The Jaypee Group
Jaypee Group hasn't been in the news recently only for the Rs 3800 cr deal it cemented with Ultratech . Jaypee Group now under the radar of the trade fair regulator, the competition commission of India or CCI for alleged abuse of dominant position in selling apartments in Noida. The investigative arm of the CCI has been told to submit a report in 60 days time. The complainant, an aggrieved buyer told CCI that Jaypee had assured possession of a flat in 24 months, which is still pending four years later.
Further, the complainant alleged Jaypee had failed to complete the construction and raised an illegal and unreasonable demand from him against the terms of the contract, failing which it threatened cancellation of the allotment. After hearing the complainant, CCI came to a conclusion that a prima facie a case has been made for investigation of allegations made against the company.
The construction of the 165 km long 6 lane Yamuna expressway connecting Noida with Agra has been one of Jaypee Group's most ambitious projects. Besides getting nearly 4000 acres from the Uttar Pradesh government for building that expressway, the company also got around 6,000 acres divided in 5 land parcels, all for real estate development.
All of this was hived off and listed as Jaypee Infratech in 2010. So, far Jaypee has launched one of these parcels - the one in Noida, which goes by the name of Jaypee Wishtown and Jaypee Greens.
Jaypee has not been able to keep delivery timelines for high rise projects launched in 2007-2008 like Kalypso Court, Imperial Court, Pavilion Courts and Pavilion Heights. In fact, the buyers here had formed an association to exert pressure on the company and claimed Jaypee had offered them only a minimal Rs 10/sqft as compensation for the delays running into years.
A few months ago Jaypee's top boss Manoj Gaur by CNBC-TV18's Nayantara Rai and asked him about all the trouble the company has been facing from Wishtown Buyer Associations for project delays, many by as many as upto four years. Here's what he had to say.
Q: You did get lot flak from Buyer's Association of the Noida, Wish Town for late deliveries. Are deliveries back on track?
A: I appreciate the concerns of people, when things are delayed. I also would like to say that our organisation has delivered some of the most difficult projects in some of the most challenging circumstances consistently. But our real estate deliveries were not on schedule to begin with and we are conscious.
In fact there are a variety of reasons. It is not that there was no intent. So, the intent was right, but, yes, they got affected. We also had our own experiences and we did come out with some solutions, which were reasonable, which got accepted and now lot of deliveries of different product is taking place.
I am more than confident that once people start coming to this WishTown, Noida they will have this satisfaction that even though there was some inconvenience, but ultimately the experience of WishTown, Noida would make them reaffirm that their decision was right.
Q: What kind of compensation did you offer your buyers?
A: We did do the soul-searching, as people came out with their problems and their payment plans were modified and there were some other schemes, but we then changed to construction-linked plan (CLP) payment plan. Ultimately they also saw the effort, which we had made to make up for the delay and how we are developing the other facilities like clubs and everything. So, this ultimately led to increased confidence in Jaypee Group.
The Prime Property team will keep a close watch on CCI's investigation. But we at Prime Property couldn't help but draw parallels between problems buyers have been facing in the Jaypee and DLF case. In 2011 the competition watchdog had slapped a Rs 630 cr penalty on DLF when buyers alleged the company was abusing its dominant position in Gurgaon by not providing adequate compensation for project delays, canceling buyers allotments and even changing building plans midway of construction. DLF's appeal is pending at the competition appellate tribunal.
Knight Frank says realty developer's financial stress is at a 5 year high, making it the best time for consumers to negotiate good deals. Cushman & Wakefield says Bangalore and Hyderabad today are the most exciting property markets.
Real estate developer's financial stress is at a 5 year high, yes it is even worse than what is was post the Lehman Brothers fiasco. That's the conclusion of a study carried out by international property consultant Knight Frank.
Knight Frank's module calculates the gap between the Operating Cash Flow (OCF) and the debt serviced, which includes interest as well as principal repayment in a particular year. The data relied upon is annual reports of listed companies till March 31, 2013. The stress has been aggravated by launches and absorption of residential projects plummeting by 37 percent and 23 percent respectively over the past two years in the top 7 cites. Developers are caught in a trap of ambitious expansion, decelerating sales hardening interest rate, and weakening cash flow.
Unlike the earlier occasions, the sector now has no bailout package and alternate funding options like private equity have also dried-up. So what does all of this mean for developers and consumers?
Samantak Das, National Head, Research, Knight Frank India: For developers, they know that the financial conditions are really under pressure, so the way out is to increase the sales volumes. Whatever said and done, the sources of funds are all dried up.
From the consumer side, it is a good time in my opinion to really negotiate. All consumers have their own affordability threshold but it varies across the economic situation. The economic situation is also subdued. So, given that if any consumer is getting good some sort of price negotiations, they should go in for this type of projects.
Are developers then being stubborn and not cutting prices?
Samantak Das: What we feel is developers are really in a financial stress condition and when they will give in to this stress and reduce or soften the price is very difficult to estimate. But what we are observing is the developers are really doing some sort of coping strategies.
For example, their under construction projects they are giving freebies, say two year rent they will pay to the buyer, and there is 80:20. 80:20 there is a concern raised by the RBI but different freebies are there.
In new projects that we have observed is that they are launching at a very competitive prices. Maybe the new launches are sometimes at 10-15 percent discount. So it is not that developers are not trying to really expedite the sales process but they have limitations.
But big developers like DLF and Unitech for instance have one model contract and don't negotiate with individual buyers Are big builders had started following this practice?
Samantak Das: Even big developers these days they can't really reduce their catalogue price just like that. But I think what we have found from the field and observations that the negotiations even with big developers it is cue towards the consumers now.
So it is pretty clear that we are in a buyers market. Are builders doing enough to attract buyers?
Samantak Das: They have to do something to really boost their sales. What is the strategy left to them? What they are doing is a lot of freebies that they are giving in terms of two year rent, 80:20 maybe the interiors and all those things. But these are not really sustainable measures because to have sustainable sales, the developers have to relook at their prices, the configurations, the projects and do something to at least bring prices at the threshold affordability or maybe below that
The National Capital Region, usually called a speculators paradise has also beet bitten by the slowdown bug. According to Cushman & Wakefield the total number of units launched in the high end segment decreased by 70% in the first half of 2013 that is on a year on year basis. Cushman & Wakefield added there were no new launches in the luxury segment in the first half of the year and that is on account of an increased availability in the secondary market.
Shveta Jain, Director, Residential Services, Cushman & Wakefield: If one looks at the past trend about 3-6 months most of the speculators have withdrawn from the market because the sentiments are bearish. So this is one market which is not backed by fundamentals but more riding on the back of sentiments, mentality, manipulation by brokers so I still do believe it is a very strong market.
So, it is pretty clear that investors and buyers are following a wait and watch approach. What's more? New avenues for investment under the new draft Master Plan for Delhi-2021 has opened up lucrative opportunities for investment across residential zones in New Delhi and that is expected to directly compete with the high-end and luxury projects in suburban locations like Gurgaon and Noida.
Cushman & Wakefield has observed almost a 10 percent fall in prices in Gurgaon's luxury segment. Even the prime South Delhi market has not been spared. There's been a double digit decline in rentals in high end locations like Defence colony, Friends colony and Panchsheel park
Shveta Jain: It is very critical to pay attention to the developer you want to go with over and above the corridor you want to invest in because NCR traditionally has seen an issue of execution. More and more developers have launched new projects but have not focused on execution which I think has led to the confidence dwindling a bit in the market.
So, my advice to any investor would be to be more cautious about the developer they want to invest with. I think corridors, safer example your Golf club extension road, Dwarka expressway, Noida expressway these are strong and prominent corridors.
What does though enthuse Cushman & Wakefield are the Bangalore and Hyderabad property markets. The maximum number of launches across the country have been in Bangalore, with almost 90 percent being in mid segment of Rs 40- 80 lakhs an apartment.
For houses costing under Rs 40 lakhs, there's been plenty of activity in peripheral locations areas like Budigere cross in East, Anekal Road-Attibele in South, Tumkur Road in North and Mysore Road in Western part of Bangalore.
All to primarily tap the first time home buyer and of course the investor class. Sarjapur Road in South along with Whitefield in East and Hennur Road, Hebbal in the North have done well in the mid housing segment. In Hyderabad, there has been a surge in launch activity in Madhapur/Gachibowli. The low entry price point coupled with good infrastructure makes Hyderabad today one of the most lucrative investment options.
Shveta Jain: Overall the entire south region is good from an investment point of view. Hyderabad and Bangalore are two sound markets. Hyderabad reason being because the entry prices are very low.
You still have high end which is the lowest across the country so if one compare Jubilee Hills to any central location of Bangalore versus NCR versus Mumbai it is still cheapest. So therefore given the low entry prices Hyderabad is a very good market to look out for. Additionally Bangalore is sound because of the IT, ITeS background there. Also because of the quality of homes which are there in the market.
We also asked Cushman & Wakefield how investors should view real estate as an asset class, especially given the recent rebound we have seen in the equity markets. Have markets bottomed out, or should you wait?
Shveta Jain: I think there has been a bit of a misconception in terms of how people have viewed this asset class because people have been more speculative in their expectations which is in my opinion not really the right way to actually look at this asset class but essentially it is a strong asset class and should be treated as an investment vehicle, however, only if the view is for at least five to seven years.
Rs 60,000/sqft -that's the launch price of Parsvnath's commercial building in Connaught place. It'll be the first building to come up on the prime Kasturba Gandhi Marg in 25 years. Click on videos to listen in to the exclusive interview with Parsvnath Developers, chairman, Pradeep Jain.
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