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Delays plague projects, despite RERA

Report: Projects worth $47 bn are stuck due to financial constraints, execution challenges; consolidation among developers expected

Property worth $47 billion is locked in delayed projects across India, causing distress among homebuyers. The bulk of this is in the National Capital Region (NCR) and the Mumbai Metropolitan Region (MMR).

As per real estate analytics estimates, more than 4.65 lakh units in housing projects across India are running ‘significantly behind their delivery deadlines’ with ‘daunting’ construction delays.

“Total value of projects facing construction delays is ₹3.3 lakh crore ($47 billion),” The National Capital Region accounts for more than 70% of projects that have failed to meet completion deadlines.

Bulk in NCR, MMR

Almost 1.8 lakh units valued at ₹1.22 lakh crore are facing an uncertain future in the NCR region (Gurugram, Noida, Greater Noida, Ghaziabad, Faridabad). In MMR, which includes Mumbai, Navi Mumbai, and Thane, 1.05 lakh units worth ₹1.12 lakh crore are pending completion.

These projects are on hold because of financial constraints, execution challenges, surplus supply due to over-ambitious launches by developers, environmental clearances, and slowing sales, among others.

Funding is another issue. “Most of the projects are stuck because their developers do not have funds to complete the projects,” said Ankur Dhawan, chief investment officer, PropTiger.com

“These developers are currently looking for JV partners who can bring capital to complete the stuck projects as the balance sheet of existing developers do not support further funding from financial institutions.” He said RERA, a law brought in to enforce strict norms on developers, has not helped solve the issue as it had allowed developers to offer new completion dates without facing financial penalties.

In Mumbai, several developers have witnessed project delays. One of the projects was stuck for eight years as the property had been attached by the Forest Department which claimed the land as its own.

SOURCE: The Hindu, Mumbai Edition, August 26, 2018

Another news clipping from Business line:

On an average construction and real estate projects have been delayed by 39 months.

Business line, New Delhi, Apr 9, 2017

Over 2,300 real estate projects were being developed at the end of December 2016 and out of that 826 housing and 60 commercial projects were facing significant delays, according to a study by industry body Assocham.

The maximum delay has been witnessed in Punjab at 48 months, followed by Telangana (45 months), West Bengal (44 months), Odisha (44 months) and Haryana (44 months).

There is a delay of 42 months each in Madhya Pradesh, Andhra Pradesh, and Uttar Pradesh.

Maharashtra saw a delay of 39 months in projects execution, Karnataka recorded the lowest delay of 31 months. Realty projects in Rajasthan and Kerala are facing delay almost equal to Karnataka.

Analysis: the issues faced above are largely Project Management as seen below :

  • Significant Schedule overrun: assuming a scheduled phased delivery and completion of a venture as 36 months, average schedule delay of 39 months mean a little over 100%. Actual figures may vary on both sides
  • Cost over-run and cash flow, 3.3 lakh crores of assets standing idle and developers have to pay interest for it will cause a serious dent in their business cash flow, profits and working capital required to complete and hand over
  • Financing: As the project delays, the CIBIL score of the company declines and banks decline to release the funds and sanction additional funds. This hurts the company further. (Banks are willing to give money to those companies who have money, and refuse to companies who need money!)
  • Statuary approvals: We read in Project Management, Enterprise Environmental Factors are critical while initiating projects and developing plans. The real estate sector do not pay significant attention to this and take them lightly. Especially forest and environmental clearances take a long time and they are sensitive.
  • Awareness of Project Management: The real estate companies pay little attention in improving the Project Management skills and they do not use appropriate tools for managing their projects.

Suggested solutions:

  • Before looking into JV partners for additional funding many of these companies should focus their attention on improving their capability in terms of their Portfolio, Program and Project Management, tools and building and nurturing maturity. Companies believe in their engineering and architectural capabilities but not in management capability
  • Discipline in following the Enterprise environmental factors. It may look these factors cause a delay in projects but in fact, bring significant predictability. Unless some of the key approvals are in place, key risks are resolved, launching new projects should be delayed
  • Follow agile lifecycle methodologies. This will bring down the overcapacity significantly. Work in progress will reduce significantly and cash flow position will improve. A thorough product analysis to be done right in the beginning and the construction activities must be phased in such a way to align with cash inflow ( through borrowings and sale).
  • Follow modern scheduling practices like Critical Chain Scheduling based on the theory of constraints. These principles are simple but give excellent results if one follows completely in a project. Tools like Prochain are available for an investment as little as 50k INR

 

Proventures is a 360-degree Project Management partner helping clients in building competencies, providing tools and methodologies and supporting clients to deliver projects on time, within budget and meeting stakeholders expectations

 

Project online is a powerful solution based on MS Project 2016 with enterprise capability that can be leveraged by small and medium construction companies. Proventures supports project online implementation, training. Additional add-ins on MS Project for CCPM, Risk management are also available. For more information contact [email protected]

 

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