[ecis2016.org] With the Coronavirus pandemic halting construction activities, builders are seeking a revival of the deferred payment plan, which involves payment of an initial amount of around 10% and the balance spread over nearly a decade
Developers across the Noida, Greater Noida and Yamuna Expressway real estate markets, are quietly lobbying for a return of the deferred land payment policy. Their argument is that in times of liquidity crisis and overall stress in the property market, a staggered payment plan with the government agencies, for the purchase of land, is the logical answer. Track2Realty has learnt that at a time when the Noida Authority is planning to auction 100 acres of land in Sectors 151 and 158, the developers are silently making up a case for the revival of the deferred payment plan. The Coronavirus and lockdown, leading to escalation cost and supply chain hurdles, are being cited for its revival. The moot question that remains, is whether the government would allow the revival of a practice that was a catalyst for delays and defaults in Noida.
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Requesting anonymity, an official of the Noida Authority admitted that developers were not only lobbying for the policy through the respective Authority officials of Noida, Greater Noida and Yamuna Expressway but have also approached the power corridors in Lucknow, to get the policy tweaked yet again. The source, nevertheless, said that keeping in mind the public pressure in the wake of defaults by builders like Jaypee, Amrapali, Unitech and many others, who enjoyed the privileges of deferred land payment, it is highly unlikely that the policy would be revived.
What is deferred payment agreement for land?
The land allotment policy, with a deferred payment plan, was revised by the BSP Government in 2009. As per the policy, the builder had to pay only 10%, with two instalments of 5% each, at the time of allotment and registration. The balance amount was to be collected in 10 years, with a two-year moratorium.
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Before this liberal revision, those allotted land in Noida and Greater Noida had to deposit 30% of the land cost with the authorities. In 2017, the Noida Authority changed the deferred payment plan and now, the developers have to pay 40% at the time of allotment and the balance in four subsequent years with eight bi-annual instalments, with a compounded interest rate of 11%. The Greater Noida Authority and the Yamuna Expressway Authority too scrapped the deferred land payment policy. In Greater Noida, a builder now has to pay 10% as a reservation fee and 20% as allotment fee. The builder will have to pay the remaining 70% in instalments in seven years’ time. The two-year extension has also been done away with.
Housing project defaults and delays in Noida
Experts maintain that the deferred land payment plan has been the nemesis of property markets across Noida, Greater Noida and Yamuna Expressway. Gagan Randev, national director-capital markets, Colliers International, compares the discipline followed in the real estate markets of south India, with what happened to developers in north India, especially in Noida, where you had a peculiar situation of buying land by paying 10%, with the remaining being paid over the next 10 years.
“It (deferred payment) meant that instead of buying one piece of land, you thought it was ok to buy 10 pieces of land. In that time you took up more than you could chew. You got into issues like manpower and escalating costs. You sold some units and then you used that money for paying some other land dues, resulting in the challenges that were faced,” Randev elaborates.
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Advocate Aditya Pratap categorically states that the deferred land payment policy was extremely faulty and one of the prime causes for the entire crisis across the Noida real estate market. According to him, there is a settled principle in law that no one can transfer a better title than what he has. Therefore, unless your land dues to the Noida Authorities are fully paid, how can one’s title be complete, he asks. Builders would fraudulently suppress this fact and take money from innocent customers, who were completely unaware that even the basic title to the property was not clear.
“Given this major lacuna, coupled with the fact that customers’ money would be fraudulently diverted and misappropriated, the deferred land payment policy was a complete disaster and it is a strong indicator of the corruption and deceit in the builder-bureaucrat-mafia nexus,” says Pratap.
Impact of deferred payment plan on real estate
The question now, is that while cash-starved builders want the policy to be back, will it serve the home buyers’ purpose? The law of natural justice and the very ethos of entrepreneurship, suggests that if a builder does not have money to pay for the land ownership, he must simply exit the business. Even banks do not lend money for buying land. Real estate requires serious players, who have the capital to purchase the land and construct the building. With the deferred payment plan policy, the builders started concealing from customers the fact that their titles were defective, on account of incomplete payment and hence, the problems began. Further, even the money received from customers was diverted into purchasing lands in other areas, without using it to pay off existing dues. “When I buy a car, the automobile company keeps the car ready in the showroom. I pay the money and take the car. Why is real estate so special that it deserves an exception? If builders do not have money to complete the product, they have no right to stay in the business,” concludes Shweta Ramani, a home buyer.
(The writer is CEO, Track2Realty)
FAQs
What is the advantage of the deferred land payment policy?
The deferred land payment policy can help builders to pay for the land over a period of time, especially when there is a liquidity crisis in the market.
What is the disadvantage of the deferred land payment policy?
The deferred land payment policy often resulted in defaults due to over-leveraging by builders and diversion of customers’ money to pay for amassing land banks.
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Source: https://ecis2016.org
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