Indian homebuyers get a much needed painkiller

Akshara (0:04)

In today's episode, we'll do one deep dive and cover another story for the day. First, we'll talk about Indian home buyers getting a much-needed painkiller. And then we'll talk about whether India is withdrawing its EV subsidies too soon.

Welcome back to The Daily Brief by Zerodha, where we cut through the noise to help you understand what's actually happening in the most important stories from business and markets. I'm your host Akshara, and today is Monday, 7th September. Before we begin, here's a sneak peek of our latest subtext episode. So we sat down with Mudit, who's the co-founder of Vault Seal, to talk about the duck curve, the many problems batteries can solve, and what happens when the grid finally gets intelligent. With over two decades in the industry, he helped us connect what we had learned through research with how the power system actually works. You can watch the full episode on YouTube or listen to it on Spotify and Apple podcasts.

Coming to the first story.

Real estate is quite the ground for movie scripts, and one such famous Indian movie is Ghosla Ka Ghosla. For those who don't know, this is about a middle-class family in West Delhi, which has invested its money in a piece of land, but finds themselves scammed out of the land by a shark. The 2006 movie is beloved for being funny, but its relatability may have gotten only more intense over time. So just last week, the Supreme Court passed a crucial decision related to a real estate bankruptcy in the city of the new Okhla Industrial Development Authority, or more famously, Noida, which is just a metro ride away from West Delhi. It told the city authority that it cannot charge homebuyers for penalties racked up by a bankrupted developer called Granite Gate. This decision may sound like it should be obvious to anyone. Why should homebuyers be charged for something they didn't even do? If anything, they are the victims here.

But this decision doesn't sit in isolation. It involves one of India's most notorious urban real estate bubbles, with many high-profile developers going bust left and right, and some being outright fraudulent. Most importantly, the fallout of this bubble has left many families in India frustrated and confused for years, and it gave them no clarity on whether their houses, which they might have invested their life savings in, will ever be completed.

This has important ramifications for home buyers anywhere in India, and that's the story we'll be telling you today.

Now, to understand why cases like Granite Gate keep reaching the Supreme Court, you need to understand the fragile foundations on which Noida and Greater Noida's real estate market was built. Unlike most Indian cities where developers often buy land outright, the Noida model runs on leases. Noida and GNIDA or Greater Noida Industrial Development Authority are public bodies that acquire land, build trunk infrastructure, and then lease plots to developers on long-term agreements.

So the developer builds, and the homebuyer eventually gets a sub-lease for their flat. During the boom years of 2008 to 2012, Noida and GNIDA went on a questionable spree of allotting land to anyone and everyone.

A 2021 CAG report found that 82% of housing schemes launched between 2005 and 2018 were secretly passed by Noida's group housing wing without ever being submitted to the board for approval. And nearly half of all plot allotments happened in just two years. And the bidding process was hardly competitive either. In 42 out of 49 group housing allotments during 2008 to 2011, only two bids were received for each allotment. In 15 of those allotments, the bidders were from the same group. In fact, the developers often created shell companies that would bid against themselves just to give a impression of transparency. The authority also permitted builders with insufficient capital to acquire multiple plots of land. Now simultaneously, GNIDA converted thousands of acres of agricultural land acquired for industrial purposes into residential use, creating a flood of cheap housing schemes that people rushed into.

The developers, meanwhile, were doing what developers in a bubble do, taking on more projects than they could finance. And they diverted homebuyer advances to acquire new land or retire old loans instead of building the towers people had paid for. So when the market turned in 2015, the whole thing came crashing down. As of 2024, Greater Noida had nearly 75,000 stalled residential units, which is the highest of any Tier 1 city in India. Noida and Greater Noida are known for multiple ghost societies where entire high-rises have no occupants. So one of the most famous collapses was of the developer Amrapali. It owed Rs 5,500 crore to the city authorities and also siphoned Rs 837 crore of homebuyer money using dummy companies and fake bids. And it used diverted funds to buy personal assets and fund family weddings. The Supreme Court also found that the local authorities had colluded with the group in allowing this. Then in June this year, the directors of Earth Infrastructures or EIL were arrested by the ED for laundering approximately Rs 2,000 crore collected from over 19,000 homebuyers.