Dealing with sticky projects

There are several reasons for running into regulatory hurdles. Some are due to the greed or negligence of the developers while others may be due to unforeseen circumstances.

The most common causes are:

Starting a project without proper clearances

Legal issues

Political developments

Environmental issues

Mid-course price escalation by the developer

Changes in government policies

Violations of regulations by the developer

Whatever be the cause,the maximum suffering is always borne by the individual customer who invests in such a project. In cases such as Noida Extension,after a long and protracted legal process,the National Capital Region Planning Board NCRPB has now approved a master plan and the work that was stalled is set to commence soon. However,the case may not be the same in projects held up due to controversies

Problems Galore

There are a wide range of problems associated with projects that land up in controversy after their commencement.

Difficult to Dispose: While projects marred by controversies may come much cheaper than similar properties in that locality,once one invests in them it is extremely difficult to exit. Buyers for properties that are involved in controversies are far and few.

Poor Appreciation: The projects that have any kind of controversy associated with them witness a very slow appreciation as compared to similar properties. For example in Noida Extension,the properties that were priced about Rs 1,800-2,100 per sq ft more than a year ago are currently going for Rs 2,500-Rs 2,800 per sq ft while similar apartments around the place can easily fetch much more. This turns out to be a bad investment for the buyer.

Mid-Course Price Escalation: As the project completion time gets longer,the developer starts escalating prices in between,which can come as serious problem to those customers who rely solely on bank finance for the property.

Delayed Delivery: Apart from the physical and emotional trauma of not being able to take over the home for which one has paid a huge amount,this condition also implies that one ends up paying higher interest on the money borrowed as home loans.

The interest payment will continue even if the project is stuck mid way. The banks mostly cater for pre-EMIs,which are construction linked thus the actual amount paid back increases substantially in case completion is delayed significantly.

Course of Action

What is the recourse available in case the project is stuck? If you have already invested,then the only course of action is to check all possible exit options available and wait for the right time and price to exit. Also,do study the feasibility of the hurdle being settled and hold on,if you see a settlement happening. One should be careful,to evaluate options thoroughly and not take a decision in haste.

On the other hand,if you are planning to buy into such a project,then prudence demands that you stay away completely if the controversy is likely to remain unsettled for a prolonged period. However,if the settlement is in sight,then settle for the right price to make a killing in the process.

Despite the lure of heavily discounted prices,investing in any project that has the stigma of controversy of any kind attached to it is a risky proposition for the common investor. But for those who can track the developments closely and predict the settlement of controversies and even forecast the government ruling on such projects,there is a great opportunity for making smart deals with customers who are looking to exit at lower prices.

The author is CEO,BankBazaar.com