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What is truth about the real number of projects being stalled & the general understanding that prices of realty will definitely fall in the post Covid Era?


Written By - Mr. Nayan Dedhia | Managing Director, Toughcons Nirman Pvt. Ltd.


Since the deadly COVID 19 pandemic has hit, everyone in the real estate industry is talking

about a notable price fall, but is this really possible?

Let us assess the real situation and factors affecting the determination of the price of realty. The purpose of this article is not to favour or criticise anyone, but to bring to light the real facts as they exist on the ground level.This article addresses the current situation prevailing with respect to the redevelopment projects in Mumbai, especially the co-operative housing society redevelopment projects. Some of the below mentioned points may not be applicable for SRA, CESSED property projects or real estate projects outside Mumbai District region.

To understand the situation in a better manner, let us take an illustration.

For example in 2015-16, the average market property rate in a certain area in Mumbai was Rs.20,000/- per sq. ft. carpet area.


It was widely believed that a Developer earns about 8000-10000 per sq.ft. after recovering all


Based on the statements made from time to time the people who generally may have believed so were :

1. Finance Minister of India

2. Deepak Parekh, Chairman HDFC Bank

3. Nitin Gadkari, Minister of Road Transport & Highways

4. Society members

5. Project Management Consultants appointed by the society(PMC)

6. BMC

7. State Govt

8. Central Govt

9. Income Tax Department

10. Purchasers

11. RERA Authority

12. Law & Order department/personnel

13. Politicians

14. BMC officers

15. Deputy Registrars, Sub Registrar, CFO, RTO, etc

16. Media

17. Social Activists

18. Bankers

19. Finance companies

20. Investors

21. Brokers, Real Estate Agents

22. Professionals working for Developers

23.General Public

The list is not exhaustive ..


In and around 2015-16, almost all the developers were of the optimistic view that in Real Estate, the prices in real estate can only go up. And hence they aggressively went after and bagged many redevelopment projects by offering higher additional area to the society members with meagre margin of 5% - 10% on the project cost. There were very few developers who actually worked on systematic costing and took in to consideration a possibility of a downfall in the real estate prices. Such developers who had a mere conservative attitude stayed aloof from the market and in many cases they may have even regretted their decision when prices were continuously escalating and bringing windfalls to the developers who kept on investing more and more in new projects.


During the period from the year 2008 to 2014, the market was booming and the market rates

were constantly increasing.

Also during that period, the demand was so great that developers could sell the flats even on the news of being appointed for a Redevelopment Project. In most of the cases, almost all flats available in a project used to get booked/sold on the day of Bhumi Pujan itself. As a result the developer could begin the project practically with no or very low investment.

Due to the very positive and optimistic situation prevailing in the market at that time, many developers could complete the project and give possession well in time and this situation encouraged interested many societies to go for redevelopment with such developers. In those times moment,the developers truly believed that real estate prices could only go one way..that is up !! This situation sparked a rat race among the developers to bag the available redevelopment projects with wafer thin margins in anticipation that the prices will definitely increase over time.

This belief was shared even by the society members who kept hearing stories of super normal profits to the investors and purchasers who had invested in the real estate projects.These societies who wanted to go for the redevelopment of their society plot took advantage of this situation and selected the developer on the sole basis of the highest offer, irrespective of the financial viability of the project and often ignoring the adverse reputation of the concerned developer.


Most of the times,the developers in redevelopment projects did not even bother to look into the costing, did not provide for the possibility of a changing market scenario, did not conduct market research and kept on bagging the redevelopment projects irrespective of the clear red flags that appeared in the projects undertaken by the developer.

Some of the mistakes/errors committed by the Developer are enumerated below.

Starting process of redevelopment without arranging finance for every step of the redevelopment process.

Vacating the building/plot and starting payment of rent/corpus before receiving the necessary approvals.

Miscalculating the Construction area costs and specially parking costs.

Not understanding the details of compulsory fungible FSI for members factor properly.

Misunderstanding the concept of open space deficiency premium.

Not estimating the finance/interest costs in the project.

Not calculating the buffer rent cost in the event of delay in the project for whatever reasons.

Not clearing the title of the property

Not resolving the disputes between the members intense.

Not taking the LUC tax in the costing of the project.

Not calculating all the MCGM/MHADA premiums with detailed working. (Even today it is practice in many cases to consider the costing a lump sum ballpark figure)

Not ascertaining plot area as per PR card, physical possession, conveyance, BMC approved Plan, etc.

Not taking in to account the increased premiums . In many cases these were calculated as per 2013-15 Ready Reckoner Rate and not calculated at the increased rate(20-50% increase by 2017).



In many cases the developers sold the initial flats to investors at a break even price or less with a view to generate initial liquidity in the project.

From that money they got approvals in initial stages with a view that further approvals may be procured as and when liquidity is created by sale of additional flats and in this belief they

carried on the construction.

In the later stages the developers realised that rates are not going up and on the contrary the

rates were going down.With a view to complete the project and keep their reputation intact, the developers borrowed money from finance companies at an higher rate of interest and piled up the inventory.

Developers also realised that the MCGM/ MHADA cost, construction costs were also going up and they thought that they will be able to sell ready flats at higher prices and recover the costs.

Once the moratorium period of the project finance ended, developers failed to pay the instalments, the debacle of Housing Finance Companies started & the stark realities of the Real Estate market got exposed.



The State govt increased Ready Reckoner rates year after year to augment their revenue, without actually looking at the ground reality.

The State Government increased 1% stamp duty which increased the cost of the flats in the

already depressed market(the same was withdrawn after 1 year)

The BMC doubled Development charges, increased scrutiny fees, LUC tax every year and as

all premiums were tied up with the Ready Reckoner rates and hence,all premium costs increased.

In March 2016, there was a stay on all construction projects due to the dumping ground order passed by the Honourable High court. Many projects all over Mumbai were adversely affected and this stay led to piling up on interest cost and increase in cost towards relocation rent to society members.

In Nov 2016, Demonetisation came into effect and the real estate business being an unorganised sector and being heavily dependent on cash for unaccountable expenses, under table payments for approvals and speed money,was impacted the most.

In May 2017, GST was implemented which resulted in a 7% increase of the tax (earlier approx VAT was approximately 5% Vat and GST was fixed at 12%) As the developers had already incurred heavy construction cost, they didn’t pass the input tax benefit to the buyers and that resulted in an increase of the cost for the buyers.

In July 2017, RERA(Real Estate Regulatory Authority) was established in Maharashtra with a view to bring transparency in Real Estate Sector.The RERA Act contained some salutary provisions like declaring the identity of the promoters,approved plans of the concerned project,details of feasibility report, project costs, litigation details, flats books and sold etc. However, there was also the provision for a dedicated bank account for a project and there was a provision that the developer could utilise only 70 % of the amount lying in the said account. This single stipulation increased the investment cost and therefore the finance cost of a given project for the developers as they were not able to entirely utilise their own money for the project and had to look elsewhere for the required finance.

Meanwhile, New DP for Mumbai also got delayed due to various reasons and the same was finally announced in November 2018 but was implemented almost after one year.

This delay in implementation of the new development plan meant a consequent delay in the grant of approvals and the construction work got stalled resulting in unnecessary increase in the rent and interest costs of a project.


Society members kept on demanding higher additional area and hardship allowance without considering the ground realities.

Amount for liaison expenses kept on mounting for compliance with the section 79A procedure under the MCS Act, obtaining the deemed conveyance, payment of stamp duty on the Agreements, MCGM approvals, Noc’s and other Permissions, Brokerage, Society Committee ,PMC, etc. Banks & NBFC without checking the feasibility of the project approved the loan based on historical figures and inflated unsold inventory stock valuations.

Real estate brokers indulged in miss selling & Buyers bought the flats without checking CC and other approvals required for the entire project.

Approval architects didn’t disclose the correct BMC premiums for the project in detail.


As discussed earlier for illustration purpose suppose the market rate was Rs. 20000/- per sq.ft. In 2015-16 the rates reduced by approximately 5-10% and assuming the break even for developer in 2014-15 was around Rs.18000-19000/- per sq.ft and the market price became ₹.18000/- per sq.ft.

Further due to miscalculation of MCGM premium approx 5-10% there was an increase by way of premium i.e. Rs 2000/- per sq.ft and the cost price for the developer increased to ₹.21000/- per sq.ft.

Further due to increase in Ready Reckoner & MCGM Premium charges there was an additional escalation in costs of up to 5-10% thereby increasing the cost of the project to ₹.23000/- per sq.ft.

There was also an increase in interest cost due to lesser liquidity in the market and the break even for developer again increased and went to approximately Rs 25000/- per sq.ft.

Again, due to unforeseen delay in project, the backlog in the monthly rent also piled up and

increased the break even by further to Rs. 26000/- per sq.ft.

Many a times, Developer facing acute financial problems were constrained to sell units at a

heavily discounted rate to few buyers and this further increased the break even to Rs.27000/-

per sq.ft.

Apart from this GST, increase in construction cost, govt. taxes,speed money and various other expenses the break even for developer would go up to Rs.28000/- per sq.ft as against the market price of Rs. 18000/- per sq.ft.

Moreover,the marketing costs also increased and were on an average of around 5-8% of the market price thus adding cost of 100-1500 per sq.ft to the current market price.

Thus, in a nutshell the developer actually receives Rs.17000/- per sq.ft in hand against break even of ₹28000/- per sq.ft making the entire project absolutely nonviable to execute and implement.

Apart from these factors mentioned above, many a times the money is also been siphoned out by the developer for their personal needs or for meeting requirements of other projects.


MCGM announced few discounts in premium for 2 years, but to avail the same , the developer must have paid 30-60% of premiums by then and so hardly any benefit passes to the developers.

MCGM also reduced the interest rate for instalment scheme but this has come very late in the day and after the things have already worsened to the point of no return.

The general understanding of the Govt. is that projects are stalled only because of lack of liquidity whereas various factors have compounded the problems.

Central Govt announced ₹25000 crore, but this was only for stalled projects which were net worth positive.

Most of the measures undertaken by the Government are like locking the stables after the horses have already bolted.The Government measures are mostly reactionary and these measures therefore prove inadequate and ill timed.

Majority of redevelopment projects are not net worth positive as of now and the amount required to complete the project will not suffice taking in to account the net receivables and available inventory.

These are the many reasons why the developers are not ready to carry on with the projects and at the same time the developers are not able to leave the project fearing adverse inferences on their reputation and brand equity.


It is obvious that developers’ association has failed to make proper and effective representation to the Govt.

Many a times the developers body or associations have to be contended with small incentives and measures received which have no bearing on the actual needs of the market.


The first thing all stake holders have to understand is that this problem is really huge and they have to open their eyes to the problem.

The current stalemate cannot be solved only by providing liquidity and the problem needs to be tackled with a multi pronged solution covering all the aspects of the problem and such a solution should aim to help the project become viable and see that the problems of all stake holders are properly addressed.

The possible solution that is the need of the hour and which is required to be announced include the following:

1. Reducing the Housing loan interest rate.

2. Relaxation in strict eligibility criteria and requirement of collateral security.

3. Increase in the tenure period of housing loan up to 30 years.

4.Revising the upper limit for interest rebate paid on Housing loan under income tax.

5. Special window to cover all type of projects including projects which are in litigation, where there are lender/ financial institutions issues, developer are not supporting, etc.

6. One window for all pending approvals with full approvals in 7 days.

7. Tax holiday on Stamp Duty for all sales in stalled projects.

8. GST holiday for all sales in stalled projects.

9. Heavy Discounts or No premiums to be charged depending on the project feasibility.

10. Increase in FSI, if possible to make a project feasible.

11. Payment of premium to be paid in a staggered manner or preferably at the time of

possession/Occupation Certificate.

12. If premiums are already been paid to MCGM, then credit note for refund of premium to

be issued which can be traded I open market.

13. Liquidity of funds to be made available to complete the project without interest.

14. LUC Tax holiday for all staled projects for 3 years.


Many experts may debate that post COVID - 19, Govt may require huge amount to revive the real estate market and thus need to generate revenue.

The answer to such debate is that if this action is not taken, the deficit of 30% loss incurred till now and due to lockdown it will increase more and more and may reach up to 40%.

No stake holders will be able to absorb such huge impact. Hence, the stamp duty & GST amounts are required to be substantially reduced,another 20% rebate in Premiums should be announced along with an increase in FSI. This will bring all projects to a break even stage and will result in boosting of sales and the economy will be revived.


Real estate industry is now not at death bed but is already dead.

Developers have already lost all interest in the projects and more projects will go under disputes/ litigation.

The society members inspire of having their own land, would still be left homeless and shall be paying hefty rents elsewhere due to stalled project.

The buyers who have bought the flats for no faults of their own will be left high and dry. Also if they have taken housing loan on their flat, bank or financial institution will also be after them for repayment inspire they not being in possession of the new flat. This will be a double whammy for them.

The banks, NBFC or financial institution who have financed to developer will have to strike off the loans and more and more NPAs can be anticipated.

MCGM will loose its revenue in the form of property tax on the new flats.

Politicians will loose their dedicated voters for failing to address their problems.



The Reality of Realty is that the current situation has become worse and the society members

and purchasers are suffering more than they are likely to suffer from the ongoing pandemic or any other natural disaster.

In Mumbai alone, it is estimated that 8-10% of population is adversely affected by the current situation in the real estate market.The present uncertainty can also lead to more problems and can spread further to about 20% of population directly or indirectly if not addressed appropriately within time.

If the right decision is not taken at right time the unrest from all stake holders can spiral out of control to such an extent that no measures taken by Govt are then likely to resolve the issue.

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