MUMBAI: In a report released two years ago, ratings agency Standard & Poor's said, "Infrastructure development in the country is being hit hard due to the slow pace of reforms and limited long-term funding options and this trend could deter economic growth of the country."
While we have successful projects such as the Eastern Freeway in Mumbai, Indore's Bus Rapid Transit System (BRTS), the Solar Park in Gujarat and the Banihal-Qazigund rail link, some projects are struggling to meet deadlines. Progress could be slow due to a host of reasons, such as lack of finance and political will and delay in government clearances.
Ashutosh Limaye, head (research), Jones Lang La'Salle, says, "Many developers buy properties in and around such projects and raise property prices, without any idea of the status of the project's development. In those areas, property prices have seen a rise and because of the delay in project implementation, the prices have corrected again."
Let's consider the case of a few projects that have seen delays and check whether it makes sense to hold your property-buying decision in these areas.
Navi Mumbai International Airport (NMIA)
According to the state government, the project is set to take off in three months.
Deadline: Maharashtra City and Industrial Development Corporation says the first phase of the airport would be operational by 2017. The initial deadline was 2014.
Property prices: According to National Housing Bank (NHB)'s Residex data, property prices in Navi Mumbai fell 13 per cent in the June quarter compared to the quarter ended March this year. A broker said for about 40 per cent of the ready flats, there were no buyers. With no signs of the airport coming up for at least a few more years, builders are offering discounts on unsold flats.
According to Jones Lang LaSalle, the inventory in Navi Mumbai rose to 27,216 units this year, against 16,300 in 2011. Ulwe seems to be a promising area, considering its proximity to the new metro coming up there. However, connectivity could be a major problem. "If one has already bought a property and is looking to book profits, he will have to wait for at least five years before seeing any appreciation," says Limaye.
Recently, the project was in the news for the wrong reasons. Vendors alleged there was corruption in project activities.
Deadline: The project has seen a delay of six-eight years, primarily due to a change in the metro route. Earlier, it was planned to cover the northern and southern parts, but now, it will also include the eastern part. It is expected the final cost would be four times the original estimate.
Property prices: According to NHB's Residex data, property prices in Ahmedabad fell three per cent in the June 2013 quarter, compared to the March quarter. Once construction picks up here, prices would rise 25-30 per cent, as was the case when the Ahmedabad BRTS took off, said a property expert. Though developers had started rolling out brochures, they hadn't been able to cash in on the opportunity yet, he added.
The main challenge for the metro project is securing funds. Soil investigation has started and the area has been barricaded. It has been planned that a huge warehouse would be set up near the Sabarmati river. For this, a large part of the river is being reclaimed.
Pune Metro Project (PMP)
Deadline: Last week, former Delhi Metro chief E Sreedharan slammed those involved in planning and implementing the project, owing to the delay of about five years. The cost of the project now stands at Rs 10,183 crore, against the initial estimate of Rs 2,199 crore. In 2009, the cost was estimated at Rs 7,984 crore.
Property prices: Property prices in Pune have increased only marginally. Pimpri, Chinchwad, Deccan and Hinjewadi are the four major areas to be covered by the metro. In most of these areas, property prices have fallen slightly in the June quarter, compared to the previous quarter.
Anuj Nangpal, managing director, DTZ-India, says, "If one has invested in a house, hoping property prices there would rise because of the coming infrastructure project, he/she should wait if the property was bought as an investment. However, if there are no signs of development at all and no news of delay, too, he/she should simply sell and cut losses."
Multi-modal International Cargo Hub and Airport at Nagpur (Mihan)
For Mihan, infrastructural development isn't as sluggish as is the case of projects cited earlier. Sanjay Dutt, Executive Managing Director-South Asia at Cushman & Wakefield says residential properties in Mihan are facing oversupply issues. "It will take five-six years for that market to do well. It would be better to buy a house in Nagpur city, as annualised returns in Mihan aren't attractive," he says.
It will take time for a residential area to develop here.
Property Prices: First City is Mihan's first residential township. Prices here stand at Rs 5,500 a sq ft, compared with Rs 2,600 a sq ft a year ago. Property prices in Nagpur increased about three per cent in the June quarter, compared to the previous one.
Riding on the Mihan dream, realtors have been selling properties. As of now, few companies have been allotted land outside the Mihan special economic zone. These include Gati, HCL, TCI and Mahindra Spaces. Land has also been provided for the development of an airport, information technology parks and manufacturing units.
Posco steel plant in Odisha
Deadline: This project was conceived on June 22, 2005, after the state government signed a pact for setting up a 12-million-tonne-per-annum steel plant near Paradip in coastal Odisha. However, the project is facing land acquisition woes; of the 4,000 acres, the state government has acquired only 2,700 acres so far.
Property prices: Since news of the coming steel plant hit the market, property prices in and around Paradip have increased about 200 per cent. Last year, a real estate company carried an advertisement saying, "Buy a bungalow near Paradip for Rs 3 crore." Before the project was announced, the same bungalow wouldn't have fetched even Rs 2 crore. However, there are no buyers for such properties in the Pradip area yet, owing to lack of development on the ground. Many say such investments wouldn't have scope for price appreciation.
NHB data indicate overall property prices in Bhubaneswar dropped three-four per cent in the September quarter, on a quarter-on-quarter basis. A broker said when the project was announced, the prices soared; but now, these have fallen to previous levels, as home buyers noticed the lack of development in the area. According to property site MagicBricks, prices in areas such as Hanspal, Janla, Patrapada, Pokhriput and Tamando in Bhubaneswar have fallen two-20 per cent in the September quarter, on a quarter-on-quarter basis.
What can a home-buyer whose money is stuck in an incomplete housing project do?
Under the Maharashtra Ownership Flats Act, 1963, a developer is liable to refund the money obtained from a customer with interest if he is unable to justify non-completion or delay in possession of the property. Most states have similar regulations. The penalty is 12-18 per cent and is applicable on the entire value paid till date by the home buyer. If the owner refuses to pay, you can move the consumer court. You can also claim for direct and indirect losses. Direct loss is the money lost due to delay in getting possession of the house; indirect losses cannot be quantified.
But if you are sure to get possession of the flat in a few months or years, you can claim for the money you would spend in rent for alternative accommodation. This would be applicable if you are a first-time home buyer or your building is being redeveloped.
Considering the record for timely completion of residential projects has been poor in metro cities, if a house is for investment alone, be ready to stay invested for a longer period; don't be in a rush to exit. Nangpal says usually, speculators buy houses in such areas first; end-users follow. So, if speculators aren't pushing one, the developer may delay in giving possession. This could be a problem for those buying first homes or those who're not speculators.