Indian real estate sector: Waiting for a change
Nov 28, 2013
Source : The Times of India

 

DELHI: Overall the real estate industry is grappling with a paradox. There is a distinct gap in the supply – demand scenario and costs involved. Builders have numerous concerns to deal with even before they start construction. Some of which include the amount of time and costs involved in obtaining the plethora of approvals and licences required, the incessant wait for bureaucratic processes, being stuck with non-productive land for which they have to incur expenses. All this coupled with the constantly rising cost of building material and construction labor does not allow for affordable housing.

India has also been pegged to have the sharpest appreciation in real estate prices in the world. There is unlikely to be much correction in prices due to the rupee fluctuating and RBI policies with regards to lending of funds.

On the plus side, India continues to be a big demand driven market and reports indicate that PE Funds are looking at deploying approximately $2 billion in the sector which would really benefit the sector.

The changing dynamics of younger investors who are banking on the sector for investments is helping the industry diversify. Also, the growing dependence on technology and innovation coupled with the entrance of multinational companies is putting the Indian market on the global map.

The real estate sector is plagued by red tapism, bureaucratic interferences and delayed approvals all of which mean increased costs, delayed time lines and timely regulatory action. Unfortunately, all this means that the developers and buyers ultimately end up paying the price. The system functions on self-indulgence and people working in tandem to satisfy this decadence. The lack of timely regulatory approvals, false stop notices, complex financing processes are all factors that are not allowing the sector to transition to the next level of maturity.

The new regulatory bills are being formulated keeping in mind their success in other industries like telecom and banking. Unfortunately, what is not being considered is the number of developers it is regulating which are fifty times more than any other industry and that too only in the organised sector. The adoption of the single window system for approvals in a time bound manner will help immensely.

Lack of awareness amongst consumers is one of the key challenges of the industry. There is an increase in the numbers of fly-by-night developers with no credible track record and whom the consumers are blindly trusting. They are willing to compromise for a few hundred rupees per square foot. If they were to invest a single EMI in doing some ground work in regard to the title document, approval status, checking the developers’ track record and past performance etc., it would help them to live peacefully with regards to their investment over the next 20-25 years.

Looking forward, I believe that the next 12 months have more risks than the last few years on account of the impending national elections as well as the macro-economic situation. The current macro-economic situation does not leave any room for policies leading to a reduction in the interest rates. I also expect the cost structures for developers to be negatively impacted on account of the Real Estate Regulation legislation. The bill will lead to a price rise – this is a fallout of the populist move by the Government to regulate developers and the effect of price rises for the home buyer can be considered collateral damage.

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