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  • Real estate sector to be hit hard if construction ban is prolonged

    Publish Date: September 04, 2018

    In a severe setback to the real estate sector, the Supreme Court of India has banned construction activities in Maharashtra, Madhya Pradesh, Uttarakhand and Chandigarh until October 9.

    The apex court took the step because the errant local governments failed to comply with the Solid Waste Management Rules. Basically, the local governments failed to draw up a plan on solid waste management since April 2016.

    The move will particularly impact real estate companies, cement-makers and steel industries. The ban is another sucker-punch for these companies, especially because they were on the mend following the twin blows of demonetization and GST in the last two years.

    As cash collection is linked with construction activities, the ban means the builders will be hard-pressed for cash because the cost of capital will keep soaring. This is a threat if the ban is in effect beyond October 9, the date of the next hearing in the Supreme Court. A prolonged suspension will impact buyers as well because property rates would spiral as a result.

    Project deliveries will be hit too. Currently, there are projects worth Rs 4.64 lakh crore that are behind schedule, as per property consultant Anarock. In terms of units, about 575,900 homes have not been passed on to the buyers on time. The number is likely to rise if the ban is long-standing.

    Fallout over prolonged ban

    The states of Maharashtra, Madhya Pradesh, Uttarakhand and the Union Territory of Chandigarh comprise 35% of the country’s real estate sector. But most eyes would be on Maharashtra, which remains a bulwark for the realty sector in the country.

    We feel that Oberoi, Sunteck and Godrej Properties will be particularly hit in case of a prolonged ban. Godrej, though, may be less impacted because it has projects in other states as well. We also need to know if the ban is restricted to new projects only and not on projects where commencement certificates have already been issued. If that’s the case, the impact will be less severe.

    In short, the real estate sector would be knocked down again if the ban goes beyond October 9.

    Ray of hope

    Several media reports suggest that Maharashtra would be pardoned in the next hearing. That’s because the government has apparently framed a solid waste program. Senior government official say they failed to send the blueprint on time due to a technical glitch.

    A DNA report suggests that the Maharashtra government is looking to implement the waste plan by October 2, 2019. The government will reportedly inform the Supreme Court that it has cleared solid waste management projects in 150 towns across the state. As per the report, all civic bodies in the state will set aside 25% of the budget to deal with waste in a scientific manner.

    If the media reports are true, the ban on all construction activities in Maharashtra is but a temporary jolt. The apex court will hear the matter again on October 9.

    The Supreme Court has been stern about this issue after a seven-year-old boy died due to dengue because he was denied treatment by five private hospitals in New Delhi.

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