turn will hurt the consumer himself,” he explains.
The Delhi High Court recently passed an order directing Unitech to open escrow accounts to focus on construction of its projects which the court will monitor. Unitech spokesperson says that in a way, the Delhi High Court has asked the company to implement a stringent court monitored version of the RERA norms.
“This will help us construct faster and give confidence to customers to pay the outstanding dues,” she says
Credits ET Realty