Perennial works-in-progress

After being bailed out by the DDA,Emaar MGF has resumed its landmark project,the Commonwealth Games Village. But its other projects are still lagging. In fact,the builder has failed to complete a single housing project till now ....

Three months ago,Emaar MGF,a joint venture between Emaar Properties and Indias MGF Developments,was seeking a bailout package from the government to complete its landmark project,the Commonwealth Games Village on the bank of Yamuna in New Delhi. By contrast,the Delhi Development Authority DDA was planning to revoke the project development agreement and entrust the project to some other developer as Emaar MGF had failed to execute the project in time because of financial constraints.

A DDA official,who does not wish to be named,says,The DDA planned to revoke the project development agreement,forfeit the upfront fee of Rs 321 crore paid by the developer,invoke the performance guarantee of Rs 300 crore,and find a new developer to complete the project. However,these options were dropped as it was felt that the chances of finding another developer and completing the project in time were slim.

Once the decision was made to bail out Emaar-MGF,the DDA debated whether it should give a loan to the troubled developer or purchase the flats. It decided against providing a loan. The project developer could not provide any security as the land already belonged to DDA,and it was considered doubtful whether Emaar-MGF would be able to repay the principal and the interest on the loan, says the DDA official.

Finally,a price fixation committee recommended that 333 flats be purchased at Rs 11,000 per sq ft. The money was to be released as the project progressed. After Emaar-MGF was paid the first installment of Rs 200 crore,Ahluwalia Contracts,the company to which the developer has sub-contracted the project,resumed work. The construction company had earlier complained that it had not been paid dues amounting to more than Rs 90 crore.

The failure to complete this important project in time would be an international public relations disaster for the country as it is meant to house the 8,000 athletes coming to Delhi in October next year for the Commonwealth Games. According to an Emaar MGF spokesperson,development work at the Games Village is on in full steam. The structural work on all the 34 towers is complete and the focus right now is on the interiors. The project would be handed over by April 2010.

HALFWAY HOUSES

The Commonwealth Games Village project is not the only one of this developer that is running behind schedule. Below are some of the other projects that have been delayed.

Mohali Hills: Sandeep Sharma,a Chandigarh-based business man,has paid over Rs 30 lakh for a luxury villa in Mohali Hills,a residential project situated near Chandigarh. However,two years after its launch,the developer has failed to start work on the project. This was one of the earliest residential projects to have been launched by Emaar MGF in 2007. Today it has become the target of aggrieved buyers ire. Around 3,000 of them have applied for cancellation of booking and demanded refund. Emaar MGF had tied up with an international construction firms India arm,Leighton India Construction Private Limited,to execute the project. Construction activity,however,ground to a halt soon after and the construction company also exited the project.

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Spread over 3,000 acres,Mohali Hills is the largest project of Emaar MGF. It includes residential plots,town homes,luxurious villas,shopping malls,landscaped gardens and recreational centres. The foundation stone for the project was laid by Punjab chief minister Parkash Singh Badal on June 1,2007. According to Sharma,company officials have not provided a reasonable answer to why the project has got delayed. When contacted,the Emaar-MGF spokesperson evaded a direct reply on this issue. Palm Drive: A residential project situated in Gurgaon,this is also in the eye of a storm. According to GC Lodha,an exporter by profession,work at the site had stalled. After a group of aggrieved buyers intervened,we succeeded in forcing the developer to at least restart work. However,the project has already got delayed, says Lodha,who has already paid over Rs 50 lakh for the flat he booked in Palm Drive,in 2007,and was promised that he will get the possession within two years. The developer has now set November 2011 as the deadline for delivery.

The Meadows: Situated in Sector 76,Gurgaon,this project has been scrapped two years after the launch,as the developer failed to start work. Around 300 people have booked houses in this project. However,the spokesperson says,Due to a change in market dynamics,the project has been postponed. All customers have been given a choice to transfer their bookings to Enclave,Gurgaon,which is also a very good location. Most of the customers have exercised this option.

IMPENDING IPO

According to real-estate experts,the developer is burdened heavily with debt and is struggling to raise funds required for the completion of its ongoing projects. The developer incurred a huge expenditure on acquiring a large land bank at the peak of the real-estate bull run,when prices were sky high. The subsequent slowdown in the property market,which led to a petering out of sales and hence a reduction in the inflow of cash,played havoc with the developers finances.

The developers financial situation took a turn for the worse after it was forced to abandon its plan to raise Rs 7,000 crore through an initial public offering IPO in February 2008. Just when its IPO was about to open for subscription,the stock market tanked and the developer had to abandon the IPO. However,with the situation in the stock market improving now,the developer has revived its IPO plan and is likely to try and raise at least Rs 4,000 crore from this source by the end of this quarter.

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When questioned about the timing of the IPO,Emaar MGFs spokesperson was non-committal. Emaar MGF is considering various fund-raising initiatives, was all the spokesperson said. Market sources reveal the company has started preliminary discussions with Kotak Mahindra Capital,the investment banking arm of Kotak Mahindra Bank,to manage its IPO.

RISKY LAND BANK

Emaar MGF has a land bank of 13,000 acres which amounts to a total saleable area of about 566 million sq ft.

Currently,the company is developing projects amounting to only around

18 million sq ft.

However,a large part of developers large land reserves is still designated as agricultural land,i.e.,its land use has not changed. That is a risk that the developer carries. Any change in legislation regarding the use of agriculture land for real-estate development or any delay in change of land use will have an impact on the developers plans.

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The financial crunch that Emaar MGF faces is so severe that there is little that the developer can do until its IPO brings in some funds. Till then,the companys sales team is trying hard to sell its projects to non-resident Indians. This strategy has the advantage that there is lower awareness among the NRIs about the companys financial travails. Moreover,the NRIs are eager to invest in Indias realty sector at this juncture,when prices are low,hoping that the sector will revive in the near future and fetch them attractive returns on their investment.

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

praveen.singhexpressindia.com