What’s happening now is that the developer is either asking the investor to take delivery of a project, or take back the money that they had invested in old currency notes. “If I take delivery of the apartment and register the property , I will only be able to exit at about 20% discount. And what do I do with old currency notes?“ an HNI who is stuck with the project told media.
As Prime Minister Narendra Modi’s demonetisation drive begins to pinch real estate projects, the worst affected are individual investors who had invested through hundis in realty projects. The developers are putting these investors in serious dilemma by offering old currency notes, or possession of apartments. As a result, many retail investors are left with no option but to extend the loan tenure as they neither want to accept old notes, nor take possession of apartments that can only be sold at a discount of around 20%, said experts.
The way investors invest in real estate is very peculiar. They tend to invest in a project by buying an apartment only on a word-of-mouth basis or by signing “kaccha contracts“ (with no legal sanctity) with the developer. When the developer completes the project, the property is sold to the actual buyer who pays to the developer at prevailing market rates. The money is then returned to the investor who would have gained by investing in the project years earlier.
In several instances, retail investors who had invested through informal channels, including hundis, are being asked by builders to either accept old currency notes or take possession of apartments in lieu of their dues. “Tables have turned suddenly and builders, who were facing pressure from investors, are now having an upper hand in negotiations with investors that came through informal route,“ said a transaction advisor on the condition of anonymity .
In certain cases, lenders and financial partners have also realised that if support is not extended to builders, it may eventually lead to an erosion of their investment.
Credits ET Realty