When the Indian real estate industry was just beginning to show some signs of recovery from its worst slowdown since 2008, here comes another blow. Supreme Court of India has banned all construction activity in the three states of Maharashtra, Madhya Pradesh, and Uttarakhand and union territory Chandigarh after they failed to comply with its order to come up with a policy on solid waste management.
Apart from the ban, a bench headed by Justice MB Lokur also imposed a fine of Rs. 3 lakh each on the states and the union territory. The case will now come up for hearing on Oct 9, 2018.
The ban was announced on Aug. 31, Friday, citing the failure of these States and the UT to implement a solid waste management policy. Although it is difficult to quantify the number of projects that will be affected, the ban will affect companies like Godrej Properties Ltd, Oberoi Realty Ltd, Sunteck Realty Ltd, Kolte-Patil Ltd, among others which have major projects in Mumbai.
In fact, the shares of Oberoi Realty and Godrej Properties Ltd., witnessed a slump soon after the SC announced the ban.
The blanket ban is indeed going to impact the realty industry. It will further delay the possession of homes, thereby, affecting the earnings of real estate companies.
“It will choke supply and impact home seekers,” Niranjan Hiranandani, co-founder-MD of Hiranandani Group, told Business Line. “Effectively, home buyers will suffer because some State governments have not notified the policy.”
It is noteworthy here that the three States and Chandigarh, where the ban has been imposed, account for about 35 percent of the national real estate market. Realty experts reportedly believe that if the ban continues, the home buyers might face delays, but have to continue to pay both EMI and rent. Builders might run out of cash as inflation and cost of capital will increase, leading to a vicious cycle of a slowdown in the Indian real estate market.