The housing sector contributes around 6 percent to country’s GDP, according to Indian Brand Equity Foundation (IBEF).
At present, the Indian real estate sector is the third largest employer in India and employs around 40 million workforce. It is the third highest contributor to the Indian economy. The market size of the Indian real estate has more than doubled since 2008 and touched INR 7 lakh crore. Due to booming population there is high potential for growth to build over 170 million houses till 2030 in order to cater to the requirements of the growing urbanizing population.
According to IBEF, the Indian real estate market is anticipated to touch US $ 180 billion by 2020 and the housing sector contributes around 6 percent to country’s GDP. This means that the property developers play an instrumental role in enhancing the economic growth rate of country.
For example, a property developer named Adarsh Developers has created a niche for itself in the real estate market by offering superior quality homes. The Adarsh Developers review on Bangalore real estate highlight the good quality of the projects.
Nevertheless, overall, the Indian real estate sector faces several challenges. We’ve highlighted few of them.
Unsold Housing Stock:
According to KPMG, the top eight cities in India have around 6.5 lakh units of unsold housing stock. Going by the present rate of absorption, it may take another five years to clear the housing stock in cities like Delhi-NCR.
Time lag in obtaining sanctions:
Over the last seven decades, red tapism has mushroomed in the Indian economy. The government authorities have barely taken any concrete measures to facilitate growth to develop the private sector. In fact, the delays are faced in acquiring intimation of disapproval or in obtaining occupation certificate. The delays have an adverse effect on the quality of the buildings.
The real estate sector has been crippled with liquidity issues and piling debt. The total outstanding debt of real estate developers have increased from INR 25,000 crore in FY 07 to over INR 83,000 in FY 18.
The share in outstanding loans from banks to the sector is at 3 percent. This leads to inadequate access to long term and low-–cost funding channels, particularly through banks and external commercial borrowings (ECB) route.
Advertising and Marketing:
There are doubts to advertise in print media or digital media by the word of the mouth or through other channels. But recovering these costs from the buyers is a major hurdle for the developers. Incase, the cost is part of the per square feet recovered from the buyer and how precisely it is measured remains a challenge.
Around 30-35 regulatory approvals are needed by a developer to work on a real estate project in India. The entire process becomes cumbersome and leads to delays, which increases the cost of the project by 20-30 percent.
Risk of Default:
The final handover of the house to the buyers has become a big issue. A delay in finishing the projects in a particular time frame has led to poor demand. Due to this, the inventory of the developers has risen, leading to utter chaos. Banks are apprehensive of granting loans to builders as they have not cleared previous loans (NPA).
At the same time, several litigations have been charged against developers by creditors, investors, and bankers. Investors are trapped in a cobweb.
According to the Indian government law, no developer is required to issue a public notice for carrying out development work on a specific land.
The hurdle is that there are no oppositions received after the expiry of the time frame stated in the public notice, the developer cannot prescribe the claims made by a third party claiming interest in the mentioned property.