The Rise and Fall of Unitech: A Cautionary Tale in Indian Real Estate

The Unitech Limited scandal stands as one of the biggest disgraces in the Indian real estate industry. This scandal has left 20,000 customers sleepless, required government intervention, Supreme Court involvement, and caused a significant crash in the stock market. This scam involves more than ₹35,000 crores, and with interest, it exceeds ₹50,000 crores. Customers are owed over ₹15,000 crores, banks are owed over ₹7,000 crores, and various authorities in Uttar Pradesh are owed ₹10,000 crores.

This article aims to provide insight into the plight of over 15,000 customers trapped in this scam, offer some questions for Unitech, propose solutions for affected customers, and provide advice for prospective home buyers on making informed decisions to avoid such pitfalls.

The scale of the crisis is immense. Currently, 4.5 lakh people in India have not received their homes, with over 2,000 projects stalled. PropEquity has tracked all these projects, and the information provided here is crucial for both those currently entangled in such issues and those at risk of facing similar problems.

Unitech: History and Background

Unitech was founded in 1971 by Ramesh Chandra and five partners. Ramesh Chandra, a technocrat from IIT Roorkee with a master's degree from abroad, ventured into real estate development in 1986. By the early 2000s, Unitech had become one of India's fastest-growing real estate companies. Ramesh Chandra's sons, Sanjay and Ajay Chandra, joined the business as joint managing directors in the early 2000s.

The turning point came in 2006-2007 when real estate opened up for foreign direct investment. Real estate developers were valued based on their land banks, prompting Unitech to rapidly acquire land. Over the next two years, Unitech's total land aggregation reached 14,500 acres, boosting its market capitalization to ₹85,000 crores by 2008. This made Unitech one of the top 30 companies in India by market capitalization, one-third the size of Reliance Industries, which today is worth ₹20 lakh crores.

Unitech's land acquisitions were spread across 22 cities, funded by substantial bank loans. In 2007-2008, Unitech diversified into the telecom sector, acquiring a Pan India Mobile license and forming a joint venture with Telenor to create Uninor. This venture involved a ₹5,000 crore loan to develop the telecom business.

The Unraveling

In 2010, the 2G scam unfolded, implicating Unitech. Sanjay Chandra was jailed for 10 months. By then, Unitech had launched over 75 projects, recovering more than ₹14,000 crores from 29,800 buyers and taking substantial bank loans. However, in 2017, a Supreme Court forensic audit revealed that ₹5,000 crores collected from customers and ₹800 crores from banks were not invested in the projects. Additionally, ₹2,000 crores had been siphoned off into multiple countries and entities.

In December 2019, the Supreme Court recommended that the Government of India take over Unitech. In 2020, a board of eminent independent directors was appointed to complete the unfinished projects and deliver homes to buyers. Multiple resolution plans were submitted, but significant challenges persisted, leading to the resignation of key directors. The final resolution plan in 2022 revealed 78 incomplete residential projects and 13 commercial projects.

Current Status and Challenges

The Supreme Court has ordered Unitech to complete these projects without any extra charges to the home buyers. These projects are categorized into almost ready, under construction, plots, and abandoned projects:

1. Almost Ready Projects: Involving five cities, 24 projects, and affecting 146 home buyers, requiring ₹78 crore for completion.
2. Under Construction Apartments: Involving eight cities, 40 projects, and affecting 13,623 apartment owners, requiring ₹4,352 crore for completion.
3. Plots: Involving five cities, nine projects, and affecting 1,211 customers, requiring ₹355 crore for completion.
4. Abandoned Projects: Involving four cities, five projects, and affecting 91 customers.

The total requirement to complete these projects is ₹4,785 crore. However, there is a shortfall of ₹1,500 crore, which Unitech plans to recover from unsold inventory worth ₹3,000 crore.

Problems and Solutions

The completion of these projects faces several serious challenges:

1. Refunds: The Supreme Court has ordered refunds for customers with medical conditions or other problems, reducing the available funds for project completion.
2. Customer Payments: Many of the 15,000 affected customers may not have the funds to pay the remaining amounts.
3. Unsold Inventory: Unitech expects to recover shortfalls from unsold inventory, but it is unlikely that new buyers will invest in stalled projects without guarantees.
4. Sales Team: Unitech lacks a sales team, and selling these projects in different cities would require an additional ₹400-500 crore.
5. Structural Safety: Projects started 15 years ago may have structural issues, making them unattractive to new buyers.
6. Completion Guarantees: There is no guarantee that projects will be completed on time, even if customers pay the remaining amounts.

Proposed Solutions

To resolve these issues, two primary solutions are proposed:

1. Hand Over to NBCC: The National Buildings Construction Corporation (NBCC), a PSU developer with ample funds and government backing, has the capability to complete these projects. NBCC successfully completed Amrapali's unfinished projects, demonstrating its competence.
2. Involve Reputed Private Developers: If handing over to NBCC is not feasible, involving reputed private developers like Godrej Properties, DLF, or Prestige could provide the necessary credibility and financial closure to complete the projects. These developers would attract new buyers and secure bank funding.

Lessons for New Home Buyers

For new home buyers, the Unitech scandal provides important lessons:

1. Developer's Track Record: Verify the developer's track record over the last five years, including project completions, delays, and future commitments.
2. Financial Closure: Ensure the project has full financial closure. Real estate private equity fund involvement can be a good indicator.
3. No Developer is Too Big to Fail: Even the largest and fastest-growing developers can fail, so cautious and informed decision-making is crucial.

By learning from the Unitech scandal, new home buyers can make more informed and secure decisions in the real estate market.