THE PLIGHT OF BUILDERS GETS WORSE

By Ruma Dubey

Yesterday, I happened to bump into a builder. He is small time builder, basically taking up redevelopment of old buildings. He has three projects which are under construction. He has various liabilities, the first and foremost being paying a monthly outgo of Rs.50-60,000 to his 20 to 30-odd ‘tenants’ who have vacated the old buildings. Then there is ongoing expense of construction at all the projects.

H said he was very happy in the month of October as he had managed to sell 12 of his proposed new apartments; he said demand had come back after almost a year and he said he actually had a very happy Diwali. All payments, obviously all of which have a “black” component and a cheque, were to come by first week of November, which got delayed. And then 8th November happened. He said overnight he was devastated. People who had cash were chasing him to accept money, some even willing to pay 10-15% extra so that he accepts the old notes. He said, he just did not know what to do with the cash if he accepted and thus refused all.

Today, almost 2 months later, he says, not a single penny has come from any of the 12 buyers. In fact he said that one buyer was willing to pay a couple of crores in new notes. Once again he did not accept as he now does not know what could be announced next, regarding the benami property and he did not want to get stuck with cash. He was obviously very angry with the PM for doing this to him and his peers in the industry, many of whom he says are worse off than him. Many builders have stopped paying the old tenants any money as not a single flat has been sold in the area for past two months. Everyone wants to wait and watch and see what the Budget announcements would be.

This is the condition of one small time builder; surely the mid and higher range builders would be going through an almost similar situation, only more magnified. It’s all very good on paper to say that entire payment is in cheque but we all know that builders, almost always, have a cash component, sometimes, 60:40 or 50:50 or 40:60.

Giving statistical muscle to this is data from real estate consultancy Liases Foras. It has put out a report saying that builders across India are sitting on unsold inventory of 46 months (YoY), forcing them to slow down new launches. These were figures as at 30th Sept 2016; it would have only increased further after November 8th. In Mumbai, the unsold inventory stood at 55 months and 58 months in NCR.

But wait, don’t think that the prices will come down much. There could be a few panic sales but overall, builders plan to sit tight till liquidity comes back. Realty consultants say that builders are as such working on lower margins and there is simply no room left to accommodate a price cut, especially in the affordable and mid-range segment. Luxury apartments could see a price drop. Thus inventory pile up will only increase but a price cut is unrealistic for most of us.

Banks have slashed loan rates but it will take some time for people to assimilate their monies and yes, most will wait for the Budget to get over before committing on a flat. Builders might have the power to sit on the unsold inventory for a couple of months more; most are mentally prepared that nothing can happen now in this fiscal, they expect demand to come in only from April’17.

The big question which comes to mind from this experience – people have new notes, that too in crores to once again make payment in black. So how can we say that demonetization has worked as the “black” component continues to remain? We just have to console ourselves that at least some people might have mended their ways if not the entire country.