AHMEDABAD: The real estatemarket in Gujarat has witnessed phenomenal growth over the last decade, with Ahmedabad and Vadodara turning into sought-after destinations. Nevertheless, there exists a mismatch between this performance and the realty sector’s potential. The general opinion in the market is that the realty sector’s performance in the state has only been modest, if not below par, owing to various challenges. Consequently, the sector’s true potential is yet to be unlocked.
Delays in obtaining approvals are proving to be the biggest stumbling block and developers assert that it is affecting their execution capabilities, input costs, finances and sales. This results in a vicious cycle, with developers often losing control over their projects. It particularly affects small developers, who have limited resources and need to finish and sell their projects as soon as possible.
Data collated by Track2Realty reveal that realty projects worth around Rs 12,000 crore have been awaiting clearances in the state. A significant portion of this has piled up over the last four years. Following the central government’s directive in 2009, which makes it mandatory for all realtors to get an environment clearance certificate from the Union Ministry of Environment and Forest (MOEF) or its state-level body before launching projects, many projects are stuck in the state. Some developers have even been forced to scrap projects due to this policy.
Developers point out that once a file is sent for environment clearance, it takes about six to eight months to complete all formalities. Subsequently, it takes an equal amount of time for the building plans to be approved by the authorities. This causes inordinate delays and jeopardises projects. In some case, the project becomes financially unviable for the developer.
The corporation and urban bodies in Gujarat approve the building’s plan only after its drainage and sewage disposal systems are in place. This takes care of environment concerns. However, the concerned authorities have no deadline pressure to clear these files in a timely manner. As a result, developers are forced to wait endlessly.
Dhaval Ajmera, director of Ajmera Realty & Infra, says that the existing procedures for granting approvals are the foremost hindrance for the real estate sector. A single-window clearance system can reduce the time taken to secure permissions. This will enable developers to seek all the requisite permissions in a time bound and rationalised manner. “The real estate market in Gujarat has tremendous potential and is witnessing a boom. Although the prices of raw materials have soared and there is shortage of labour, these are minor hindrances. The boom in infrastructure has created a vibrant state, with developers striving to meet the challenge of ever growing demands from buyers. However, the approval process often acts as the dampener,” adds Ajmera.
Developers explain that delays in approvals are compounded by a steady rise in the price of construction materials, such as cement, steel and bricks, over time. These factors coupled with a shortage of skilled labourers result in a rise in input costs and ultimately translate into skyrocketing prices. They demand a more pro-active response from the authorities to ease the pressure on them. Timely clearances will eventually benefit the end users as well, they maintain.
Manan Choksi, regional head of RE/MAX, Ahmedabad, points out that in addition to environment clearances, new city plans are also causing delays in approvals. There is lack of clarity among developers, regarding the new laws. He feels that Gujarat’s property market can become more delivery oriented, with good public transportation, foreign direct investment (FDI) and clarity in government policies.
“Paucity in bookings is also a major problem. If a builder is unable to sell his project quickly, he cannot finish the project on time. Lack of construction capability has also been an issue, as most builders have not finished their projects on time,” Choksi points out. Delays result in at least a 25 per cent increase in the total cost of the project, he laments. “This is due to interest charged on capital employed, increase in raw materials cost due to inflation and interest to be paid on bookings that are done,” he explains.
While developers maintain that they are not against environmental clearances, they feel that such regulations should be implemented for projects that are spread over an area of more than 20 lakh sq metres. Furthermore, they demand that environmental clearances and approvals from civic bodies should take place simultaneously. Many, in Gujarat’s real estate fraternity believe that the state is better poised than others to meet the challenges of any slowdown, provided the uncertainty over approvals is done away with.