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Commentary

Video: Q&A On Noida Property With JagoInvestor

I’m interviewed by Manish Chauhan at JagoInvestor on the Noida Extension issue. The Supreme Court’s verdict to return Shahberi land to villagers has created a larger issue, with farmers from other areas demanding their land back too. Builders are playing truant, buyers are in a panic and the Greater Noida Authority is clueless.  As I had mentioned earlier, SBI had stopped lending in Noida, and banks in general got the jitters .

The Problem
  • People bought under construction land in Greater Noida.
  • From builders, who’d bought it from the Greater Noida authority.
  • Which had in turn taken it forcibly from farmers.
  • Saying that it will give it to industry, the villagers would get jobs, there will be development, etc.
  • But it gave the land to private builders instead, for homes.
  • The farmers complained to the courts.
  • The Supreme Court said give it back.
  • Builders had started construction, and had taken advances from buyers.
  • Buyers have taken loans from banks.
  • Now everyone’s screwed.
  • Even the farmer, whose land can’t be tilled for the concrete that’s in it.
What happens

The farmer has his land back. But since it will probably have to be rezoned as agricultural land, the farmers can’t even finish the construction and sell the flats themselves even if they wanted to.  He can’t till it. He has to hope for the builders to pay him directly, which I think will happen eventually.

The Greater Noida Authority is a shameless, faceless, corrupt entity that stole land and earned some money. But because they sold land cheap to the builders, they probably didn’t make too much out of the game. They should be forced to compensate the farmers, but the cases will take years.

The Builders have promised that they might give either money back or allot flats in different areas. This is not going to happen; builders are in deep deep trouble anyhow, financially. Their only hope is to pay the farmers more and then take the land, but because they have got away with so much earlier, the thought doesn’t cross their mind. They will demand a bailout, threaten to default, or otherwise shut down operations before eventually acquiescing to pay up.

It’s not that they can’t pay – it opens a can of worms. One builder pays, and now every farmer will demand money from builders even if the land sale was done through the Greater Noida authority.

The buyers are screwed. Banks are less screwed. Many buyers have paid just the advance – about 10-15% of the value – and taken the rest as a loan. Banks have probably financed the subsequent operation (that is, further payments will be made by the bank) which obviously are not forthcoming any more. 

Whose Problem?

Like I say in the video, it’s always the buyer’s risk. My father bought an under-construction flat in 1980. He got possession in 1991. There was no internet to complain. My dad went pillar to post, the builder DOUBLED the price and he had no choice but to pay or lose all the money he’d already paid. He had a housing loan at 18%. When he passed away in 97, we paid the loan back with his provident fund amount – inspite of nearly 17 years of paying, the loan was nearly 1.5 times the initial amount. I have had life easy; my dad suffered through the worst of property deals ever.

He never got a bailout and he never asked for one. My father knew his risk, and the property he bought is an incredible one, but he knew that he was lucky to have got it; every first allottee in that apartment complex knows that too. After that, I do not advise pre-construction properties to ANYONE.

The fault lies perhaps with builders and the GNIDA authority. Yes, some should go to jail. Yes, they should be forced to pay the buyers back. The court process might take care of that over the next few years. I just hope our government doesn’t do a bailout; that would make people dumb enough to invest in more such property. Punishment is deterrence.

What Now?

Builders are doing weird stunts like posing as buyers to not pay up. (Many buyers were brokers anyhow, putting their commission largesse to work in the same business). There’s a draft Land Acquisition Bill going around, but builders say that will increase prices a lot. (My foot)

Noida (as opposed to Greater Noida) has brokered some peace by offering farmers 5% of their land in developed areas; this applies to cases running from 1976. The Allahabad High Court has asked the GNIDA and farmers to attempt an out-of-court settlement by Aug 12.

Lessons

Don’t buy under-construction properties. Even if they come with the seal of a public authority like GNIDA, you are at risk. It is your risk, so treat it like a risky proposition.

Do the due diligence anyway. Buying property is a painful business, and get as much documentation as possible from the builders, gathering as much history as possible. In boom times, they won’t give it to you because there are other stupid buyers around. So don’t bother during boom times, or go in understanding there is a big risk.

What else? Comment away. Here or at Manish’s blog.

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