Job losses spur cancellations in luxury residential projects

The developer fraternity now faces a new crisis: buyers queuing up to cancel transactions after months of paying the booking amount

When Sobha Developers Ltd, a listed realty firm, was recently approached by a buyer who wanted to cancel an apartment purchase in Petunia, a luxury residential project in north Bangalore, out of fear that her husband could lose his job, the developer promptly transferred her booking to one of its more affordable projects.

The buyer, who had already paid Rs. 1.25 crore of the Rs. 1.65 crore for the under-construction Petunia apartment didn’t have to pay anything more.

An economic slowdown and fears of job losses are forcing realty firms to accommodate such requests, said Keshav Menon, executive director, Sobha Developers, without divulging the identity of the buyer. “The idea is not to lose a customer and try to accommodate him within what we can offer,” he said.

At Sobha, which has been grappling with dipping sales and sizable debt, at least one in 10 cancellations every month are due to reasons involving sudden unemployment and the fear of losing jobs, Menon added.

With monthly sales down to single digit at several projects and serious liquidity issues, the developer fraternity now faces a new crisis: buyers queueing up to cancel transactions after months of paying the booking amount. There is no readily available estimate for job losses across the country, but there have been reports of layoffs in sectors such as software services and automobiles.

As such instances increase, developers are beginning to ignore a forfeiture clause that typically allows a refund only after a deduction of 5% to 20% from the booking amount in case of a cancellation.

“The panic to withdraw from bookings is particularly noticeable in high-end projects where the buyer is simply scared of financial insecurity. We try to counsel and retain them but if it is a case of genuine job loss, we ask them to provide some proof and then refund,” said A.R.P. Raman, global head (marketing and sales) for Shriram Group, which has eight projects in Bangalore, Coimbatore, Chennai, Visakhapatnam and Kolkata.

Developers stress it is only in genuine cases that the deduction is held back. At Sobha, for instance, in cases where a refund is demanded without a job loss, “around 25% is deducted from the booking amount and returned”, said Menon.

Six months ago, as the economic slowdown started settling in, Sobha introduced a clause in its sale agreement that the developer will refund the booking amount only after re-selling the same apartment and after a 25% deduction.

Another luxury project, Aquilla Heights in Bangalore has also seen cancellations over the last few months with job loss being cited as a reason. The project, being developed by Tata Housing Development Co. Ltd and billed the tallest residential project in the technology hub, has 244 apartments priced between Rs. 70 lakh and Rs. 1.2 crore. But, “we are also telling buyers to hold on as there are exit options. They are allowed to sell the unit six months after allotment,” said a senior executive at Tata Housing, who asked not be identified citing company policy.

Mint reported on Tuesday that DLF Ltd, the country’s largest developer by market value, has assured around 250 buyers who want to exit a housing project in Chennai that they will be refunded this month after they demanded that the company cut prices by 25%; DLF had previously offered to do so by 10% to 18%. A DLF spokesperson told Mint that a small portion of the buyers, numbering up to 30, wanted refunds claiming job loss.

At least one developer said it was not in a position to make refunds even when the reason was genuine. “We can’t refund right away and if the booking is or an under-construction project, the deductions are 15-20%,” said Mohan Kumar, vice-president (sales and marketing) of Bangalore’s Alliance Infrastructure Pvt. Ltd.

Some can afford refunds but “how many builders can refund immediately with each one suffering a cash crunch?” asked Raminder Grover, chief executive of Homebay Residential Pvt. Ltd, a unit of Jones Lang LaSalle Meghraj, a property advisory firm. Nearly 70% cancellations are in the luxury segment where buyers are feeling jittery about paying a huge monthly installment, said Grover.