Delhi

Supreme Court construction ban may take toll on development

 

The SC has banned construction in several states and union territories because they have failed to put in place rules on solid waste management.

 

Development work could come to a stop in Maharashtra, Madhya Pradesh, Uttarakhand, Chandigarh and elsewhere following a Supreme Court ban on construction in parts of the country, delaying deliveries and hurting property companies and allied industries besides putting people out of work.

 

The real estate industry said it’s being punished for state inaction over solid waste management. “It will choke supply, and impact home seekers. Effectively, home buyers will suffer just because some state governments have not formally notified the policy,” said Niranjan Hiranandani, national president of lobby group National Real Estate Development Council (Naredco). 

 

“The intention behind the order is good from a long-term perspective, but a blanket ban stopping all construction will have a negative impact on housing.”

 

The biggest impact is seen on Maharashtra, home to the high-value property markets of Mumbai and Pune, although the state has prepared a policy on the matter and may therefore be able to get relief on this score, developers said.

 

“The overall annual real estate industry size in India is close to Rs 10 lakh cr, of which close to Rs 1.5 lakh cr to Rs 2 lakh cr is contributed by Maharashtra,” said Pankaj Kapoor, MD, Liases Foras Real Estate Rating & Research. “Over 1,000 allied industries across major sectors such as banking, cement, steel, sanitary, tiles and electrical equipment will be impacted severely if the states do not manage to get this stay vacated soon.”

 

The decision will also have a bearing on the recovering economy and the job market, he said. Investors seemed to be optimistic, however, as real estate companies mostly shrugged off the news on Monday. Godrej Properties ended up 1.7% at Rs 698.10, HDIL gained 5.5% to Rs 34.55, and Oberoi Realty ended up 3% at Rs 454.95. Indiabulls Real Estate’s shares ended down 3.1% at Rs 149.25.

 

“The policy for solid waste management is already in place in Maharashtra, even though the same had not been submitted to the concerned authorities,” said Kotak Institutional Equities in a report. If a stay is given in the coming weeks, the impact of the ban won’t be material, analysts said. “They (Maharashtra) are going to apply for a stay of this order as they are saying they already have a solid waste management policy in place,” said an analyst at a Mumbai-based brokerage. “If Supreme Court gives a stay, there will be no impact. If they don’t get a stay, then they will have to wait for the October 9 hearing.”

 

Hiranandani said it would have been better if the court had penalised the states and barred new construction while allowing ongoing projects to be completed.

 

According to the court, the states and union territories had not framed any policy under the 2016 Solid Waste Management Rules put into effect by the environment ministry in April 2016.

 

Experts are hopeful that the matter will be resolved soon, with the concerned state administrations doing what is necessary and the court allowing construction to resume.

 

“In our view, the government, that has large infrastructure projects at stake will likely formalise the solid waste management policy and be able to vacate the ban on the construction activity at the earliest,” said Murtuza Arsiwalla of Kotak Institutional Equities in the report. “An unwanted outcome would be a prolonged ban, the likelihood of which we see as low.” If the deadlock doesn’t end soon, however, this will prove damaging for the real estate industry and its various stakeholders, especially homebuyers.

 

The “stay on construction will further push the delivery dates of ongoing projects”, said Anuj Puri, chairman, Anarock Property Consultants. “Projects worth Rs 4,64,300 cr for a total of 575,900 units are already significantly behind schedule and this stern stand of Supreme Court may add to this number.”
 

Written by The Realty Paper


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