Economists are still debating the impact of recent economic reforms, including demonetisation, and they say that it is the developers who should be blamed for defaulting on projects rather than homebuyers
They say that the Reserve Bank of India’s action pushing banks to clean up their balance sheets by recognising non-performing assets, resolving bad debts of large defaulters and, failing that, taking them to bankruptcy court for liquidation, has pushed many realty companies into a bind.
Once considered India’s top realty companies Unitech, Jaypee Infratech and Amrapalli are being pursued by banks. Home buyers, who had paid them advances but not received their houses, have turned to the courts. They apprehend that they would lose out in case of liquidation because home buyers’ claims will be considered only after financial settlement with secured creditors like the banks.
A report in The Hindu said within the real estate sector, it is the developers rather than home buyers who seem to be defaulting on payments. Competition among developers has led to massive accumulation of land, as they built up land banks as a strategic weapon against one another.
Borrowing for this purpose and land development meant that the interest burden accumulated by developers had become huge, and in excess of what could be met by the development and marketing of house properties and commercial floor space.
Under such condition many leading developers have also stopped servicing debt and have become part of the NPA problem.
Trapped between rising interest and other costs and faltering demand that affects prices, the real estate sector is experiencing a severe version of the crisis stemming from the inability of the system to sustain growth-driven by private debt-financed spending.