Self-completion of stalled projects: Are home buyers up to it?

We examine whether the buyers in stalled housing projects can take the onus to complete the project themselves and the advantages and challenges in opting for such an approach

Self-redevelopment of old, dilapidated housing projects in cities like Mumbai is a much-talked-about phenomenon and is rapidly catching on, because it is in many cases a practically possible proposition. Self-completion of stalled projects is, however, another ballgame altogether. The issue of stalled or delayed projects, is one of the major pain points of the Indian real estate sector. With buyers feeling the heat of delays, it is not surprising that some are now considering completing the projects themselves. This is possible if the project in question has sufficient cash flows but is delayed for other reasons. Rather than being victims, some buyers prefer to take matters into their own hands and are forming groups, hiring contractors and even consulting with government authorities, about the process of completing their projects themselves.

The challenges of self-completion

Realistically speaking, it is a mammoth task to build a real estate project and only experts within this domain will know the inherent challenges. Projects stuck due to land ownership title flaws or litigations, may not be doable self-completion propositions for buyers. Besides the lack of expertise in handling project construction, the appointment of experts and the overall completion process can be a very expensive affair for buyers, who have already shelled out money for the properties. Successful self-completion also depends on the actual state of the delayed project – its stage of completion, financial health, size, land title, etc. In short, there are a lot of potential hurdles. So, the trend of project self-completion may take a while to gain momentum.

In fact, it may not even be legally possible in many cases. At the end of the day, the project’s developer holds the development rights and may refuse to relinquish them. Alternatively, the project may be stuck because of insurmountable legal issues, such as lack of proper development rights, flawed land title, etc. Also, it is obviously unfair for home buyers to shell out more monies to complete a project, for which they have already paid earlier on. Only if all buyers are fully convinced on several fronts and are capable of taking charge, can they consider going ahead with self-completion of the project. Getting a unilateral buy-in for any massive undertakings such as redevelopment, which involves considerable inconveniences, can be far from easy. The same principle applies to self-completion. Moreover, many existing buyers in a stuck project may continue to believe in the developer’s ability to complete it and refuse to participate.

See also: Mumbai’s self-redevelopment scheme 2018: How it works

Parameters for viable project self-completion

  • At least 85-90% of construction in the concerned project should have been completed.
  • The financial health of the said project must be sound – in other words, the delay should have been due to reasons other than lack of funds. The developer must be able to show the financial status.
  • Only smaller-sized projects (of 200 units per project or less) can be considered a safe option for buyers opting for self-construction. Smaller projects are easier to develop than mid or large-sized ones.
  • Projects under litigation cannot be considered as candidates for self-completion.

That apart, small builders who are unable to complete their project, can still consider mergers or joint ventures with bigger players who having sufficient financial capabilities to complete the project. This option should be seriously considered before self-completion.

The advantages of self-completion

If all buyers, as well as the developer agree for self-completion and there are sufficient cash-flows and no legal impediments, self-completion of a housing project can be a win-win situation for everyone concerned. Once the project gets completed, it will increase the overall value of an otherwise dead property by at least 20-30%. While people who bought their flats for self-use can finally live in their own homes and save on rentals, as well as EMIs, others who were looking to earn rentals can begin reaping income. Such a scenario is obviously far more beneficial in the long run, than an incomplete, dead project. From the builder’s standpoint, if a project gets completed, he offloads unsold inventory. As it is, most buyers now prefer ready-to-move-in homes.

How the government can aid the cause

Self-completion of stuck housing projects is still largely uncharted territory, vis-à-vis policy. If enough buyer bodies representing sound projects of sizes which can feasibly be completed begin to come forward, a new policy could emerge. The government is already making concerted efforts to pull the sector out of its woes – from doling out sops in the budget to offering GST rate cuts that will woo back buyers and investors. The government and RBI are also taking steps to make finance more accessible to cash-strapped developers, so that projects that are stuck due to funding issues, can be completed.

The real estate regulatory authorities across states, are also tightening their grip on defaulting developers and so is the judicial system, including the apex court, which has given several orders favouring home buyers. All in all, home buyers are now gradually seeing a change in trend, wherein their rights and interests are being heard and respected. In such an environment, pitches for self-completion of stuck projects can certainly be taken seriously and adequate policy provisions can be made, to enable them in their quest.

(The writer is chairman, ANAROCK Property Consultants)

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