Cash crunch: Realtors stare at delayed PPP projects, heavy losses

The delay has also meant additional financial burden of disbursing rental allowances to beneficiaries for a longer time.

Written by Aditi Raja | Vadodara | Published:November 24, 2016 2:47 am
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With the restriction on cash withdrawals, ability to pay the labourers has been affected, and many have left the sites to return to their native homes. (Representational image)

Demonetisation of Rs 500 and Rs 1000 notes has affected the government projects commissioned under the public-private-partnership (PPP) model as well as affordable housing schemes currently under construction. Developers, who have partnered with the Vadodara Municipal Corporation (VMC), said the cash crunch meant a reduction of labour force up to 50 per cent, which in turn will have a major impact on the feasibility of the upcoming housing schemes. The delay has also meant additional financial burden of disbursing rental allowances to beneficiaries for a longer time.

In Vadodara, currently, as many as four major projects are in progress under the PPP model — Sanjaynagar slum rehabilitation of around 750 homes, reconstruction Madhavnagar towers of 428 homes and the upcoming Ekta Nagar and Sahkar Nagar schemes.

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Ashish Shah of Shree Balaji Group (M/s Manav Infrastructure), which has two ongoing redevelopment housing projects in Vadodara city — Sanjaynagar slum rehabilitation and Madhavnagar towers — and the upcoming Ekta Nagar scheme, apprehended that demonetisation will slow down the real estate market.

Shah said, “We are already feeling the impact of demonetisation. For any PPP project with the government, the only incentive for the developer is the commercial sale to make up for the cost of construction. The government gets its part of the project for free. If we are unable to achieve sales from these projects, it will result in big losses.”

Shah said the demonetisation has resulted in almost 50 per cent reduction in the on-site labour force due to inability of the developers to pay daily wages in cash. This, he said, will delay the completion of the project.

“The number of daily wage labourers who work on our construction sites has fallen to almost half. On any normal day, we have up to 700 people working on the site and we need to pay them in cash. We have a daily cash transaction of up to Rs 5 lakh per construction site.

With the restriction on cash withdrawals, our ability to pay the labourers has been affected, and many have left the sites to return to their native homes,” he said.

The resulting slow down in the construction will cause excessive financial loss to developers as under the PPP model, the developer must pay the beneficiary a monthly rental allowance, until the construction is complete, said Shah. “We are constructing over 700 homes and disbursing monthly rental allowances to as many families. In the current state, the construction has already been delayed by at least six months. If they do not increase the withdrawal limit, the delay could be over one year. Moreover, the market will take up to one year to stabilise and our investments in such project will remain blocked.”

Bindiya Shah of Cube Constructions — which is currently constructing bus terminals in Ahmedabad and Vadodara under the PPP model, and has as many as six ongoing affordable housing projects of the Gujarat government in Vadodara, Ahmedabad and Surat — said that to be able to “really conduct business”, there should be a “revision of thought” in the impact of demonetisation.

“We are facing a great labour crunch as most of these people hail from villages and have no bank account and subsist on the cash they earn. There is no cash flowing in the present situation and there is uncertainty over return to normalcy. When there is a disaster, we know it will take a few days to be normal, but right now we will wait and watch. In the coming days, we will have to get together to find a solution. This step is definitely going to impact the speed of completion of these projects, thus laying stress on our resources,” said Bindiya.

An executive of the VMC’s housing department said that the developers had shared their anxiety with the VMC. However, the civic body is “helpless”. “This is a decision of the central government and the VMC has no role in it. We can only try to convince the developers to complete the construction on time. But, the reduction in the labour is a serious issue,” the official said.