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Realty check: Buyers are sinking in negative equity

From Mahagun to Supertech, NCR hub of undelivered flats

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More than two lakh property-buyers are facing 'negative equity' (when an asset's value plunges below the outstanding balance on the loan used to purchase that asset) due to delayed home projects in the National Capital Region (NCR). To most of them, these units had been sold with the promised of 'price protection', but prices are dropping so fast that the value of the 'dream home' is now lesser than the loan.

Nishant (38), had bought a flat in 2013 at Godavari in Mahagunpuram society in Ghaziabad, but is still awaiting possession. He is one among the hundreds of buyers who are waiting for their "dream home'' from the last four years. The builder, Mahagun Group, has already collected 100 per cent of cost from him. His flat had cost about Rs 44 lakh, but is now worth just Rs 27 lakh due to price correction. Nishant told DNA: "It's been more than four years that I am paying home loan EMI and rent every month. The builder had promised us that we would be offered possession by last year, but that did not happen."

DNA found that Mahagun had agreed to pay the buyers a penalty of Rs 10 per sq feet, but nothing has happened till date. To queries from DNA, the Mahagun management evaded response saying that "our directors are travelling right now." Almost all prominent builders of Delhi-NCR – from Amrapali to Supertech to Mahagun – have hundreds of delayed projects.

By November 2017, average NCR housing prices had declined by over 30%-50% from its 2012 peak. Negative equity on the property will is leading to huge financial stress on buyers.

These buyers are already paying rent for living in an alternate accommodation in addition to the EMI for the undelivered homes.

Banks are also facing the heat of negative equity and delayed projects. Buyers have started threatening to stop or hold the EMI of delayed projects. "It is requested that the delivery of my flat, complete in every respect as per the agreement, may kindly be ensured within a period of two (02) months, or else I will be constrained to stop/hold my EMIs of the home loan to the banks, as I can see that I am the only loser in this tripartite agreement," a buyer wrote in a letter to a prominent bank, a copy of which is with DNA. He was allotted a flat in the Greater Noida project of Amrapali in 2012.

"Ultimately, I have to see the parity of our asset value and the loan amount. If it were 10% then I would manage, but how could I service (the loan) if my undelivered property is valued 20 to 30 per cent less than the ongoing loan amount," another Noida Extension home-buyer Akshay Sharma told DNA.

The delay in delivery by the builders imposes numerous direct and indirect monetary costs on the buyers. Sanjay Sharma, MD of Qubrex realty exchange, said, "If delays take place, the costs also rise for the builder who then extracts the same from the buyers as increased saleable area, escalation costs, inferior specifications, delayed construction of common facilities, and any other charges that they can extract from the buyers even if it was not explicitly stated in the builder-buyer agreement".

A recent report of the real estate research firm Liases Foras revealed that almost 33 lakh families across 50 cities in India are suffering due to delays in housing projects. In Delhi-NCR 1,97,302 units are delayed for more than two years.

Anuj Puri, chairman of Anarock Property Consultants, said that "assessment of average prices for the past five years (Q3 2012 to Q3 2017) reveals that Pune, Kolkata, Hyderabad and Bengaluru were the front-runners in capital value appreciation, bucking the trends of larger areas such as Mumbai Metropolitan Region and NCR".

Lose-lose proposition

  • By November 2017, average NCR housing prices had declined by over 30%-50% from its 2012 peak 
  • The delay in delivery by the builders imposes numerous direct and indirect monetary costs on the buyers 
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