SAGA OF BROKEN PROMISES

Market watchers think Unitech’s is a classic case of a real-estate company that had over-expanded during the boom years,and now finds itself saddled with high debts. Many of its recent moves smack of desperation,such as selling of promoters’ stakes to institutional buyers,turning luxury projects into affordable housing units (leaving customers,who had booked flats in these projects at a time when prices were at their peak,feeling cheated). In all this,the worst-hit are its older buyers: with many ongoing projects way past their delivery,they don’t know when their flats will be delivered,and worse still,where to turn to for recourse.

In many of these new projects,the developer has not even acquired the required necessary clearances. Madhusmita Moitra,town planner,Gurgaon,says,“The plans usually take a few months before they are cleared. They have submitted the plans as far as I know and they are officially permitted to start bookings even if clearances are underway.” The company has announced over half a dozen new projects in Haryana.

Though this is a widespread practice in the industry,it poses a risk to potential buyers: if there are delays in getting clearances,these projects could also get delayed. As for whether the company is offering a penalty clause in the new launches in case it fails to complete these projects also in time,Unitech officials explained that the new projects promise a penalty of 12 per cent interest annually in case of delay.

LAUNCH SPREE

According to a property brokerage,which handles the marketing for a number of Unitech projects,the company is planning to launch at least 25 more projects in the next few months. These new projects will be launched in cities such as Mohali,Gurgaon,Greater Noida,Lucknow,Mumbai,Kolkata and Chennai.

The company recently flagged-off plans for low-cost affordable housing in the price range of Rs 10-30 lakh under the brand Uni Homes in seven cities — Noida,Greater Noida,Chennai,Kolkata,Rewari,Bhopla,Mohali. In the first phase,it plans to launch 5,000 units amounting to a total area of 4.5 million sq ft. On the anvil are plans to launch 20 million sq ft under the ‘Uni Home’ brand in the current financial year. For the residential space as a whole,the company plans to launch 30 million sq ft.

GRIEVANCES PILING UP

Even as the company tries to lure new customers with a slew of launches,the grievances of its older customers,who are still waiting for their apartments to be delivered,continue to pile up. Take the instance of M R Khorram,an NRI who booked a flat in Unitech Habitat in Greater Noida,which was to be handed over in June 2009. The buyer,availing of a discount of 12 per cent on the total cost,paid over the entire cost of the flat to the developer. So far,however,not even the first phase of construction has been completed.

Khorram says,“We purchased the property for our personal use. Since Unitech assured us that the flat would be delivered in June 2009,we sold our property in Europe and moved to India. But because the project has been delayed,we are now putting up with relatives.” Khorram has filed a case against the developer.

Similarly,one Kapil Singhi had booked a flat in Unitech Cascade,Greater Noida,in April 2005. The promised delivery time was April 2008. But the developer has now informed him that his apartment will not be ready before April 2010.

In most of these projects,construction has stalled. Khorram says,“Whenever we enquire with the developer,they say that work will resume in a couple of months. We are not responsible if the company made bad investments.” Some of the Unitech’s projects where construction has been delayed and in some where construction is past delivery date are Close North,Close South,Escape,Fresco and Harmony in Gurgaon. In Noida and Greater Noida,the projects that have been delayed are Cascade,Habitat,Heights and Horizon.

Earlier,in July 2007,the developer had launched the country’s first ultra luxury residential project named Unitech Grande at Greater Noida Expressway. It had received bookings for over 350 luxury homes. However,due to a cash crunch this year,it converted the project into an affordable township and started selling small plots there.

Unitech’s MD Sanjay Chandra didn’t reply to any of the questions raised by The Indian Express. In a written reply,the PR agency of the company stated: “We do not comment on baseless allegations.”

HIGH DEBT and FALLING PROFIT

Following an infusion of Rs 2,800 crore into the company through a private placement of shares,Unitech’s net debt has come down. The company claims that its debt had come down to Rs 5,000 crore in the first week of July from its earlier level of Rs 7,800 crore. It claims that after a qualified institutional placement (QIP) its debt-equity ratio has come down to 0.52:1,among the lowest in the industry.

The company has started a process of raising nearly $575 million by selling fresh shares to a clutch of institutional investors. The proceeds from the latest round of fund-raising via QIP issue were likely to be utilised for servicing debt and funding new projects,sources said. The share sale would result in equity dilution of around 15 per cent in Unitech. The latest round of fund raising will bring down the promoter holding to about 36 per cent.

For the first quarter ended June 2009,the developer’s total income fell 48 per cent year-on-year to Rs 548.22 crore,while its consolidated net profit fell nearly 63 per cent to Rs 158 crore. The slowdown in demand and the heavy debt burden appear to have taken a toll on the company’s profitability.

At a time when the real-estate market is showing a few signs of revival,developers ought to focus on timely completion and delivery of projects in order to regain buyers’ confidence. Instead,as Unitech’s example shows,they are focusing more on launching new projects and collecting money from buyers. Therefore,buyers need to exercise immense caution before they entrust their savings with a developer. Developers contend that they pay a penalty for any delay. But the penalty they pay doesn’t really cover the total cost of the delay: even if it covers the interest cost on your home loan,it doesn’t cover the rental cost that you pay while you wait for your flat to be delivered. At least in case of listed entities,potential buyers should look at the developer’s balance sheet and avoid those who are heavily in debt. A good idea would be to book an apartment which is close to completion,even if it costs more. But the bottom line remains that till the sector gets a regulator,developers will continue to take buyers for a ride.

(This article is the first in a weekly series by The Indian Express that investigates status of housing projects by various companies.)praveen.singh@expressindia.com