On-time delivery for home buyers remain a promise unfulfilled

ENS Economic Bureau Posted online: Saturday, Mar 15, 2014 at 0000 hrs
The market sentiments may have improved significantly over the last few months and a large number of real estate developers have already come out with new project launches in the first three months of calendar 2014, but the issues concerning the home buyer, especially delays in the delivery of the project, only seem to be on the rise.

A look at the supply situation within the industry shows that on the one hand the industry has more than doubled on its completed residential inventory over the five-month period between August and December 2013, there is a huge gap in the number of units that were to get completed by the end of December and in the number of units that have been actually completed. This points to a rise in the delay in delivery of projects.

Home buyers

According to data compiled by PropEquity, a real estate analytics company, the top 15 cities in the country witnessed a sharp jump in their completed real estate residential units in the last five months of calendar 2013.

While the completed residential inventory stood at 1,43,838 units at the end of July 2013, by the end of the year, the completed inventory jumped by 102 per cent to 2,90,926 units.

A closer look into the data further reveals that a large portion of the inventory that was supposed to have been completed did not come up and is therefore plagued by delays.

While the data at the end of July projected that a total of 4,06,539 units would come up in 2013, the numbers fell short significantly and stood at only 2,90,926 units, thereby opening a huge gap in the committed and actual supply of 1,15,613 units. So almost 44 per cent of the committed supply did not actually come between August and December 2013. In other words, these are the number of units where completion has been delayed and show the sorry state of the on-time delivery of projects by the real estate developers.

Experts say that on an average, the delay in projects is to the tune of 12-18 months and it is mostly on account of the slowdown in demand and the situation of oversupply in the market.

“The delays are directly related to the market conditions where sales are down and the cash flows are affected. Most of the delays are by design as the developers do not want to keep the buildings ready and then wait for customers to come in. They have been trying to buy time to get sales,” said Gulam Zia, national director-research at Knight Frank, a real estate consultant.

While Ahmedabad is the only city among the 15 cities in the list to have surpassed the estimated supply at the end of December 2013, Delhi-NCR seems to be the worst performing in terms of timely completion, which translates into delayed delivery of homes to the buyer. While in July, it was expected that Delhi-NCR would add 70,187 units between August and December, the region added only 29,090 units, falling short by 41,097 units or close to 60 per cent of the estimated supply to have been added.

The Mumbai Metropolitan Region (MMR) market stands second in the rankings for falling short of thecompletion target. While the number of units that were estimated to be added between August and December stood at 70,960, the actual number of units added were 33,308 and therefore fell short by 37,652 units or 53 per cent of the total units to have been added. Bangalore, Chennai and Kolkata too fell short of their estimated supply by 45-47 per cent. While the developers have been slow on delivery and have been defaulting on their timely delivery commitment to the home buyers, the sharp rise in the supply is also a concern as the demand has simply failed to keep pace.

In the five month period, the completed supply in the 15 cities rose by 102 per cent from 1,43,838 units in July 2013 to 2,90,926 units in December 2013.

While Ahmedabad witnessed the biggest jump of 266.8 per cent from 9,215 complete units in July 2013 to 33,803 units by the end of December 2013, Delhi-NCR witnessed the second biggest rise in completed inventory, which rose by 136 per cent from 21,371 to 50,461 units.

The MMR comprising Mumbai, Navi Mumbai and Thane too saw the completed residential inventory rise by 87 per cent from 38,198 units in July 2013 to 71,506 units in December 2013. In absolute terms, the region had the largest number of completed deliveries towards the end of the calendar year.

The supply side concerns, however, continue to fester. Not only will there be addition in the number of units on account of the old unfinished projects getting completed in 2014-15, a large number units are also expected to be added on account of the slew of new residential projects that have been launched in the first three months of calendar 2014.

Experts feel that the situation should improve with time. “There is no doubt that the supply is much more than the demand but the situation is not likely to aggravate further as we have bottomed out on that front,” said Zia.

So, while the real estate developers need to address the delivery aspect of the projects in order to serve their customers better, they also need to keep a close watch on the supply they add going forward. The customers, on the other hand, may expect the real estate regulatory bill to be passed soon so that they are have some protection against the bad practices, especially project delays, on the part of the developers.