Execution failure

Stuck deep in financial problems,BSE-listed developer Omaxe has scrapped several projects while a number of them have been delayed by at least two years,causing distress to a large number of people who had booked flats in these projects....

PM Senthil Kumar,a Delhi-based executive,booked a flat in Omaxes project called Galaxy in Sector 112,Noida. Since 2007,he has already paid over Rs 10 lakh to the developer. However,when work on the project did not start even two years after its launch,Kumar applied for a refund. He says he had booked the flat not because he wanted to speculate in property,but because he needed a place to live in.

Kumar says Omaxe has shattered his dream of owning a house. I have visited their office and requested for refund with interest. They are not agreeing to this. They also say that they will not refund the money before December 2009. And even then they will only refund the principal. It means that my money is stuck with them for more that two-and-a-half years. He said when he enquired with the developer about the project,he was informed that the New Okhla Industrial Development Authority Noida had not given them possession of the land for this project till date because of a compensation-related issue with farmers. How can a developer book flats without even owning the land? Isnt this a fraud? asks Kumar.

Hemanta Bhatt,another aggrieved buyer,has also cancelled his booking in the same project. He says that despite multiple follow-ups,Omaxe hasnt refunded his booking amount with interest. I had paid 25 per cent of basic selling price for buying a flat in Galaxy,Noida. As this project was not approved by any bank,I was unable to arrange a loan. The builder had promised me that they would soon get the project approved. But till date there has been no news from them on this count.

In 2007,this BSE-listed developer,which earlier focused on luxury and high-end projects,announced the formation of National Affordable Housing and Infrastructure Ltd NAFHIL for the express purpose of developing affordable housing projects for lower- and middle-income group families. The company had announced that it would develop 10 lakh affordable homes at a total estimated cost of Rs 80,000 crore. Projects have since been announced in a number of cities such as Faridabad,Allahabad,Greater Noida,Ludhiana and in tier II and III cities like Sonepat,Nimrana,and Bhiwadi. Omaxe CMD Rohtas Goel had said,Our target is to deliver 10 lakh affordable housing in five years and we are working on it. It planned to develop these projects on its existing land bank of 4,000 acres. An investigation by The Indian Express has revealed,however,that the developer has yet to deliver a single affordable housing project.

SCRAPPING PROJECTS

Due to the ongoing financial crunch,the developer has reduced the project size by half of its project named Panache Palm Greens Homes in Greater Noida,which had a starting price of Rs 12.50 lakh for a 2-BHK. An investigation by The Indian Express revealed that the developer had made 34 bookings in the projects,which was to deliver 300 units.

In another project in Greater Noida,Palm Green,where work has stalled,the developer has written to the Greater

Noida Authority to return half of the land allotted to it.

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The developers much-hyped project Panache Homes Galaxy in Sector 112,Noida,has been scrapped. This move has affected more than 125 buyers who had booked flats in it. The developer never got the land for the project in the first place. On visiting the spot,this reporter found that there was not even a board of the project or of the developer at the said plot. According to an Noida official,the land acquisition from farmers is yet to take place in these sectors.

LACKING BASIC AMENITIES

Last month,the residents of Omaxe Green Valley in Faridabad lodged a first information report FIR with the Faridabad police against the developer,RPS Associates,on charges that include cheating and breach of trust. RPS Associates,a lesser known name in the realty sector,had in early 2007 handed over possession of flats and villas developed by it and promoted by Omaxe at Omaxe Green Valley,situated on Surajkund Road in Sectors 41 and 42. Those who moved in found that the builder had not provided even the basic amenities.

According to the residents welfare association RWA,The developers had to deliver the project in 2006. However,delays in obtaining sanctions and other financial issues delayed the project. Since the developer would have had to pay penalty for the delay as per its agreement with banks and the government,it found an easier option handing over possession. Till date the builders do not even have a completion certificate for the project.

A similar situation arose in The Nile,a project on Sohna Road,Gurgaon,where the resident association has asked the developer to provide a detailed project report for better understanding of requirement/approved data on water,electricity,specifications of material,solar water heating and lighting system,water storage capacity including approved and as-built plans. According to them,here too the developer has failed to provide basic amenities. The developer,which has handed over the flats to residents,blames the local agency Haryana Urban Development Authority for the absence of basic amenities.

Sliding PROMOTERS SHARE and ratings downgrade

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Omaxe,which is planning to raise Rs 600-700 crore through qualified institutional placements QIPs,has seen its promoter Rohtas Goels stake slide by over 4 per cent,possibly on account of sale of pledged shares by lenders. Earlier,in the beginning of this fiscal year,the developer had initiated talks with 14 banks to streamline debt after international rating firm Fitch downgraded the developers long-term debt by one notch. Fitch downgraded the developers national long-term rating and the rating on its Rs 300 crore long-term debt programme to BB-ind from A-ind/Negative,citing the companys declining profitability and operational cash flow because of the challenging industry environment. The rating action also relates to heightened concerns over Omaxes short-term liquidity position,which has shown signs of weakening in recent months and has therefore created a degree of short-term refinancing risk, the agency said.

The company has a declared total debt of Rs 1,513 crore. According to Sunil Malhotra,VP-Finance at Omaxe,the company is hopeful of getting Rs 900 crore worth of debt restructured soon. According to him,the company is at an advance stage of talks and most of the banks are likely to agree. The company has already restructured Rs 130 crore worth of short-term debt as long-term liabilities. The company expects cost of funds on the outstanding loans to drop by as much as 150 basis points after streamlining of its debt. The developers average cost of funds is around 14 per cent.

SLIPPING PROFITABILITY

In the third quarter,the developer reported a sizeable fall in operating performance with revenue and net income falling by 73 per cent and 96 per cent respectively year-on-year. The net profit of the company fell 96 per cent to Rs 5.89 crore.

According to market watchers,due to its critical situation,the company has deferred execution of several of its projects by at least two years. Rohtas Goel,CMD of the company,who is also the president of National Real Estate Development Council Naredco,a trade body established under the aegis of the housing ministry for the development and promotion of housing and real estate sector in India,however,says,The company will complete all its announced projects or will compensate buyers appropriately. l

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This article is the third in this weekly series by The Indian Express that investigates the status of housing projects by various companies.

praveen.singhexpressindia.com