On June 20, 2005, India's largest real estate company DLF bought the 17.5 acre Mumbai Textile Mills land for Rs 702 crore from the National Textile Coporation (NTC) and announced a futuristic retail-cum-entertainment centre in Lower Parel. The project, which was earlier expected to be completed this year, is unlikely to be over before 2010.
The same year, Shiv Sena leader Manohar Joshi's Kohinoor Group and Raj Thackeray's Matoshree Realtors bought the Kohinoor Mills land in Dadar from NTC for Rs 421 crore. The land was expected to be converted into a plush retail mall, but the property was put up for sale following disagreements between the retailers and the developers over rentals. So far, no one has bought the land.
Ashok Piramal Group's Peninsula Land acquired the erstwhile Dawn Mills in Lower Parel from the Ruias for nearly Rs 120 crore and planned to set up a 1.1 million sq ft Peninsula Business Park by July 2009. The company now expects the project to be over only in the first quarter of 2010.
These are just three examples of high-end luxury realty projects announced by the country's biggest property giants that are behind schedule. According to industry estimates, around Rs 8,000 crore of real estate projects covering over 40 million square feet are facing delays.
Analysts said the construction cost for large commercial projects was Rs 2,000 per square foot, on average.
In the process, developers are facing huge cost overruns. According to analysts, construction cost is growing 20 per cent every year and the developers are carrying a compounded interest burden of 30 to 40 per cent after three years.
Real estate observers believe that cost of the projects has doubled in the last three or four years owing to the rise in input and construction costs, and increase in interest rates. Steel and cement prices, which are the main components in property projects apart from labour, have risen nearly 50 per cent since December 2005.
The reasons for the delays are varied: tardy government approvals, stop-work notices from the municipality, construction delays, labour unavailability and so on.
"All the developers who bought land from NTC had to pay upfront and raised huge sums from the market. Even if they raised money at 10 per cent, the interest rate comes to 40 to 50 per cent compounded after four years," said Akshaya Kumar, managing director of Park Lane Property Advisors.
"In the coming days, when new supply hits market, prices could soften," he said.
By 2008-end, Mumbai and its suburbs will add 15.4 million square feet of office space, which analysts said will have a sobering impact on property prices. Office rentals in Mumbai's central business district such as Nariman Point have increased 50 per cent in the last three years and places such as Worli and Lower Parel saw a 30 to 40 per cent increase in this period.
Though developers maintain that their projects are on schedule, in private they blame the delay in getting government approvals.
"In Mumbai, developers need to obtain 56 approvals from environment and forest department, pollution control board and others. It takes over a year to get these approvals," said a leading developer who is setting up a large project in Central Mumbai.
Adds Pranay Vakil, chairman of property consultancy Knight Frank: "There was a lack of clarity on approvals in the mill land case. Some of the approvals were revoked with retrospective effect which caused delays. Shift in policy stands also resulted some delays," he said.
For instance, Brihanmumbai Municipal Corporation (BMC)'s stop-work notices in October 2007 to the developers of mill lands for violation of development control (DC) rules and subsequent revoking of notices in early 2008 caused much delay in the development of mill lands. The DC rule allowed mill owners to redevelop or sell their land provided the owner would hand over one-third of the open land on the premises to the BMC and MHADA each.
When asked about delays, a DLF spokesperson said: "Our Lower Parel project is on time and proceeding smoothly. We are not in a hurry to complete the development and we can take our own time to finish the project. We cannot specify any reasons for the delay," the spokesperson said.
A Matoshree Realtors executive said: "We have decided to sell the land but not finalised the buyers. We received good offers for the land so we did not want to go ahead with development," she said.
Rajesh Jaggi, managing director of Peninsula Land said: "Due to stop-work notice, our project was delayed three or four months. Beyond that there is no delay."