What Plagues Indian Real Estate
What makes the real estate sector loved and hated at the same time? Census 2011 projects that 69 per cent of urban dwellers in India own a home. These houses may or may not be the ideal dwelling space, but, the inclination to make it big in life and 'settle' as a homeowner is every man's dream. But what makes home buying in India so difficult?
While the government has introduced new legislative reforms to organise the sector and make it more transparent, there are certain aspects that continue to plague the sector:
The price factor
Overall, the Indian property market is price-sensitive. Fluctuation in the pricing is driven by the demand-and-supply scenario although there are certain pockets that are not driven by this rule. Mumbai, for instance, is a priced-out market for most. With per square foot value of homes running into five digits, Mumbai is an expensive investment destination and most prefer renting to owning a home here.
In most Indian cities, the suburbs are increasingly becoming popular because of how prospective owners see it as a price advantage. Rationalisation of prices is the need of the hour, but, with varied configurations and offerings within a unit, the price cannot be fixed. This remains one of the constant pain-points within the sector. Housing development boards could step forward and build affordable homes for various income segments.
Building too many or too less
Speculations have never done real estate any good. These only impact the prices of property in a locality or a hasty disposal of a potential property. The National Capital Region (NCR) is a micro-market that displayed a lot of potential and real estate developers took to construction on a large scale. However, the slump over the last few years has wrecked the buying sentiments with most potential buyers prepared to sit on the fence that enter the market. This gave rise to a large inventory that still lies unoccupied. Those who are willing to enter the market now expect negotiation and deals.
On the other hand, saturation of prime land in most cities has led to a rise in property prices every year. The entire demand-supply scenario does not meet the expectations of an average buyer.
For an average homebuyer, buying is a one-time affair. One's entire savings go into a property purchase and the equated monthly installments (EMIs). A homebuyer also waits for an opportune time to buy when policies seem to be in favour, prices are at the best, developers are willing to offer attractive packages and the location is favourable.
There are various other aspects such as the Goods and Services Tax, the property taxes, the maintenance costs, the external development costs and so many more. It is tough to gather all this data in a single place. Real estate portals have come up with dedicated news sections that attempt to apprise potential buyers of the pros and cons of investing in a particular locality or city, policy changes, structural reforms that affect them, infrastructural developments that determine the liveability in the area and more. For those who aren't aware of such information portals, data on homebuying still remains scattered for them.
Move towards a regulatory set-up
With the real estate law taking shape in 2016, the fear about fly-by-night developers is slowly coming to a close. However, even after months of setting up of the Real Estate Regulatory Authority (RERA), some states have not come up with the website of their respective state regulatory authorities. This delay has paved way for further delays and slump in the market.
Naturally, the law is an attempt at course correction for the property market. It will take time before changes on ground become visible. Till now, there was no regulatory body to enforce law upon defaulting developers, brokers as also homebuyers. The real estate law has already managed to bring them under a blanket of rules and hopefully, there shall be a difference. It cannot be forgotten though, that years of fraudulent practices by developers and middlemen, artificial price rises, fraudulent advertisements, etc., have tarnished the image of the sector and it will take time before we see transparency. According to the Global Real Estate Transparency Index, the Indian property market is a semi-transparent market. It will take time before it catches up with the likes of the United Kingdom, Australia and Canada.
As buyers move to greener pastures where property prices are lower, there are chances of settling for an unauthorised or illegal construction. Unauthorised constructions come up near job districts or even in the peripheries where such small time developers can afford to give buyers a huge discount in lieu of an unapproved construction. Issues like improper drainage, sewerage, water and electricity connections plague such residents till they afford to get out of it. Although authorities are looking into such issues, most of the time it gets too late to unsettle an already settled population. These often turn out to be high-density residential areas as well.
Of late, building collapses have been rampant. Most state governments today are stepping up to regularise such buildings but the menace is rampant and the solution not easy.
The weight of reforms
As various policies and reforms take shape, the sector staggers for a while. The Indian property market is regulated by a lot of factors such as taxes, infrastructure, environmental clearances, land acquisition, political stability, economic factors, the job market, etc. All of these shape the market and any ups and downs herein affect. In the recent past, the GST, the real estate law, the Insolvency and Bankruptcy Code, the tracking of benami properties and more derailed the sector for a while. The developers during this period worked towards aligning with the compliances and reinvent their strategies. On one hand, while reforms cleanse the system, on the other, it is a pressure that the industry as a whole has to learn to adjust to.
As of 2016, India is a country of 1.3 billion people. This has also triggered an ambitious mission — Housing For All by 2022. However, it is time-taking given the cost, work and cooperation that the Centre requires from the states.