Winds of change expected in Indian Realty sector

The winds of change are expected to pervade the Indian Realty sector soon making it rise from the ashes like the proverbial Phoenix. The sector which was down in the dumps across most parts of the country since 2009 due to various factors like the economic slowdown, the rising costs of construction materials and the surplus unsold inventory due to apprehensions faced by investors and end users . However, there has been a paradigm shift in growth in the realty sector in most major cities across the country. This can be attributed to various factors like the sector riding on the current growth wave, the government’s stand to attract Foreign Direct Investment (FDI) in real estate as well as a plethora of other favourable factors.

Opportunities

According to estimates made by realty experts, the Indian realty sector had about 13.6 billion square feet of property that was awaiting development in 2013. Out of this, a whopping 98 per cent of property was lined up for development in the residential sector. Due to the trough faced by the sector last year, a major portion of this would have spilled over to 2014. A host of positive changes that has pervaded our country of late is expected to benefit the realty sector immensely. They include favourable government policies, relaxation in regulations imposed by the RBI, better stability in the economy due to lower fluctuations in our currency value, high contribution of the sector towards the GDP of our country as well as lowering in inflation rate. This presents an excellent opportunity for the sector to revive itself.

Being an employment intensive sector, it has the capacity to create as many as 17 million job opportunities by 2025. However, this would require considerable financial outlay in terms of development which is expected to rake in a sizable amount as revenue for the government, thereby contributing significantly to the growth of the economy. Considering that Indian realty market is largely demand driven, the deployment of approximately $2 billion in the sector by way of Private Equity (PE) funds would go a long way in reviving the sector. Besides, the increasing dependence on technology and innovative construction techniques, along with the opening up of the sector to multinational companies could provide a much needed fillip to the sector.

Challenges

There are many challenges that the Real estate sector could face in its quest towards revival and growth. They include countering red-tapism, bureaucratic interference as well as delayed approvals, all of which are inherent evils in our system.  All these hurdles could adversely affect the sector leading to higher construction costs and delayed time frames. As a result, developers and buyers end up bearing the brunt of these evils in our system. Adopting a single window system for granting approvals in a time-bound manner would be the approach that will stand to benefit the sector.

Besides, false stop notices on projects as well as complex financing procedures could also pull the sector back. From a buyer’s perspective, lack of awareness is one of the major challenges that could result in them being taken for a ride by many ‘fly-by-night’ developers. Hence, it is imperative that prospective buyers undertake a thorough background verification of the developer’s track record and past performance with regards to similar projects, as well as about the project that they are planning to invest in.