It has been approx. 17 months since the formation of the new state and lot of expectations are riding on this historic event. One of the expectations of real estate pundits was the revival of Hyderabad's realty market. The commercial side of the market has picked up very good momentum since June last year and probably is in its best phase ever. One wonders why the residential market remains dull. A good commercial momentum is normally an indication that the residential momentum is close-by but that does not seem to be happening at this point in time.

Developers across the spectrum agree that site visits and negotiation pipeline has improved by 2 times compared to last year. Deal closure numbers have remained stagnant or just moved marginally up in the same period. So why are sales not catching up fast enough to complete the revival of Hyderabad's real estate market?

One of the factors for this lack of revival seems to be complicated deals, title issues, lack of sale deed registrations on some major projects etc. This has been the case for quite some time but what is new now? What seems to be new now is that developers instead of trying to resolve such existential problems now seem to be resorting to denial for all their complications.

Some examples of these denials are as follows:

  • A developer recently was sharing his thoughts on his project in which sale deed registration is not allowed by the government. As per him sale deed registration is an over rated element of any transaction. He feels, he is building a project and handing over, banks should check the client's credentials in terms of paying EMI and release loans. The developer hands over his project and clients happily pay EMI's and that is it. Atleast we always thought that sale deed registration was the end result for any transaction but not for this developer.
  • Another developer with same the sale deed complications has managed to get an occupation certificate (OC) for his project. Post this property tax assessment has been done and notices issued in the name of his buyers. Normally this is possible only after the sale deed is registered. One of our friends recently bought a property in Marredpally and wanted to get the electricity meter and property tax to be changed in his name. He approached both the departments and was asked to submit an application with copy of the registered sale deed and latest encumbrance certificate issued by the sub-registrar. Upon asking the need for such an elaborate process he was told that in the past for subjudice property disputes, electricity bill and property tax receipts are showed to claim ownership hence these departments have decided to be careful in their process.
  • Another developer with the same sale deed complications had multiple of his commercial projects shortlisted by a MNC for a leasing transaction. During the due diligence process obviously the clients lawyers asked for papers and since the developer / owner had no title hence the deals never got materialized. The developer stepped in and claimed that he can get the lease deed registered. Our question was how is it possible to get a lease deed registered if the sale deed is not registered. If this is possible then this would open up unique problems for our market.
  • Another project which faces existential title issues, which are subjudice, as a solution offers to detail out their entire problematic history as part of the sale deed. The main issue is that problem remains unresolved and resolution is subject to a few 'ifs' and 'buts'. How does this position comfort a buyer is beyond any imagination.
  • In another case we have a large brokering firm marketing a building in which sale deed registration has been banned, does not have an OC and lease deed cannot be registered. We cannot fathom reasons why a large brand will put its reputation on the line for such deals.
  • In a suburb project, developer is not taking NOC from his project loan banker as and when individual housing loans are getting cleared. Not only are his clients risking their money but the developer is completely oblivious to the fact that his basic duty is to atleast sell a clean and marketable title.

On the whole Hyderabad has not been going through a get phase lately. Over the past few years the market has been fighting with inherited problems. Now it seems the market is trying to create further and bigger problems to resolve the previous ones. Unfortunately this does not work like this. During this phase the government can play a huge proactive role to resolve some of these issues and / or rein in some of the unruly developers.

If one where to check the past then most of the flagship projects of Hyderabad have one thing in common, they are all joint venture deals with the government. Buyers did not give a second thought in investing in such projects since the title was absolutely clear and provided by the government. Unfortunately all these projects seem to be struggling and to make matters worse their sale deeds are not allowed to be registered.

The government should quickly turn their attention to these projects and segregate them into projects completed, under progress and no action at all. The ones that are completed should be the first to be cleared. The second lot of under progress needs to handled carefully since a lot of retail buyers are involved. Either the same developer has to give a firm commitment backed up by financial resources to complete the project or a new developer should be brought into the picture. The last ones where no action has happened at all simply need to be terminated. Here gain projects in which sales have happened need to be handled sensitively. The errant developers have to refund money's with interest.

Why is the action necessary from the government? This is required simply because thousands of individuals have invested in such projects. Most of these projects are residential apartment project and thousands of apartments projects are stranded. Even if we attribute value of Rs. 1 cr. per apartment the amount of money stuck is humungous and needs government's attention asap. For a government which is keen to showcase Hyderabad as an investment destination it is important that past investments are also justified / safe. One can imagine the negative opinion those thousands of investors / customers must be giving about the Hyderabad real estate market right now. After hearing their sad stories even the bravest of investors might just want to give a slip to our market. This is not a good sign and needs to be corrected asap.

Some kind of government action is not without examples in the past. When a prominent project got stuck in 2009 with hundreds of clients invested, the government stepped in and ensured that a financial giant took over the company and helped complete the project. Today the stuck part of the project is completed and handed over. In such actions a lot of aspects are debatable but ask the individual buyer, who money was stuck, how relived they are with the final product in his hand. His investment is safe and saleable. The hard earned money of all clients is equally important. If errant developers are hell bent on giving this market a bad name then the government of the day has to step in.

In some cases private initiative has also helped revive stuck projects. A leading developer of Hyderabad recently restarted a project, which was shut down due to the financial meltdown of 2009. This group has shown the courage to take over a messed up project from the previous owners and restart work / sales. Not only would the old buyers benefit but one major project would be removed from the stuck up list of flagship projects in Hyderabad.

Private initiative would be few but the major amount of responsibility will lie with the government. Some recent utterances seem not to be comforting to investors. Recently a large investor was sharing that he attended a meeting of business people held by the state government in Mumbai. He said everybody spoke well but to a question about stuck up investments the response was surprising. Apparently the response was that the past was not a creation of this government hence they are not responsible for it. They are only looking at the future and what kind of investments will now come into the city. As per him this kind of myopic view is not good.

Investments are spread over many years if not decades or a generation. Investments philosophy cannot change with changing governments. We hope the present government will realize that until the previous mess is not cleared space for new investments may never get created. All new investors always ask older investors about their experience and negative feedbacks are not good.

The government needs to get into action asap and help revive the real estate market which is stuck due to a lot of systematic / process related issues. The government has to ensure that all these issues are removed and the market allowed to function on merit. The rules of the game are set by the government be it the masterplan, approvals, completion certificates etc. Hence only they can resolve all outstanding issues by taking the constituents into confidence. It is also high time that the real estate regulation bill is implemented at the state level. Hopefully this will help to rein in errant developers. One thing the government should immediately do is to not give further project approvals to developers who have got not completed their current projects.

Lastly we sincerely hope that for the revival of this market, the constituents of this market i.e. builders, developers, consultants etc. do not resort to the age of denial. This kind of attitude will not help anyone but rather will hasten our progress to the age of extinction. We hope none of us want to reach that stage hence the hope to act responsibly for own's sake.

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CIRIL members are market leaders in their respective markets with an average 2 decades, commercial real estate market experience. Members have a transaction management portfolio of 30+ mn sft...

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