Industry
Real estate stocks are roaring. But there is a dark side.
Summary
- In the last five years, the Nifty Realty Index has shot up nearly 300%. The shares of some companies—Puravankara, Brigade Enterprises, Prestige Estates Projects—have been on a tear. Residential sales are booming. But for many homebuyers, the pain is far from over.
Bengaluru: Puneet Parashar, a happiness consultant, has had to endure much sorrow over the last decade. In 2011, he booked a three-bedroom apartment for ₹76 lakh in the erstwhile Amrapali Group’s ‘HeartBeat City’ township in Noida. Parashar was supposed to get possession of his home in 2014 but the project stalled in 2013.
In 2019, just before the pandemic, state-owned construction corporation NBCC (India) Ltd was appointed by the Supreme Court to take over the task of completing 24 projects of the group and eventually commenced the job. Parashar, who has been living on rent in Noida all these years, now says he could receive possession of his apartment by December.
“We expect a few months of delay, so the December deadline may not be met. Even then, at least we can see that the project is nearing completion," he said, anticipating a happy ending to his tale.
Parashar’s apartment is one of 38,000 residential units that NBCC had undertaken to complete. So far, 21,000 flats have been completed and the handover process is currently ongoing. The state-owned enterprise hopes to complete the remaining 17,000 apartments by March 2025.
While this is a positive development, in the overall stressed project scenario, where resolution and execution have been the biggest roadblocks, NBCC’s handling of Amrapali’s portfolio is the exception, alongside some pockets of renewed development. The stressed project landscape otherwise looks very rocky.
In 2023, the Indian Banks’ Association (IBA) estimated that 412,000 stressed residential units, involving ₹4.08 trillion, have been impacted by stalled real estate projects. More than half—about 240,000—of these units are in the National Capital Region (NCR). Over 100,000 units are in the Mumbai Metropolitan Region (MMR), followed by Pune, Bengaluru and other metro cities.
To be sure, the overall real estate market has seen a sharp turnaround since 2021. The sector has bounced back thanks to rising sales and property prices, lower unsold stock, aggressive land-buying and project launches. This boom has been reflected in the stock performance of listed companies. In the last five years, the Nifty Realty Index, which reflects the performance of real estate companies, has shot up nearly 300%. Some real estate companies, such as Puravankara Ltd, have been on a tear—in the past five years, its stock has rocketed 638%. Brigade Enterprises Ltd has been equally impressive with a 591% spike in its share price. Prestige Estates Projects Ltd has risen 537% over the same period.
But despite the boom, stressed projects continue to pose problems.
Hanging in the Balance
Take the case of Supertech. The company is Exhibit A when it comes to stalled projects not seeing any resolution for years on end. Insolvency proceedings were initiated against the company, leaving thousands of homebuyers in the lurch. The demolition of Supertech’s illegal twin towers in Noida in 2022—a visual spectacle that served as a warning to errant developers—has still not faded from public memory. But despite the unprecedented demolition, the developer’s stressed portfolio has not seen much progress in terms of resolution. Hanging in the balance are 17,000 unfinished apartments in the twin cities of Noida and Greater Noida, as well as in Gurugram and the Yamuna Expressway area.
After the National Company Law Appellate Tribunal allowed project-wise resolution in its latest order in May 2024, Supertech submitted resolution plans to the Noida and Greater Noida Authority to pay off dues and commence registration of apartments. Supertech promoter R.K. Arora said the plans also include a request to bring in co-developers and resume construction of projects.
“Co-developers can bring in last-mile funding for project completion. Registry of flats was stopped by the authorities, and if that is restarted, homebuyers will start paying their remaining dues, which will enable cash flow," Arora said.
NBCC (India) Ltd was recently contacted by the internal resolution professional or IRP to take over and complete Supertech’s ‘Eco Village-II’ project. “NBCC has subsequently informed the lenders, including Union Bank of India, that it may take up all the projects of Supertech provided it is given complete access to all their details," said a person familiar with the proceedings, who did not want to be named.
While NBCC has done an admirable job in completing Amrapali’s projects, it had to overcome multiple challenges along the way, including on the funding front, which could make other private developers think twice. “Construction tenders were awarded to contractors during covid, but work was impacted due to the restrictions. There were concerns about where the funding would come from given the scale of construction. When we started, we thought it would be as challenging as the size of a lake. But as it progressed, it took on the size of a river, then a sea, and finally, an ocean," said NBCC chairman and managing director K.P. Mahadevaswamy.
It took a lot of convincing before a consortium of seven banks, led by Bank of Baroda, released a loan of around ₹1,500 crore (to fund the construction). The government-backed Special Window for Affordable and Mid-Income Housing (SWAMIH) fund also provided funding to complete six of the 24 projects.
Though the scale of the Amrapali projects is large, the overall stressed projects scenario in NCR is much bigger, and not much has been executed so far.
“We are looking at more stressed project opportunities where we can revive them. We are in talks with the Haryana RERA for three stalled projects in Gurugram. A feasibility study is currently going on," Mahadevaswamy said.
Funding Solutions
To address the rising worry about stalled projects that adversely impacted homebuyers and posed potential risks to the banking system, finance minister Nirmala Sitharaman introduced the SWAMIH Fund in 2019 as an alternative investment fund (AIF). The ₹15,534 crore fund, among the biggest corpus raised, is managed by SBI Cap Ventures.
As of December 2023, the SWAMIH Fund had committed over ₹11,000 crore across more than 100 projects. It has until the investment commitment period of December 2024 to commit or deploy the remaining amount.
However, last December, the Reserve Bank of India (RBI) tightened norms, barring banks and lenders from investing in AIFs (SWAMIH being such an AIF) that in turn bail out stressed entities already indebted to the same bank. The rules were partially eased in March. In June, a Reuters report, citing sources, said the government had written to the RBI to exempt sovereign funds, including SWAMIH, from the recently tightened rules. The new norms had halted fresh investments by SWAMIH, which has played a big role in reviving stuck projects through last-mile funding.
A SWAMIH spokesperson declined to respond to queries.
“When the larger stress problem was evaluated in 2019, it was estimated that the stressed housing sector would need about ₹65,000 crore of funding. So, there is a big funding gap. SWAMIH at best has acted as a catalyst. Going forward, whether to continue with a second fund or launch a different fund with more private participation has to be seen," said a person directly familiar with the matter, who did not want to be named.
Amit Goenka, managing director and chief executive officer (CEO) of investment firm Nisus Finance, said that despite the housing boom, there is a significant pool of stressed assets in the residential space.
“Resolution is a function of many stakeholders coming to terms in a project. It is happening gradually, with many such cases still stuck in courts. We keep looking at opportunities in a strategic manner, where projects can be financed and revived or brought back on track," Goenka said.
Nisus Finance offers financing for stressed projects. It has invested in nearly nine projects across Mumbai, Ahmedabad, Indore, Bengaluru, Hyderabad, including projects where it has co-invested with SWAMIH.
Myriad Challenges
While SWAMIH has bailed out projects, there are other challenges. In some cases, where bank loans are stuck, lenders have been unable to take a haircut and release these assets. In others, banks haven’t been able to exit the projects by selling the stressed loans to asset reconstruction companies (ARCs).
Then there are stuck projects that have not reached any resolution as lenders aren’t willing to take a haircut or infuse additional funds. Many such stalled projects lose viability over time.
“The aim is to give relief to stressed homebuyers as well as enhance the value of the buildings in such projects. The older the projects become, the more is the erosion in value," said NBCC’s Mahadevaswamy.
Rating agency Crisil, in a recent note, said that the bad loan recovery rate is estimated to touch 16-18% at the end of 2024-25 from 11% as of 31 March 2024.
This will be due to improved viability of stressed projects due to healthy demand and price appreciation in the residential sector, and greater investor and promoter interest in reviving such projects.
The emergence of distressed asset credit funds is also expected to improve the accessibility of last-mile funding for project completion, supporting faster restructuring of debt by promoters with ARCs, Crisil said.
Hope on the Horizon
The news isn’t all bad, though. Rashmi Singhal is hopeful of getting the keys to her home in the not-too-distant future.
In 2010, Singhal, now 52, had booked a four-bedroom apartment at ‘Krescent Homes’, a proposed gated housing community at Jaypee Wish Town, a 1,150-acre township project in Noida. Jaypee Infratech was supposed to hand over the flat by 2014 but did not do so. After many years of living on rent, Singhal finally bought a small flat in Greater Noida on resale earlier this year and moved there. But her hopes of moving into Krescent Homes are now closer to reality.
On the morning of 29 June, Suraksha Group, a real estate firm, informed homebuyers that it would be completing Jaypee Infratech Ltd’s (JIL) stalled residential projects, all of which are in the National Capital Region (NCR). During a webinar, Aalok Dave, Suraksha Group's managing director and chief executive, said construction tenders would be awarded in July and August.
The company will have to complete the construction of 12,000 apartments, across 101 residential towers, mainly in Noida, a prominent property micro-market in the National Capital Region (NCR). It aims to finish the work in 18-40 months.
“There is still some apprehension about the future. There is an ongoing income tax matter that Suraksha has filed in the Supreme Court. We couldn’t ask any questions during the webinar, as it was in listen-only mode. We were asked to email our queries," said Singhal.
On 24 May, the National Company Law Appellate Tribunal (NCLAT) upheld Suraksha Group’s bid to acquire JIL, while directing it to pay ₹1,334 crore as compensation to farmers. Following this, Suraksha Group took control of the debt-laden real estate firm by constituting a three-member board. Dave is now the executive director on the new board.
The JIL debacle was one of the biggest in a long line of real estate scandals that rocked the country. Suraksha’s takeover, seven years after the corporate insolvency resolution process against the company started, is seen as a big move that could bring relief to around 20,000 homebuyers. However, it is just the starting point—Suraksha still needs to build and deliver.
“The plan on paper always looks good. After waiting for so many years, I want work on the ground to start. I want to see labour mobilization, construction equipment and building materials on the project site," said Ashish Mohan Gupta, president, JIL Real Estate Allottees Welfare Society, an association of real estate allottees.
Gupta had bought retail space in Jaypee’s Wish Point project (part of Wish Town) in 2014, but construction did not move beyond the basement level.
Like Singhal, Sanjeev Kapoor, Savita Sinha and Piyush Gupta all booked homes in different projects of Unitech in Gurugram between 2010 and 2012. None of them have received possession of their homes yet.
In 2020, the Supreme Court had permitted the Centre to take over the Unitech management and revive its large portfolio of stuck projects. Progress has been slow, but there is light at the end of the tunnel, said Kapoor. Construction of a few projects such as ‘Vistas’ and ‘Sunbreeze’ has restarted.
The real estate market in NCR has been transformed since these projects were launched in Gurugram and Dwarka Expressway.
Sinha recalled that when she booked her apartment at ‘Vistas’ in Sector 70, Gurugram, it was difficult to even reach the site due to poor infrastructure, and cars had to be parked far from the site. Thanks to the Dwarka Expressway and shopping malls and many gated communities, the whole micro-market has changed.
“The good thing is that the real estate market is doing well both in sales and prices, which encourages other professionally managed developers to pick up stuck projects and revive them," said Santhosh Kumar, vice-chairman, Anarock Property Consultants.
A Way Forward
The government set up a 14-member committee, chaired by former NITI Aayog CEO Amitabh Kant, to suggest ways to revive stalled legacy projects. The committee submitted its report in August 2023, with recommendations on how to make such projects financially viable.
“The primary reason for stress in real estate projects is the lack of financial viability of these projects. This has resulted in cost overruns, project and time delays. The committee observed that the steps to improve the Internal Rate of Return (IRR) of these projects would attract more funding," the report stated.
As per the Kant committee’s report, if 75% of the 412,000 stressed residential units are resolved, it will add about 300,000 units to the housing sector. Judicial interventions such as the Insolvency & Bankruptcy Code (IBC) should be used only as a last resort, it said.
The committee recommended that state governments announce a rehabilitation package aimed at bolstering financially distressed, incomplete projects to make them financially viable. Developers adopting this package would have to commit to a three-year completion timeline.
Following this, last December, the Noida and Greater Noida Authorities rolled out a rehabilitation package with many concessions, including a ‘zero period’ where penalties and interest would be waived for the two pandemic years for developers of housing projects stuck in their jurisdiction. The Noida Authority, for instance, has said that once these developers opt for the package, they will need to pay 25% of their revised dues to the Authority within 60 days. A number of regional developers have opted for the relief package.
The Ratings agency India Ratings and Research said in a recent note that adopting these measures will expedite the completion of projects, particularly those pending due to the developers’ lack of execution skills. However, it said, there could be increased litigation on account of ambiguity surrounding the responsibilities and rights of different stakeholders, which could lengthen the already prolonged resolution process.
The stressed real estate challenge is huge, and the resolution process in many legacy stuck projects such as Jaypee has begun. However, the real proof will lie in the execution and delivery of homes to buyers-in-waiting.
