By: Sachin Sandhir, MD, RICS, South Asia
Track2Realty Exclusive: As the country faces problems over land acquisition, events around the issue have been tarnishing the image of India’s built environment. Across sectors — real estate, infrastructure and construction events have not been conducive enough to create a good environment for investments. In addition, fragmentation and irregularities within the market, instances of fly-by-night-operators duping the consumers, an absence of regulation over transactions and developers have given a bad name to the environment.
Within the built environment, real estate holds more value in people’s mind and affects all, as our sentiments are attached to the properties we own. Here is a synopsis on the overall scenario within the real estate.
Strengths
The key strength of the Indian real estate is the domestic demand and the huge housing shortage. As per industry estimates, India requires 18.78 million housing. Of this huge shortage more than 90 per cent of the housing is required by those who belong to either the economically weaker sections (EWS) or lower income groups (LIG). The huge domestic demand will continue to drive demand and keep pushing developers/builders and the industry to build more mid-income and affordable housing.
Thus, there is a need for more skilled professionals, more manpower and labour to build. In addition to this, an infrastructure is also required to support the upcoming housing and real estate developments. This would need more investments and external support.
Due to this intrinsic demand and opportunities, India’s built environment and especially real estate continues to be a sought after domain for investments.
Weaknesses
Lack of regulations: Rapid urbanization is good for the growth but there are loopholes within the entire system. The biggest of them is the lack of regulations. Over the past one decade, the country is trying to regulate country’s fragmented and irregular built environment. Though there have been a few milestones of success, such as the opening of the foreign direct investments for the real estate sector. However, this cannot solve the problems of the entire built environment.
A regulation in place would address various issues — grievance redressal, registration of projects, their timely delivery of projects and crimes such as siphoning of funds from one project to another. A regulation will also put a check on all fly-by-night players who may be operating within the built environment. In addition, there are very few regulations for the resale market. Thus, its absence would mean lack of trust within investors who are closely watching the growth story.
Prominence of investors: Indian micro-markets are primarily driven by investors within regions. Often, investors are the first set of buyers in any new project in an upcoming area. This takes away most of the genuine home buyers who may want to buy. Moreover, the idea of pre-launch and soft launch is specifically meant for the deep pocketed investors. Thus, discounted rates are available for primary investors. The same investor then sells them in the open market at a higher rate when the project is actually launched.
In all of this, buyers are at a loss, even if they are buying from the company directly. One will anyway get a higher rate. The entire manner of transactions forms a vicious cycle and pushes the rates up. The overall prominence of investors thus gives Indian realty a tarnished image.
Use of cash component: Often it is seen that property transactions in the resale market involves the use of cash component that may or may not be from genuine source. When the component is from unknown source, the property value is generally higher than the prevailing circle rates. So, every time the owner is selling the property in resale, the price is higher than the previous sale value. Thus, the gap between the circle rate and the market rates exists. This gap can only be reduced if the circle rate matches the actual transactions rate.
Over the years city and state authorities have been trying to increase the circle rates thereby reducing the gap. Banks too fund the purchase based on the circle rates but one can still find actual prevailing rates higher than the circle rate. This disparity and irregularity deters most home buyers from buying. Even corporate occupiers, multi-nationals and organizations keep away from investing on real estate. They continue to take space on rent.
Opportunities
Expansion in tier II cities: Along with metros smaller towns and cities are also expanding. As cities are expanding towards suburbs new and new villages are now getting closer to cities. Thus, the existing infrastructure needs an overhaul. This would mean more development and more construction. There will be more jobs and growth opportunities in the country. Even data supports such a growth.
As per a recent study, development activity in India is at an all time high and is only expected to increase further in future, given the rate of urbanization and expansion of satellite cities. With over 600 million people expected to inhabit Indian cities by 2030, the shift to cities and urban agglomerations implies potential demand for quality real estate and extensive supporting infrastructure services in urban areas.
The retail story: Government has very recently allowed 100 per cent foreign direct investment in multi-brand retail. This gives us an opportunity to build more. The retail growth will propel future development. This in turn will generate more employment. A number of multi-nationals are looking to invest and set their operations in the country. Government incentives such as these will give them a favourable environment.
Office space growth: In addition to the residential and retail, office space will continue to grow. Companies and firms in various sectors will need quality work space. This gives us immense growth potential. As more and more cities will start becoming the centre of economic growth, requirement of an upmarket office space will grow. Besides, metros such as NCR, MMR and Bangalore have their own peripheral markets, which are now witnessing huge growth.
Challenges/Threats
While there are opportunities in our domestic demand and growth, there are impediments to this growth.
Skills shortage: The biggest challenge that the industry faces today is the fact that it faces an acute shortage of skilled professionals. As per RICS’ recent report Real Estate and Construction Professionals in India by 2020, India has nearly 50 million people working in built environment, of which only 2 million are professionally qualified, while the remaining are primarily construction workers.
To deliver all the potentially required real estate space and planned infrastructure, India will need nearly 4.5 million ‘core’ built environment professionals over the next decade. However, given the miniscule supply of built environment professionals today; the current demand-supply gap ranges between 82-86%. The built environment will have the requirement of 5 million skilled candidates every year till 2020.
Though efforts are being made to reduce this gap, this needs an urgent attention of all the stakeholders. The industry is now aware of these shortages and is trying to enhance the skill sets of the existing workforce. RICS is also engaged in providing training and knowledge to those who want to build their career within the built environment.
Delayed approval of projects: As industry is gearing to create awareness about bringing more professionalism and transparency in the market, there is an urgent need to create a single window clearance mechanism for projects within the built environment. This would need equal participation from all — government, government agencies, industry (developers, construction and allied firms) and consumers.
Thus, from the government’s point of view, government agencies such as the authority, environment ministry and various other approving agencies can come together to bring uniformity and feasibility. The industry has also been demanding for a single window clearance. This would simply remove the bottlenecks within the approval processes.
From the industry point of view, developers, contracting firms and firms engaged in the development of infrastructure need to actively look into bringing efficient technologies and mechanisms to speed up the building process. This can reduce the delay in construction of various projects. Removing skills shortages will also bring efficiency in the system. I hope a better future for the built environment!
