Project money being diverted to fund poll campaigns, realtors fear labour crisis too
Jan 28, 2014
Source : The Economic Times


DELHI: In Noida, part of the National Capital Region and home to a burgeoning middle class, a builder is wondering where he'll find the money to finish building about 1,200 apartments that are to be delivered by the middle of next year. Unless he can find some cash, the construction will grind to a halt. But all the usual sources of funds have dried up, at least until the general election is over.

According to industry experts, this is because most of the money that used to go into real estate is being diverted toward funding poll campaigns in what is shaping up to be a tough election. The timing couldn't have been worse for builders who are already facing a cash crunch.

About Rs 10,000 crore was spent in Lok Sabha campaign in 2009, according to an estimate by the Centre for Media Studies, an independent research organisation. "This time that figure will be between Rs 15,000 crore and Rs 20,000 crore," said N Bhaskara Rao, chairman of CMS.

Given that there are strict limits on poll spending, much of this cash goes under the radar and is funded through income that's unaccounted for, analysts said.

Political parties and candidates don't reveal much about funding, except for the Aam Aadmi Party. But from what is known it appears real estate firms are among Association for Democratic Reforms, a non-profit group that tracks election funding, between 2004-05 and 2011-12, companies accounted for 87% or Rs 378.89 crore of total donations (Rs 435.87 crore) to national parties. The manufacturing sector led with 595 donations that added up toRs 99.71 crore, followed by 340 donations and Rs 24.10 crore from the real-estate sector.

"Ironically, one of the big issues in this election is corruption," said a builder, who did not want to be named. "It is well known that a chunk of the money invested in Noida's real estate sector, for instance, is linked to a prominent politician. In Mumbai, you can't buy land or launch a project without the blessings of a few big netas."

Over the past few years, governments at both the Centre and the states have been embroiled in real estate scandals, in which India's biggest builders have also figured. "The nexus between politicians and builders is well-known. Politicians extend favours to builders, who often are related to them, while builders help them convert black money into white," said Prashant Bhushan, a member of AAP, which emerged from the Anna Hazare-led anti-corruption movement of 2012.

Developers didn't want to com comment on the record about the issue. Privately many agreed that funds have dried up because money is now being used to fund campaigning.

Lalit Kumar Jain, chairman of the Confederation of Real Estate Developers Association of India (Credai), said, "The liquidity position of developers has worsened in the last few months and one of the reasons could be political considerations and the upcoming elections."


Builders are already in trouble due to growing unsold stock. Property research firm Liases Foras said such inventory at the end of September 2013 touched 711 million sq ft (or around 650,000 homes) and developers would need more than 37 months to clear this backlog at current pace of sales.

Deepak Parekh, who heads India's biggest mortgage lender, recently told ET that if corruption could be eliminated from the real estate sector, home prices would come down by at least 20%. Parekh admitted that there was a shortage of funds in the sector due to high interest rates and lack of sales.

The last few years saw several investors buy multiple homes in cities such as Gurgaon, Noida, Mumbai, Pune and Bangalore, but many of them are finding it difficult to exit due to the lack of end users in the market. Then there is political uncertainty, which is keeping home buyers away. "Nobody wants to catch a falling knife," said Sandeep Madan, a New Delhi-based high net worth individual who invests in real estate projects.

Builders are already worried about the exodus of labour at election time. Add to that, official sources of funds—private equity firms as well as banks—have become more cautious while investing or lending to the sector, forcing them to knock on the doors of money lenders who charge interest rates ranging anywhere between 36% and 48% a year and are asking for double the collateral.

"Most PE funds are being cautious and selective, are more expensive than earlier and are asking for guaranteed returns," said Amit Bhagat, managing director of Ask Property Investment Advisors, which invests in residential projects. Banks too are cautious. "The risk weightage for commercial real estate loans is higher today," said National Housing Bank chairman RV Verma.

Latest Realty News

Now, PCMC tax defaulters to face music
Jan 27, 2014
PUNE: After Pune, it is now the turn of the property tax defaulters in Pimpri Chinchwad to face the music, literally. The Pimpri Chinchwad Municipal Corporation will start sending brass bands to play music in front of the defaulters’ houses from January 27 onwards till March 31.
Infrastructure projects to get a boost in Noida
Jan 27, 2014
DELHI: The Noida Authority, one of the richest civic bodies in the country, plans to draft a budget of Rs 8,000 crore for the financial year 2014-15 with various infrastructure projects, including the setting up of the Noida Metro Rail Corporation (NMRC).
Haryana barred from issuing land-use licences in NCR
Jan 27, 2014
DELHI: The Punjab and Haryana high court on January 23 directed the Haryana government not to issue any change of land use (CLU) licence to developers to build colonies in Gurgaon and the National Capital Region till the NCR Planning Board approves a sub-regional plan.
Geelani donates property to trust consisting kith and kin
Jan 27, 2014
SRINAGAR: The issue of donation of property by Hurriyat Conference leader Syed Ali Shah Geelani to a trust has taken a new twist with Jamaat-e-Islami claiming ownership of the property.
Property of man who trafficked women attached in Bihar
Jan 27, 2014
PATNA: For the first time, the property of a man accused of immoral trafficking has been confiscated in Bihar, police said Wednesday.
SMC rejects the proposal for unit-based property tax
Jan 27, 2014
SHIMLA: The Shimla Municipal Corporation today rejected the proposal of the state government to impose property tax on unit basis and urged the government to suitably amend the Act.
Sharad Pawar declares property worth Rs 32.16 cr
Jan 27, 2014
MUMBAI: Union Agriculture Minister Sharad Pawar and Nationalist Congress Party (NCP) president Sharad Pawar on Friday declared movable and immovable property worth Rs 32.16 crore in his and his wife, Pratibha's name and HUF (Hindu Undivided Family), as he filed Pawar nomination papers for the Rajya Sabha election at the Vidhan Bhavan in Mumbai.
RBI order on notes to fuel real estate deals
Jan 27, 2014
MUMBAI: The Reserve Bank of India's decision to withdraw pre-2005 currency could lead to a spurt in real estate deals and realty prices in many parts of the country in the short term.
Realty a better buy in smaller towns
Jan 27, 2014
DELHI: Smaller towns and cities closer to metros and industrial hubs are seeing significant housing demand, on the back of lower land cost and increased prosperity. This is in sync with the earnings of HDFC, which cited growth in retail loans across smaller towns, for posting good numbers for the third quarter.
Wind power project: Panel clears urban poor housing proposal
Jan 27, 2014
SURAT: At a time when Surat Municipal Corporation's(SMC) own electricity bill is likely to cross Rs 100 crore per anum , the ruling class of the city has decided to deliberate and discuss , the proposal of setting up a Rs 47 crore windpower plant to generate own power.

Latest Realty News Of State

Realty Talk's