Vicious circle: Builder funds crunch may further delay home delivery

It is an African chain folktale. A mosquito lies to an iguana, which does not want to hear any such nonsense and plugs its ears, which hinders it from listening to a call from his friend python, which hides itself in a rabbit hole, which frightens the rabbit. The chain of events ends in the death of a baby owl.

India’s real estate story is pretty much the same.

Home sales are slowing, which is crippling the builders, who are facing project delays, which is affecting the home delivery, which is creating pain for the buyers, which is increasing litigations in the sector.

[caption id=“attachment_527804” align=“alignleft” width=“380”]  Reuters[/caption]

According to a report in the Economic Times, research firm Liases Foras has said the construction of nearly half of the 3,23,000 homes scheduled to be delivered in 2013 are lagging. A third of these will not be ready for a house-warming even before 2014.

More from Economy

Inflation likely to be a big focus area for budget 2024, say sources Explained: Will the Bank of Japan break tradition and raise interest rates?

A survey by the company has found three of every four homes to be delivered in 2014 will also delayed.

According to the ET report, as much as 74 percent of deliveries by builders in the National Capital Region are delayed. In Mumbai and Chennai, the delivery delay rate is 61%, Bangalore 59 percent and Kolkata 57 percent.

The delay in delivery has been attributed to the paucity of fund flows to the sector.

Builders are facing funding crunch ever since the economy started slowing in 2010.

Apart from slow sales of homes that has crippled the builders, other sources of funding-private equity firms and banks-are also drying up. Adding to the worries is litigation by consumers, delays in getting required approvals and labour shortage.

“Everyone’s money is stuck,” DK Mittal, secretary, department of financial services, has been quoted as saying in the ET story.

The delays are not only bad for home-buyers, but also for the economy, according to him.

The delay is likely to result in a spike in litigations, further increasing the pain in the sector, especially for buyers.

In the African folktale, the issue was resolved by King Lion, who recreated the chain in the reverse order to find out the real culprit behind the death of the baby owl.

But in the Indian real estate sector there is nobody to get to the bottom because King Lion, the authorities in this case, is one of the biggest links in the vicious chain.