About The Author

Reality check: Does NBCC have the funds to complete stuck real estate projects?

More than one lakh incomplete housing units and a construction bill running into thousands of crores, probably more, the National Building Construction Corporation hasn’t handled such a big job, and that has homebuyers and experts worried.

The Supreme Court’s order asking the state-run construction company to complete the stalled projects of Amrapali Group in Delhi’s neighbourhood have brought relief to harried buyers but the task is enormous.

Sample this: there are 42,000 unfinished units spread across 16 Amrapali projects, which, NBCC estimates, will run up a bill of Rs 7,714.71 crore. It doesn’t include NBCC’s project management fee, which will be 8 percent of the cost of each project.

If Unitech’s unfinished projects, too, come its way, NBCC may have to complete another 65,000 units spread across 74 projects. The court on July 29 sought Unitech buyers’ response to the government’s suggestion that NBCC finish the projects. Many of these are premium projects which means that the cost of completing them could be much higher, almost Rs 14,000 crore, say experts.

It is likely that 27 Jaypee projects will be given to NBCC as well. It will mean an additional 24,000 units, a work which will need Rs 6,500 crore.

“It may be a liquid company but it is not putting money from its pocket. It has the capability to execute projects but what is required is an entity that will steer the ship from the problem areas to the coastline,” said a real-estate expert on condition of anonymity.

Other than the sheer scale of the work, the NBCC is looking at a diverse portfolio — from affordable houses to ultra-rich, it will be expected to complete all units to the satisfaction of buyers.

Every project comes with its own set of problems. NBCC will have to check how much works remains to be done. It will have to look at the unsold inventory and land banks so that they can be sold or leased to foot the construction bill. It might even have to come up with fresh plans to generate funds.

Show me the money

Most stalled projects have monetisable assets in the form of land banks and Floor Space Index (the ratio between the area of a covered floor or built up area to the area of the plot of land on which the building stands), which the NBCC can use to cover a part of construction costs.

But who will bring in the money if there is a shortfall? What happens if land can’t be sold in a slow-moving real estate market?

As procuring bridge finance is proving to be a challenge for a developer, it will be the same for NBCC. Completing projects of this magnitude would be difficult, say experts.

NBCC will charge 8 percent of the actual cost of the project as fee for it services. It has asked for Rs 50 crore as due diligence fee before taking over Unitech projects. And it has not gone down well with the buyers, who say they want to be part of the court-appointed committee for completion of the pending projects.

“NBCC never sought any advance payment in the case of Amrapali Group. Also, how will this court-appointed committee raise funds to complete the project?” homebuyers’ counsel ML Lahoty said during hearing on the July 29.

Homebuyers were the main stakeholders, but not one was on the committee, said Lahoty, who plans to take up the matter with the court. The case will next be heard on August 9.

Instead of delivering homes with 12 percent compensation, the NBCC was asking an additional management fee, Vivek Tyagi, a Unitech homebuyer, said.

The top court has authorised a panel, led by Delhi High Court former judge Justice SN Dhingra, to sell assets of the Delhi-based real estate firm. Promoters, brothers Sanjay and Ajay Chandra, have deposited around Rs 481 crore with the court registry. Though the money is still short of the 750 crore the court ordered them to pay, it can be used for construction.

To foot the Amrapali bill, the court has suggested selling the firm’s unsold inventory, recovering money from promoters, top managers and their relatives, and also funds that have been diverted. But, it will not be easy, say experts.

NBCC estimates it will need around Rs 7,714.71 crore. As of now, it only has Rs 19 crore in an escrow account on the directions of the Supreme Court.

On July 23, the court directed homebuyers to clear all pending dues amounting to Rs 3,624.65 crore within three months. But not all homebuyers are convinced that NBCC will manage to plug the fund deficit.

Legal experts point to two Amrapali projects-Eden Park and Castle-that were handed over to NBCC in January. A sum of Rs 5.5 crore was needed to complete 660 units. While the court arranged Rs 1.5 crore and NBCC chipped in some money, the work has come to a halt for want of funds, legal experts following the matter have said.

Not all projects have a kitty of flats that can be sold off or offered as collateral for bridge financing.

NBCC was not the owner and was not pumping in any money, said Abhilesh Babel, CEO at Feedback Infra (P) Limited. “No liquidity means no construction,” he said.

The best way out would have been a one-time intervention by the government as in the case of Satyam or IL&FS. The government could have taken a call to take over the projects or developers above a certain threshold. It would have taken care of the ownership vacuum, bridge financing and projects would have been completed simultaneously, Babel said.

The National Company Law Tribunal had allowed the Centre to take over Unitech, but the Supreme Court stayed the order in December 2017.

If projects were taken up one at a time, how many homebuyers would be willing to await their turn and for how long, Babel wondered.

What about NBCC

It is not just homebuyers even NBCC has to exercise caution. There is very little scope for demanding escalation costs from customers, as a majority of them have paid almost 90 percent of the amount.

NBCC cannot be seen as handling all the distressed assets in the country. It is like any other corporation and the projects it undertakes have to makes financial sense. Completing unfinished units was not a corporate social responsibility initiative but business for NBCC, said an expert.

Other developers, too, can take on such projects, as the Jaypee bids indicated. “One-size-fits-all approach may not help. Some projects may be badly stuck and not viable at all,” said an expert.