Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
12,086.70114.9
Stock Analysis, IPO, Mutual Funds, Bonds & More

Central relief out of reach for Noida realty projects

Builders collectively owe Rs 28,000 crore to Noida, GNIDA and YEIDA, which is higher than the entire central corpus of Rs 25,000 crore. Of these, Noida has the most housing projects and the highest number of defaulters. Realtors usually have to pa...

Nov 08, 2019, 10.33 AM IST
0Comments
(This story originally appeared in on Nov 08, 2019)
NOIDA: The Centre’s Rs 25,000-crore relief fund is as of now out of reach for most critical housing projects in Noida, a real estate market that badly needs a bailout, because most of them don’t make the cut on viability, a key eligibility clause that a project must pass to get the benefits of the fund.

What’s making most of these projects unviable is accumulation of compounded interest payments that cumulatively run into thousands of crores. The fund can only be used to complete projects that are cashstressed, not to pay past dues. Besides, projects have to be financially viable, meaning expected income on completion of flats should be higher than cost of completion. Most stressed projects in Noida are far from viable under the current structure of interests and penalties.

For example, let’s say a project with 100 flats left to be completed needs financial assistance of Rs 100 crore. But on scrutiny, it is found that the builder, who was allotted land in 2000 and kept defaulting on interest payments, currently owes Rs 500 crore to the Noida Authority.

Land dues are not the only problem. The 64.7% additional compensation ordered by the high court to farmers for the acquired land is also a bill that developers were asked to foot. Those dues are pending too. The three development authorities in Gautam Budh Nagar — Noida, GNIDA and YEIDA — collectively have around 225 group housing projects where construction is ongoing. Officials said over 90% of these have defaulted on payments at some time or the other.

The viability problem
Builders collectively owe Rs 28,000 crore to Noida, GNIDA and YEIDA, which is higher than the entire central corpus of Rs 25,000 crore. Of these, Noida has the most housing projects and the highest number of defaulters.

Realtors usually have to pay the land cost to the authorities in 16 instalments over eight years at 11% interest rate. In case of a default, compound interest of 14% for every six months or 14.49% per annum is levied. Over the past two decades, the Noida housing market has gone from initial years of boom — when many builders aggressively bought land and began multiple projects to make the most of the demand — to a prolonged period in the sick bay, when cash dried up due to diversions and overexposure, leading to huge delays in giving possession of flats that in turn eroded confidence of buyers who stopped investing. While the cash crunch aggravated, the dues piled up.

Real estate body Credai, which has been lobbying hard with the UP government for a waiver on interests, stepped up pressure on the state government on Thursday, saying the dues were “illogical” because the interest component had overshot the original payable amount eight-fold on an average.

“The dues are ridiculous because the interest charged is calculated in an archaic system of compounding. We have requested for a waiver. If this is the reason why projects are being made unviable, all projects are unviable as no builder has agreed to pay the amount imposed on us,” said Manoj Gaur, chairman of Credai (NCR).

All eyes on Yogi
Some relief is likely, and soon. At the first national Rera conclave held on November 4 in Lucknow, chief minister Yogi Adityanath had promised a “big” announcement in a week to revive group housing projects. While there is speculation on what the relief could be, it’s clear that any incentive has to focus on making the projects viable.

Homebuyers’ groups have, however, expressed disappointment with the government’s approach so far as many big-ticket projects, including those of Jaypee, Amrapali, Unitech and Lotus (3C), have gone into insolvency resolution and buyers had to fight court battles to secure their rights. They have also asked why successive governments did not work towards making projects viable despite being fully aware of the mountain of dues.

A source said the announcement the government will make is likely to be based on a group of ministers’ report submitted in 2016. Relief on interest payment is likely to be one and time extension (from the current seven years) for completion of projects could be another. Sources said the developers’ request for a ‘zero period’ — waiving interest for phases where construction could not take place due to litigations, like the land battles in Noida Extension and demarcation of an eco-sensitive zone around the Okhla Bird Sanctuary — is also under consideration.

Land cost ‘not main reason’
If relief were to be given on all these counts, the default amounts would come down substantially. But Authority officials said diversion of funds, not the government’s policy on interest rates, was why dues had accumulated. “The builders may be looking for excuses, but the projects have not become non-viable because of high interest rates. The interest would not have been levied if they had made payments on time,” said Narendra Bhooshan, CEO of GNIDA. “The payment of installments on time is the responsibility of the builders,” said Rajesh Kumar, OSD, Noida Authority.

Homebuyers said any relief would need to prioritise the interest of the final consumer.
Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service