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Few issues to look out for in Indian real estate market

Real estate market is growing all
over the world. To accommodate more and more people, residential buildings
nowadays don’t have alternative to spread wide rather than going up. So,
construction industry is booming globally. India in the process has become one
of the biggest real estate markets in the world. The country has witnessed
phenomenal growth in this sector over the years.

Let’s talk about some concrete
proofs that the industry is booming really. Real estate industry of India will
be standing at $180 billion mark by the end of 2020. And the housing sector
itself will contribute 11$ of the country’s total GDP. On the other hand, the
increase in city dwellers is another sign that indicates the boom of the sector.
By the year 2030, demographic stats
predicting that, more than 600 million people will be residing in urban areas.
With all these information at the front, it is easy to say that real estate
industry has been the most lucrative sector of investment in India over the
years.

Well, there is nothing hundred
percent positive in the world. Don’t go overboard looking at the positives
stats only. Know the other side of the coin as well. There are some major
issues with Indian real estate market which could effectively influence your
investment. Learn about them and decide whether you can cope up.

Project Delay

Delay in projects is a major issue in Indian real estate industry; Image Source: hindustantimes.com

This is the biggest issue with Indian construction industry. Any project here takes month or even years of time wasted to just get started. It has been like a complex cycle which is doesn’t want to end. In fact, every sector has some extent of this problem for bureaucratic complexity. It seems like real estate sector has been especially affected by this problem recently.

Usually, for residential
construction project in an Indian metro city, developers need 40 regulatory
approvals only to start the construction work. This huge and lengthy approval process
takes from several months to several years even. In this period of approval,
lot of things can change, like the real estate rules and laws can be changed,
price of logistics can go up, remuneration of the workers might increase. For
this construction delay, overall project cost might increase for 10 to 15%!

Moreover, the developers sometime
use the money of a certain project for another project. This cause inevitable
delay in the construction process as well. However, the best possible solution
for this issue could be an autonomous regulatory body for the sector, which
would ensure it a single window clearance procedure.

Land availability

Land is not endless and won’t be free forever. With the fast growth of real estate industry, available land is also decreasing fast. Especially, the big and crowded metro cities in India are soon going to face land crisis for construction sectors. More and more mega projects like metro rail, road expansion, flyovers, rapid transits and other transport systems are eating up the available land for housing and commercial project lands.

However, for the sake of growth of
a city, these projects are necessary. These are public works done by the
government through land requisition. Only solution to this problem is dispersion.
More and more cities have to be established and mega projects have to be
dispersed across the country rather than being clogged in some exclusive cities
only.

Price

Real estate markets usually go
through 4 different phases- depression, recovery, expansion, hyper expansion.
All the stats related to Indian real estate market suggest that it is going
through hyper depression phase. This is a good news for the market and the
overall economy but a bad news for the new comers. Too much demand means too much
price hike.

Price hike is a problem for the growing market; Image Source: slideplayer.com

Price of properties has gone past the limit of sky over the years. The more the demand is, the more the price goes up. This might be handy for the developers but not at all promising news for the investors or buyers who want to buy land for residential purpose. Indian government has taken some steps like engaging the GST which has effectively reduced the tax on property buying up to 20%. Still, over price problem has to be solved. Otherwise, middleclass won’t be encouraged to real estate market.

Law

Another issue with the local real
estate market is the law. The Floor Space Index (FSI) law is way too old and
can be termed as outdated one. But, still it is in force. Currently, FSI index
is in 1 to 1.5. This law has to be revised as the number is very low.


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