ByAbhishikta Munjal | Published OnMar 22 20235:54 AM
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The introduction of GST, application of RERA, demonetisation and the COVID-19 pandemic are some of the many challenges that the Indian real estate segment has faced in recent years. The real estate market has been struggling with all the primary factors of production including land, labour and capital. However, the quarterly housing sales in Q1 2022 were at an all-time high since 2015 showcasing how the real estate has managed to bounce back despite the hurdles.
The following are some of the key challenges that the realtors have been facing in the current market scenario:
Increased prices of construction materials
For a real estate developer, construction materials make up the majority of the overall cost required for real estate development. The costs of these materials have recently witnessed a dramatic increase, including the cost of essential materials like cement and steel. The global shortage of raw materials is the main factor contributing to the price increase. Moreover, rising fuel costs have driven up the logistical costs, pushing up the entire cost of the materials and as a result real estate.
Some real estate agents in Mumbai and also in other cities across the nation worry that real estate construction might have to be put on hold as a result of the rise in raw material prices. Mid-market and small developers are already operating with extremely limited margins post-COVID in order to remain competitive. In an attempt to sustain themselves, they will be forced to raise the pricing and pass the cost on to the customers. The increased property values are anticipated to cause a rise in rental costs as well.
Dependency on physical labour
The real estate industry has placed a significant emphasis on manual labor-intensive traditional construction methods. Real estate has experienced difficulties due to a lack of skilled blue-collar labour. Due to the real estate industry's heavy reliance on manual labour, the pandemic caused a standstill in the building industry. Project delays are brought about by low labour productivity and a labour scarcity. Industry estimates indicate that there is a 15–25% labour shortfall at the moment.
Lack of funding
The time-taking nature of construction necessitates the need of funding for new small scale developers. But developers have always faced difficulties in availing funds from banks and financial institutions. Decisions are framed on the basis of speculative cash flows. As a result, the financial institutions typically exercise great care and consume a lot of time while reviewing loan application. Due to unavailability of funding and insufficient finance, many realtors actually fail to execute projects on time.
Coronavirus pandemic and work from home culture
As the COVID-19 pandemic hit the nation, the Indian real estate market suffered hugely. Various corporates and companies adopted the work from home culture to ensure social distancing amid the lockdown. This remote model of working led to a decline in the demand for property in metro cities. As a result, the rental business also witnessed a massive hit. According to research, there was a decline of 14 percent year-on-year sales during the July-September 2020 period. The situation has now improved, and companies are slowly opening up. Still, a lot of companies are functioning on work from home models.
Unavailability of land
Acquiring land for new projects by developers is a big challenge in India considering the land is not freely available and substantial parts of land are under government ownership. Moreover, the property rates are high, making it difficult for small developers to attain sufficient capital to be able to invest in land.
Tackling these challenges faced by the Indian real estate requires the need to devise innovative solutions that will lead the next phase of growth for residential real estate markets.
In the realm of Indian real estate, several pivotal factors have shaped its landscape, with challenges and triumphs punctuating its recent history. Let's dissect the concepts addressed in the article to offer a comprehensive understanding.
Goods and Services Tax (GST): The introduction of GST (Goods and Services Tax) in India significantly impacted various industries, including real estate. This unified tax system streamlined taxation, altering the tax structure for construction materials and impacting overall project costs.
Real Estate (Regulation and Development) Act, 2016 (RERA): RERA brought about regulatory changes aimed at protecting homebuyers' interests, enhancing transparency, and regulating the real estate sector. Its implementation impacted project timelines, cost structures, and consumer confidence.
Demonetization: The government's move to demonetize high-denomination currency notes in 2016 had profound effects on the real estate sector, aiming to curb black money circulation. This move influenced property transactions, pricing dynamics, and market liquidity.
COVID-19 Pandemic's Impact: The pandemic transformed real estate dynamics, leading to remote work cultures and impacting urban property demand and rental markets. The fluctuations in property sales and rental prices during different phases of the pandemic showcase the sector's adaptability and vulnerability.
Challenges in Indian Real Estate:
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Increased Construction Material Prices: The surge in raw material costs, particularly for essential construction materials like cement and steel, impacted overall project expenses, compelling developers to reconsider pricing strategies.
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Dependency on Physical Labor: The sector's reliance on manual labor encountered disruptions due to the pandemic, causing delays, productivity issues, and a shortage of skilled labor.
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Lack of Funding: Difficulties in accessing funds from financial institutions due to the nature of project timelines and speculative cash flow evaluations hindered timely project execution for many developers.
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Work from Home Culture: The shift to remote work during the pandemic altered property demand patterns, impacting sales, rentals, and overall market dynamics, especially in metro cities.
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Unavailability and Cost of Land: Acquiring land for new projects posed a significant challenge due to limited availability, high costs, and substantial government ownership.
Innovative Solutions: Addressing these challenges demands innovative solutions, possibly leveraging technology for construction, encouraging alternative funding models, revisiting urban planning policies, and embracing flexible work models to adapt to evolving market demands.
Navigating the intricacies of the Indian real estate sector amid these challenges requires a multifaceted approach, integrating regulatory reforms, technological advancements, and adaptive business strategies to pave the way for sustainable growth.
