May 6, 2009 1:21:48 am
Price panel report fears promoter might deflect money from flats sale to pay off debts rather than develop Games Village
The price fixation committee,constituted by the Delhi Development Authority (DDA) to look into the various funding options for the Commonwealth Games Village,has advised the DDA against buying 250 flats from developer Emaar-MGFs share to help out the financially beleaguered realty major.
Instead,its report has asked DDA to consider loaning the developer Rs 500 crore at an interest of 12 to 13 per cent to complete the projects 1,168 flats.
The initial partnership between Emaar and DDA gives the developer rights to sell two-thirds of the 1,168 flats,while the rest were to be sold by DDA. Emaar was to use the money from the sale to build the Village. Due to little response from the market,Emaar had approached DDA to buy out 250 flats from its share,at a discounted rate,so that it could use that money to complete the project on time.
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But the report has detailed a few risks involved in such a buyout. The report,a copy of which has been submitted to the Ministry of Urban Development and Lieutenant Governor Tejendra Khanna,says it will be difficult for the DDA to later sell these flats because of the present economy.
It also fears that Emaar will use the money from the DDA sale to repay existing debt and not for the onsite development works.
The report states: Due to the slowdown in the realty sector… a price based on discounted cash flow technique may not hold good. DDA will have to in turn dispose of these apartments at a price higher than the current buying price… in current economic scenario,it would be unpredictable as to how property prices will move. It adds: DDA will have to ensure adequate and robust measures of fund release ensuring the funds are utilised for the project only.
The committee,which has on its board DDA financial advisor Pawan Kumar,HUDCO executive director R K Safaya,CPWD superintendent engineer Shailendra Sharma and NBCC real estate division general manager H K Dhawan,has instead recommended that the unsold flats be considered as collateral against the loan. It has also suggested the government give interest moratorium on the loan to Emaar till these apartments are used for the Games.
The Dubai-based real estate major had told the DDA last month that it has spent Rs 788 crore on the project. The committee has estimated that it requires another Rs 502 crore to complete the Games Village.
Incidentally,Emaar-MGF had asked for a funding of Rs 1,000 crore from DDA to complete the project. At present,the progress is 43 per cent against the target of 45,the committee has said.
Emaar had first asked for financial assistance from the DDA in December 2008,and again on February 10 this year. It had later requested the DDA to buy out 250 apartments.
The price fixation committee was then constituted in March to decide on the rate the DDA could offer Emaar.
A spokesperson from Emaar said on Tuesday: We are in touch with the DDA to explore various funding options.
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