Affordable no more?
A Bill, cleared recently by the Union cabinet, could cause prices of new flats in Noida and Greater Noida to climb 20-30 per cent
Jun 17, 2013
Source : Business Standard

 

DELHI: Noida-Greater Noida, on the outskirts of Delhi, is one of the three real estate hotspots in the country along with Gurgaon and Navi Mumbai. Some 350,000 flats are being built here. Of these, about 50,000 will be delivered this year.

\These include studio apartments, 2-, 3- and 4-BHK homes, penthouses and villas. Most of them come with round-the-clock water and power supply, electronic surveillance and clubhouses. The upcoming Metro line from Delhi to Greater Noida, believed to be a result of some aggressive lobbying by real estate developers, promises to improve connectivity. Prices have risen in the range of 10-15 per cent in the last one year.

 

This market is unique builders need to pay only 10 per cent of the cost of the land if they acquire it from the Uttar Pradesh government, and the rest can be paid in quarterly installments over the next few years, albeit with interest. This provision was introduced by the state government in 2008 when the slowdown threatened to derail the economy. This opened the floodgates for builders to launch a string of projects. The business model was straightforward: launch a project, sell the flats, use a part of the money to buy land for another project, launch this one too, collect the money and move on to a third one.

 

The party could end once the Real Estate (Regulation and Development) Bill, cleared recently by the cabinet, becomes law. The market for residential real estate is the hotbed for business malpractices. Thats because the demand is far ahead of the supply, and for most Indians a house remains the most important purchase of their lives. This has converted it into a sellers market with all the fraudulent accompaniments. The Bill proposes to put a lid on these unsavoury practices. Apart from other stringent provisions, it says a builder cannot launch a project without all clearances; and all builders will have to keep 70 per cent of the money collected from sale in an escrow account, so that the money is used for developing the project and is not diverted elsewhere. There will be stiff penalties on builders who violate these provisions.

 

This could curb the supply of flats in the days to come in Noida and Greater Noida. As the demand continues to be strong (almost 200,000 people migrate to Delhi and its suburbs every year from across the country, putting its housing infrastructure under strain), this could fuel a rise in prices. If builders are to be believed, these two clauses alone will lead to property prices going up by as much as 30 per cent. Builders active in Noida, Greater Noida and Yamuna Expressway go to the extent of saying that if this Bill becomes law the idea of affordable housing will collapse. Some bit of it could be exaggeration a clever ploy to clear their current inventories. According to PropEquity, a real estate consultancy, the unsold stock of flats with builders in Noida at the end of March 2013 was 26,084, down 13 per cent from a year ago. In Greater Noida, the unsold stock was 59,963 at the end of March 2013, up 11 per cent from a year ago. But builders are worried.

 

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