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

Don't want to miss the best from Business Standard?

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.

* * * * *

Anil Kumar Sharma, president of the Confederation of Real Estate Developers of India (Delhi-National Capital Region) and president & managing director of the Amrapali group, says: The provision to launch the project after taking all clearances is no doubt good. But for this the government should have made one law making it binding for all departments concerned to give clearances within a specified period of time. The current scenario under which clearances are given will benefit neither the builders nor consumers. Sharma says clearances and approvals take between six months and a year. So, its obvious that project launches will take that much longer. Given this delay, the increase in the cost of construction and the escalation in the price of land are bound to increase the price of the house by at least 30 per cent, he insists. Amrapali has 15 projects in progress in Noida and Greater Noida that will deliver 20,000 flats. Indian cricket captain Mahendra Singh Dhoni is the Amrapali brand ambassador. R K Arora, the president and managing director of Supertech, says the delay in getting clearances will delay the launch of projects by at least a year. Because of this, cost of houses will increase by at least 20 per cent. Supertech is constructing 50,000 houses in 30 projects, which includes Super Nova, north Indias tallest project with 80 storeys.

Sharma says currently builders have invested Rs 100,000 crore in housing projects in Noida, Greater Noida and the Yamuna Expressway. An official of the National Real Estate Development Council, however, says that while the Bill will initially delay the launch of projects and result in the increase in the cost of houses, things will settle down soon. Builders, though, might have to face funds crunch because of the clause that they will have to set aside 70 per cent of the money received from buyers in a separate bank account. Arora says only 40 per cent of the project cost goes into construction. In such a scenario, it makes no sense to put 70 per cent of the money aside in a separate account, he says. This will only lead to financial problems for builders, he adds. Sharma says part of the money received from buyers goes into buying more land. If this is not done, then the cost of land for future projects will be higher. As a result, buyers will get houses at costlier rates.

This Bill, if it becomes law, will affect the image of Noida and Greater Noida as a hub for low-cost and affordable houses. Sharma says in 2011, a house in Noida Extension could be bought for Rs 1,900-2,200 per square foot. That is, a 2-BHK house was available for Rs 18-22 lakh. It now sells for Rs 25-35 lakh. Once the new law is in place, because of cost escalation and other factors like the demand-supply imbalance, it will be difficult to get a two-bedroom house for even Rs 50 lakh. Hence, Greater Noida will lose its tag of affordable housing. In Gurgaon, it is difficult to get a 2-BHK house for even Rs 80 lakh. In Navi Mumbai, where 50,000 houses are under construction, the cost of housing is more than two times that of Greater Noida.