Pune builder and associates booked under MOFA clauses

The associates had allegedly failed to provide possession of an apartment located at Mhalunge village near Balewadi, despite accepting the entire payment from the buyer.

PUNE: The Hinjewadi police booked a prominent city-based builder and his associates for cheating.

The associates had allegedly failed to provide possession of an apartment located at Mhalunge village near Balewadi, despite accepting the entire payment from the buyer.

Ashwin Dudharam Gondane (35) of Hadapsar lodged a police complaint on Saturday, following which the builder and his associates, who have offices on East Street in Camp, were booked under the provisions of Maharashtra Ownership Flat Act, 1963.

According to the complaint, Gondane booked an apartment in the scheme in January 2012. Gondane was impressed with the floor plan and amenities provided by the builder in the area that was near Hinjewadi IT park.

He booked the apartment of 650sqft carpet area in wing number five. When contacted, Gondane told TOI that while booking the flat, the builder had promised to give the possession within an year. However, at the time of registration, the builder mentioned a clause in the agreement that the possession would be given three years after registration.

However, the builder failed to provide possession within the deadline. Despite repeated requests and after accepting the full payment of Rs 38.96 lakh, the builder has not yet given handed the apartment over to Gondane.

Inspector Vishwajit Khule of the Hinjewadi police station told TOI that the builder had claimed that he would provide many amenities in the society but none of them were provided.

Gondane said that when the builder came to know that his customers were going to approach police, he sent an e-mail and told us that he would get the occupancy certificate by December 2016, and promised to hand over the flat immediately after. "We know that the builder is not going to get the occupancy certificate as the site does not have an access road. Moreover, the promised amenities have to be completed as yet," he said.

Gondane said that he is finding it very difficult as he has to pay the bank's interest as well as the rent of the flat that he is currently staying at. "Along with me, about 80 others are waiting for the possession of their flats," Gondane said.

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Plans for REITs remain on drawing board

Sebi has eased some rules, but cumbersome legal process and time taken to aggregate assets stand in the way

Eight years, four consultation papers and countless relaxations in norms later, the introduction of real estate investment trusts (REITs) in India is still at least a year away.

While the capital markets regulator has eased rules for asset valuation and related-party deals, onerous legal and listing processes, and the time taken to aggregate assets stand in the way.

Restructuring and consolidation of commercial office portfolios by developers at DLF Ltd, one of the first companies that expressed an interest in introducing a REIT, will also likely add to the delay.

On 18 July, the Securities and Exchange Board of India (Sebi) unveiled proposals aimed at making REITs more attractive. This included allowing them to invest in holding companies which have a multi-layered structure of real estate asset ownership, expanding the definition of real estate to include hotels and hospitals, allowing REITs to invest more money in under-construction projects and increasing the number of sponsors to five from three.

While welcoming the move, real estate industry executives also said that it will take time for companies to access funds by listing REITs.

Companies such as Blackstone Group LP, Embassy Group, Panchshil Realty, RMZ Corp. and K Raheja Corp. have all drawn up plans to introduce REITs, but no one expects to list before 2017.

“It will take another 18 months for us to do a listing. An intensive process precedes a REIT which includes consolidation, meeting investors and a number of financial and legal matters,” said Jitu Virwani, chairman, Embassy Group.

The property developer, along with global investor Blackstone Group LP, is planning a $3-billion REIT involving a portfolio of at least 37 million sq. ft. This will include their jointly owned assets as well as some of Blackstone’s own assets, Virwani said.

Blackstone’s other partner, Pune-based Panchshil Realty, which has a 12 million sq. ft of completed, rent-generating office portfolio and an additional 6 million under construction, is also looking at a REIT with Blackstone “sometime next year”, said its chairman Atul Chordia, adding that the process is on.

However, it remains unclear if Blackstone will do a single REIT listing with its partners in India, or separate ones with respective partners.

Blackstone is the largest commercial office space owner in the country, with 50 million sq. ft spanning 16 assets in five cities.

Blackstone didn’t respond to an email query.

Similarly, Bengaluru-based RMZ Corp., backed by the Qatar Investment Authority, plans to launch a REIT, but is unlikely to do so before 2018, said co-owner and corporate chairman Raj Menda.

The firm is still actively looking for acquisitions and is in the process of buying out office assets in different parts of the country. For practical reasons, only once it has a significantly sized portfolio, will it actually do a listing.

Just like RMZ, Tata Realty Infrastructure Ltd (TRIL) and its investor partner Standard Chartered Private Equity, through their partnership, will eventually do a REIT; but right now, the focus is on buying new land parcels and developing them. They may also buy out office assets.

“The quality of the offering and the macroeconomic factors are critical and has to be attractive for retail investors. Few developers have the desired volume of assets and they need to aggregate a bit more. With more volume, risks of vacancy get diluted and will generate better yield. Also, interest rates need to fall further to ensure better returns for investors,” said Abhishek Goenka, partner, direct tax and real estate expert, PricewaterhouseCoopers India.

Despite the delays, REITs remain a doable and convincing option for developers and investors to monetize their commercial assets, aided by the fact that the commercial office sector has been the only bright spot in a lacklustre real estate sector in the past three years.

Rental rates have been consistent, take-up of space has been healthy, accompanied by tremendous interest from investors in buying good-quality office properties. According to an estimate by property advisory Cushman and Wakefield India, the assets that may qualify to be included in REITs may reach $20 billion by 2020. In the first three to five years, as much as $12 billion could be raised.

The country’s largest realty developer by market value, DLF, too is drawing plans to launch its first domestic REIT to extract maximum value from its large office portfolio, according to a person close to the firm. However, it is in the process of selling a 40% stake in its commercial property arm, DLF CyberCity Developers Ltd, owned by the promoters to institutional investors. “Once the stake sale is done, or alongside, the company will also do a share sale and once the promoters infuse the money generated from the stake sale back into DLF, the company, along with its investment partner will look at launching a REIT,” the person added.

DLF said earlier this year that it is preparing for REITs worth Rs.6,000 crore in the next two years. The realty firm plans to list its commercial office assets and eventually, also its retail shopping mall portfolio. It has been ramping up the latter by structuring ownership of existing assets in order to facilitate potential monetization either through REITs or otherwise in the future.

Another large commercial office space owner, Mumbai-based K Raheja Corp. is also working towards a REIT but alongside, it is now focusing on selling a stake in its rental portfolio to raise capital.

If these REITs are indeed introduced in 2017, it will be almost a decade since the markets regulator first introduced the concept of this new investment vehicle.

While Sebi has been continually attempting to ease the norms (see timeline), issues related to holding structure, tax problems and disclosure norms made companies unenthusiastic of floating this product.

It was only after the government stepped in and exempted REITs from dividend distribution tax and minimum alternate tax on capital gains made through transactions of REIT units, that realty firms, anticipating regulatory relaxations, started drafting REIT launch plans.

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Is this the right time to invest in real estate?

Residential real estate market is currently in a correction phase, which began three years ago, and according to experts, will last for a few more quarters.

Buying real estate is widely considered a safe bet by Indian investors, even though the market might show otherwise. Like every other market, real estate too has its highs and lows. For instance, the real estate market boomed between 1988 and 1994, and most property prices went up by over 10 times during this period. However, the bear market that followed was very challenging. By 2002, many properties were being put on the market at half the peak price they achieved in 1994. If one considers the high rate of inflation during the 1994 to 2002 period, the actual correction during the bear market was more than 75 per cent. A similar trend seems to be playing out now. Investors minted money in residential real estate during the boom that occurred between 2002 and 2013, with prices going up by 6-10 times in several pockets. However, experts caution against expecting similar returns in the future, because the maximum appreciation happened in some nascent markets like Gurgaon. "It was as an aberration, reflecting the times and the fact that markets were in a very nascent stage. It is not fair to expect that kind of appreciation in developed markets," says Amit Oberoi, National Director, Knowledge Systems, Colliers International (India).

All speculative markets move in cycles, and the real estate market in no exception. As is evident, the boom in the residential real estate market is over. It is currently in a correction phase, which began three years ago, and according to experts, will last for a few more quarters.



Lack of buyer interest
The market has witnessed a marked decline in the number of people buying residential properties. One of the main reasons for this is the fact that property prices remain high compared to the average income of individuals. "There is end user interest, but what buyers are waiting for is reasonable and affordable prices," says Sunil Sharma, CIO, Sanctum Wealth Management. "As of now, end users are only looking at projects that are priced appropriately," he adds.


Since the real estate prices vary significantly across cities, the concept of affordability also needs to be analysed at the city level. Affordability is also affected by interest rates and increase in income. Fall in housing loan interest reduces the EMI and increases affordability. Although the RBI has cut benchmark rates significantly in the recent past, its transmission was much smaller. For example, home loan rates came down only by 50-75 bps compared to 125 bps cut by the RBI, which did not result in any significant pickup in demand. The rise in income over time also failed to keep pace with the significant jump in real estate prices that occurred between 2002 and 2013.

Rental yield, which is the amount of rent paid per annum over the cost of buying a property, is another factor that determines the level of demand, for both end users and investors. If the rent is higher than the EMI to be paid for purchasing a property in a given area, people are more likely to choose buying their own home over living in a rented property. This means that the end user demand will go up if the rental yields are high. Similarly, the return for investors who buy houses to rent out also go up and this will increase the investment demand. However, rent didn't increase in tandem with the jump in capital values either, and as a result, the rental yield has dropped to a significant low, ranging from 2-4 per cent compared the housing loan interest rate of around 9.5 per cent.






Inventory build-up
As a result of the dip in the demand for property, investors and builders, who developed and hoarded residential properties expecting prices to rise, found themselves unable to sell their inventory. The unsold units in eight large cities in the country have already hit an all-time peak of 1171 million sq ft, up by 22 per cent from last year. If the current rate of sale persists, it will take more than three years to exhaust the existing inventory. "Compared to an ideal inventory level of 8-12 months at the national level, current inventories are close to 45-47 months," says Pankaj Kapoor, MD, Liases Foras Real Estate Rating & Research. However, the inventory build-up would have been much higher if the builders had not reduced the number of new projects.

Pricing pressures
The cost of construction has risen steadily over the past few years. With the introduction of Real Estate Regulator, the compliance cost is also expected to go up. However, builders may not increase the prices of units, because the large inventories they hold have cut down their pricing power. "Instead of increasing prices, developers will try to restore the sales volume first," says Samantak Das, Chief Economist and National Director, Research, Knight Frank India.

The inventory build-up and lack of pricing power has impacted the financial health of builders. This, in turn, has resulted in significant delays in property delivery. Since it has reduced the number of 'ready to move in' flats going up for sale, there has been no price correction for ready procession flats. With project completion delays becoming the norm, consumer preference for ready-to-occupy properties has also increased.

Although builders have been able to manage some price stability so far, they are now failing to sustain it. "The small fall in interest rate is not helping builders because their borrowing cost is still astonishingly high at 22-25 per cent," says Feroze Azeez, Deputy CEO, Anand Rathi Private Wealth Management.

"High cost during muted demand is putting pressure on developers to scale down their prices, and many builders are now reducing their launch prices by 20-25 per cent," he said.

New investors beware
So how should one proceed in the current market conditions? That depends on what kind of deal you are looking for. While this might be the perfect time for buyers to start searching for their dream home and cash in on good deals, experts say that investors should stay away for a few more years. "We do not think fresh investments in high value residential real estate will generate returns like it did in the past," says Sunil Sharma, CIO, Sanctum Wealth Management. Azeez holds a similar opinion. "We have held a negative view on residential real estate for the past few years, and expect it to go through two or three more years of time correction," he says.

According to experts, even if the prices witness no correction and remain stagnant over the next few years, there is no reason to invest in real estate, since there is a significant cost associated with holding property. "If we consider the mortgage rate of 9.5 per cent as the cost of holding, the total return is not likely to exceed that," says Sharad Mittal, Director and Head, Real Estate Fund, Motilal Oswal Real Estate.

Drive a hard bargain Some industry experts feel that buyers should take advantage of the current turmoil in the residential market, instead of avoiding it. "Smart people buy when the market is perceived to be weak. Since builders are offering great flexibility in pricing and payment plans now, this is a good time to buy. But buyers should bargain hard for a better price," says A.S. Sivaramakrishnan, Head. Residential Services, CBRE South Asia. Oberoi concurs with this view. "Instead of avoiding residential investments, one should look to invest now, albeit with a lot of due diligence, and wherever possible, buy at a discount," he says.

If you are aggressive investor and do decide to enter the market now, experts recommend opting for under-construction flats over ready procession ones, as the discounts on the former have gone up significantly.

"The right approach in the current market environment is to invest in under-construction projects by reputed developers, in growing locations. These developers will deliver on the promised quality as well as possession timelines," says Anuj Puri, Chairman and Country Head, JLL India. At the same time, aggressive investors also should shed their normal habit of buying real estate only in their home towns. "Investors should be slightly adventurous now. They should study the market across several cities to identify demand movement and hot investment corridors," says Puri.

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Circle rate hike: Noida realtors write to CM, buyers call protest

The Noida administration revealed its draft proposal to sharply increase circle rates.

NOIDA: Realtors' association Credai has appealed to chief minister Akhilesh Yadav to stop the proposed increase of Noida's circle rates while homebuyers will hit the streets in protest against being forced to cough up more for already delayed flats. 

A day after the Noida administration revealed its draft proposal to sharply increase circle rates - which decides stamp duty on a flat's registry - there was widespread unhappiness about the decision. Credai, which sent a memorandum to the CM, said market conditions called for a decrease in circle rates, citing the example of Haryana, which recently slashed circle rates by 15% in Gurgaon to lift the real estate market out of a prolonged slump.

Suresh Garg, secretary of Credai (western UP), said, "The proposal to increase circle rates in Noida will affect the already sluggish market in a big way. Plus, the government has already decided to implement the 2% increase in stamp duty (from 5-7%). Increasing circle rates up will lead to a huge burden on new and potential buyers.

Circle rates are already high in Noida, in many cases higher than the market rate. It's a reduction of rates that is in order"

Homebuyers' groups, already disgruntled with delayed possessions and other issues like steep maintenance charges, were furious.

"Why should buyers suffer because of delays by builders? We are going to demand that our registrations be done at the same rate applicable when we bought our houses. The buyers should not suffer because the builder has failed on its commitment," said Shweta Bharti, general secretary, Noida Extension Flat Owners' Welfare Association.

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Maha police to take a relook at circular on complaints against builders

The powerful builders' lobby, fearing the circular would open floodgates of police complaints against them by aggrieved flat buyers, wants the government to cancel it.

Mumbai: The state police has not withdrawn its circular directing senior cops to register cases against builders who cheat buyers, special inspector general of police Prabhat Kumar told TOI on Thursday.

It will, however, legally examine it further for any loopholes following a letter from the state home department to the director general of police on Wednesday stating that the circular is "inconsistent with provisions of the Act".

The powerful builders' lobby, fearing the circular would open floodgates of police complaints against them by aggrieved flat buyers, wants the government to cancel it.

Those opposing the circular are bodies such as the Marathi Builders Association, Pune, Maharashtra Chambers of Housing Industry-CREDAI and National Real Estate Development Council. Developers complained that holding builder solely responsible is a dangerous sign for business, especially when there are frequent changes in building rules and regulations. Construction industry sources said the general belief is that the circular has been scrapped following the home department's letter. In fact, sources said there is pressure on the BJP-led government to cancel it.

Kumar, who issued the circular, said the police will continue to take action against errant builders under the provisions of law. "The home department has not directed us to withdraw the circular. It has only pointed out some lacunae. We will legally examine it again following the home department's observation," he said.

Kumar has sought action against builders under the Maharashtra Ownership Flat Act (MOFA)-1963. However, the state housing department said the police cannot use MOFA because this Act has now been scrapped and replaced by the Real Estate (Regulation & Development) Act. 2016. The state law and judiciary department, however, opined that certain sections of MOFA are still in force. After looking at both opinions the home department cautioned that the DG's circular seeking action under MOFA may be contrary to these opinion.

Sudip Mullick, a partner with the construction practice of law firm Khaitan & Co, had earlier told TOI that the old law, MOFA, is still in force in the state. "The government has only notified certain sections of RERA. The relevant sections of the new Act (like provisions of action to be taken against builders for delay, etc) have still not been notified by the state. MOFA has not been repealed," he said.

Early this month, the state police directed police stations across Maharashtra to register complaints against builders who cheat flat buyers and violate building norms. The circular said complaints include builders failing to hand over possession on time to buyers or developers who deliver apartments without procuring the mandatory building occupation certificate.

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Bombay HC relief for Mahim church plot residents

The high court disagreed with the trial court that the plot was a Mhada property and provisions of Maharashtra Ownership of Flats Act did not apply to it.

MUMBAI: In a relief for residents of a building on St Michael Church property at Mahim, the Bombay high court has directed the trial court to decide afresh whether a builder should be restrained from carrying out construction of a multi-storeyed tower on plots reserved for three gardens.

Justice R M Savant heard an appeal by members of Our Lady of Vailankanni and Perpetual Succour Housing Society against the dismissal of its application against Suraj Estate Developers by the City Civil Court. The high court disagreed with the trial court that the plot was a Mhada property and provisions of Maharashtra Ownership of Flats Act did not apply to it.

The judge, said that in the instant case, it cannot be said that the property belongs to or is vested in the housing authority which is a pre-requisite for provisions of the Mhada Act to be applied.

"Merely because the redevelopment is in respect of structures which are amenable to cess which a private landlord is required to pay to the municipal corporation, it would not mean that the properties either vest in or belong to the Mhada," said Justice Savant, while ruling that the trial court's order that Mhada Act is applicable on the plot is unsustainable. The trial court is directed to decide the issue within six weeks and also look into what will be the effect on the redevelopment vis-a-vis the obligations under MOFA.

The residents had moved the trial court for directing the church, the owner of the land on which the building stands, to execute a deed of conveyance in favour of the Society. It was in this matter, the residents sought an interim restraint on the builder.

They argued that a clause in the agreement between Suraj and the flat purchasers provides that it shall be subject to the provisions of MOFA.

Also, that the developer cannot construct without the consent of the Society. But the trial court dismissed their plea saying development is being carried out in terms of the modified DCR 33/7 and Mhada's no objection certificate has been obtained as 12 cessed structures and Quinny House are to be rehoused free of cost. Therefore provisions of MOFA will not be applicable, it had ruled.

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A handful of flat owners can’t hold housing society to ransom over redevlopment: Bombay HC

Hearing a plea against the occupants and owners of 10 flats in a housing society in Mulund (W), Justice Gautam Patel ordered them to vacate the apartments within four weeks.

MUMBAI: A handful of flat owners cannot hold a housing society to ransom over redevelopment, the Bombay high court has ruled.

Hearing a plea against the occupants and owners of 10 flats in a housing society in Mulund (W), Justice Gautam Patel ordered them to vacate the apartments within four weeks. The high court said in case this is not done, the court receiver can take the help of the police to evict the occupants.

"The majority of (society members) have accepted the entire proposal; some have accepted the whole of it. How they can oppose it now, and on these grounds defy logic, common sense and the very purpose of the Maharashtra Cooperative Societies Act," said the judge. "If every single member is entitled to ventilate every single grievance and to hold the society to ransom, no society will ever progress. It is not a question of the majority dominating the minority, or of this being somehow egregious; what is shocking is the manner in which a minority has attempted to hold the majority to ransom. That is intolerable." The HC has stayed its order for three weeks.

Constructed in 1947, Azad Nagar Cooperative Housing Society, a ground-plus-two-storey structure with 36 apartments on Netaji Subhash Chandra Road, is spread over 1,237 sq m. In 2009, at an annual general meeting, the society members decided to redevelop the building, which is in a dilapidated condition, and approved the bid of Maya Developers in 2012. The builder offered to pay the flat owners Rs 14,000-Rs 18,000 per month towards transit accommodation and give the existing flat owners apartments ranging from 485 to 620 sq ft in the new structure.

But around 2014, some of the members, including flat owners who had earlier given their consent, opposed the redevelopment, especially the choice of the developer, and moved court. There was no relief from the cooperative court and subsequently the developer approached the HC seeking the eviction of the opposing flat owners. The developer claimed that he had already spent over Rs 4 crore on the project. The HC held that it had the jurisdiction to hear the case and remarked that "a handful cannot hold to ransom the interests of the majority in a cooperative society".

The court said the housing society supports the developer and the opposing flat owners and occupants had not been able to point out that the developer had been wrongly favoured over other builders.

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