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Real Estate: Builders Not Delivering, High Unsold Inventory and Then, Defaults

In real estate, for you on a Monday, is not good news. They aren’t finishing their projects, says Mansi Taneja at Business Standard.

Till July this year, of the committed supply of 406,539 housing units, only 143,838 had been completed, according to data from real estate research firm PropEquity. That comes to 35.38 per cent — just a tad more than a third.

In Gurgaon, the committed supply was 22,571. But till July, only 7,645 units, or 33.9 per cent had been delivered by developers. In Noida, of the 36,847 units promised, only 7,672, or 20.8 per cent, were delivered. Mumbai fared a little better, delivering 7,990 of the 18,725 promised units — 42.7 per cent. Pune also scored much better than the National Capital Region (NCR)by delivering 26,376 of the 59,766 units committed (44.1 per cent).

This means they took money and haven’t delivered their projects yet. While they blame many factors for the slowdown in finishing it, they seem to simply have run out of money. And since the only way to get money without doing any work is to announce a project and have greedy real estate investors rush for “pre-launch” payments, they just announce new projects while not delivering on the old ones.

And meanwhile, the amount of “unsold inventory” – that is, stuff they’ve built and not sold – are at new highs of Rs. 58,000 cr.

Of the Rs 58,000-crore pile-up, DLF, India’s largest real estate developer, accounted for almost a third. As of March-end, the Delhi-based company reported an inventory worth Rs 17,600 crore, 18 per cent more than that two years earlier. The company’s consolidated net sales declined from Rs 9,561 crore to Rs 7,773 crore during this period. Following DLF is HDIL, which reported an inventory of Rs 12,043 crore at the end of March this year, more than six times its net sales last financial year.

Third on the list is Indiabulls Real Estate, with an unsold inventory worth Rs 5,111 crore, nearly four times its 2012-13 net sales.

This is not going to be good. Defaults have started. Orbit Corp defaulted on Rs. 96 cr. of loans from LIC Housing Finance:

The housing Finance company has classified the account as a non-performing asset and served a recovery notice to the developer known for its premium south and central Mumbai developments. Through a public notice on Monday,LIC Housing Finance also restrained the developer from creating any third-party rights on over 2.40 lakh sq ft across three of its projects that were mortgaged for securing the loan along with hypothecated receivables from seven of its luxury projects.

As has Hiranandani on a 76 cr. Tata Capital Loan in July:

According to the petition reviewed by ET, the developer defaulted on loan obligations from December 2012 and is now liable to pay 82.6 crore, including an annual interest of 18.5%. It adds that Hiranandani Palace Gardens had applied for a 100-crore term loan that was sanctioned in July 2011. Of this, Tata Capital had disbursed 76 crore

The defaults are starting. The inventory is going up. Prices are starting to come down. We’re seeing the beginning of India’s largest real estate train wreck, in 0.25x speed.

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