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.
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 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.
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 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.
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.