Risks in Redevelopment Projects

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Understanding Risk Factors or Reasons responsible for delay.

Important stages in the Redevelopment Projects. 1) Documentation 2) planning 3) vacating 4) Execution 1a) Developer selection 2a) Approval of design 3a) Initial Approvals verification 4a) Further Approvals 1b) Conveyance 2b) Allocation 3b) Payments 4b) Compliances 1c) Development Agreement 2c) Approvals of plan 3c) Vacating by members 4c) Construction & delivery.

CLASSIFICATIONS OF RISKS/REASONS. Delay caused by internal factors.

General factors from Society’s side that cause delay or lead to disputes Sr Factors that have potential to cause delay or increase risk 1 Issues related to the d ecision process 2 Lack of documents & information 3 Unreasonable demands, confusion, anxiety, failure to understand -leading to non-cooperation and disputes 4 Failure to resolve disputes in members 5 Allowing developer to exploit and complete dependence on developer 6 Failure to resolve disputes with developer 7 Unnecessary rigidness or f ailure to take unpleasant decisions on time in certain unavoidable circumstances 8 Compromising on critical terms.

General factors from Developer’s side that cause delay or lead to disputes Sr Factors that have potential to cause delay or increase risk 1 Aggressive bidding without proper study 2 Issues related to the decision process 3 Unreasonable gap between important stages 4 Delay in applying and obtaining Approvals 5 Delay in compliances and violations of terms of DA or approvals 6 Lack of resources & diversion of funds 7 Multiple Changes in the approvals 8 Failure to take precautionary steps.

General factors from market side that cause delay or lead to disputes Sr Delay factor 1 Disruptions 2 Price fluctuations in the raw materials, labor, services, manufactured items etc 3 Shortage of raw materials, labor, services, manufactured items etc 4 Economic & financial crises having impact on prices, liquidity and interest rates 5 Excessive supply of flats and multiple choices available to buyers 6 Longer recessions & shorter boom periods - Markets no more favorable to cover future risks 7 Failure of society to understand and accept impact, reasons, realities and options.

General factors from Government side that cause delay or lead to disputes Sr Factors that have potential to cause delay or increase risk 1 Higher Taxes 2 Constant changes in law, rules, procedures and administration or ban or imposing new terms 3 Gap between the introduction of changes and actual implementation 4 Lack of clarity 5 Policy paralysis 6 Enormous unchecked discretionary powers 7 Corruption 8 Failure of society to understand and accept impact, reasons, realities and options.

General other factors that cause delay or lead to disputes Sr Factors that have potential to cause delay or increase risk 1 Sudden passing of general judgments by courts 2 Natural calamities 3 Epidemics 4 Extreme weather changes 5 Shortage of natural resources 6 Issues from third parties – lenders, allottees, contractors 7 Accidents, war, riots, public outrage 8 Issues from neighbors , activists, politicians 9 Failure of society to understand and accept impact, reasons, realities and options.

Steps to mitigate -1 1 Follow basic rules and procedures. Decision process should be quick, inclusive, proper direction. 2 Provide all documents & information on time 3 Positive, continuous, complete participation and timely action against non-cooperating members 4 Proper mechanism to resolve issues faced by members 5 Holistic approach in selecting developer instead of focusing only on commercial terms. Have safety margins. Contribute towards certain expenses to avoid reliance on developer. 6 Adhering terms of Development Agreement. Proper communication with developer. Taking proactive steps. 7 Keeping update on all relevant aspects, constant review, comprehensive analysis and quick decision to stop loss or avoid delay 8 Identify and remain firm on non-negotiable terms 9 Proper detailed and independent analysis of the Bidders’ profile vis-a-vis project requirement and members needs 10 Detail discussion and clear understanding on timelines.

Steps to mitigate -2 11 Identify critical items in the project, link documentation, sale of flats, release and withdrawal of funds/security 12 Insist Full IOD before vacating, ask for detailed list of approvals to be obtained, ask to make applications for critical approvals 13 Insist for compliance of all terms not dependent on construction, before vacating and fix specific time for remaining, link sale of flats, release and withdrawal of funds/security 14 Prepare fund flow after study of project & market, get commitment of funds, link as above, check on rera compliance 15 Do not allow repeated changes without society’s prior approval and other compliances 16 Ask for proper planning considering future possibilities 17 Proper feasibility study of project after considering all factors 18 Proper study of impact of past market & economic cycles on real estate projects and understanding changing market trends 19 Proper study of project under different circumstances 20 Proper provisions in agreed terms to ensure that sufficient funds and margins will remain available in case of different circumstances.

Steps to mitigate -3 21 Readiness to cut losses after proper study 22 Readiness to take harsh decisions 23 Proper study of impact of past changes on real estate projects 24 To secure timely application for approvals and secure timely compliances.

THANK YOU A presentation by Satish Dedhia.