Real Estate

Why there is all construction all over the cities with very few affordable options 

Let’s understand the business model of real estate 

An Ideal Scenario is wherein developer buys land and start constructing the project and raise money for the construction from banks and sell the flats to customers and recover his money along with profits.

Banks Get their money back along with interest, customers get his dream house and developer earn profit from the project.

Everyone is Happy: Customer, Banks, and Developer 

But…

What happens in real-life situation ?

Developers buy land & launch the project, sell dream house to the customer with brilliant ad spending, and collect money upfront. That money he uses to acquire another land parcel and series of events will go on and on until he realizes that he has acquired 10-15 projects together and none of them have been completed. 

As per the RERA website, there are 52000 Ongoing projects in India with average delay 2-3 Years.

India has ₹3,70,000 crore worth of unsold inventory across the top 7 cities and it is going to take 40 months to sell the stock.

218 real estate projects worth ₹1.77 trillion across large cities are undergoing resolution under the Insolvency and Bankruptcy Code (IBC).

When it comes to accountability Indian real estate developer comes last and that’s the reason we have approximately 10,000 developers in the country today, with only 35-36 are listed in the stock exchange.

Fact: It takes an average 5 years for the project to complete in India whereas in developed countries it takes 2.5-3 Years

Now the question is why there is no affordable house in the city?

The fact is that costlier homes in central locations fetched better returns to both investors and builders, so it was such housing that was rampantly built even if ‘ the real’ demand was clearly in the affordable segment.

There is a very thin profit in the affordable segment and the government never bothered about the same until they realized that majority of the population is living in slums and they came up with a brand new name with a brand new policy of Affordable Housing Scheme.

Affordable Housing is laudable initiative but it’s too late, as projects are already kicked off and there was already limited supply of Land. These project aretoo big to align with the Government’s clear definitions of what constitutes – and can be marketed as – affordable housing.

RBI’s asset price monitoring survey showed that the house price to income (HPTI) ratio an index of affordability is 61.5 in March 2019 across the country. 

There are more than 89000 unsold inventory with a price tag of more than 1.5 Cr (i.,e min 1.35 lac Cr)

With no money in real estate how developers are going to complete 10-15 projects and how banks are going to get their money back? The real question is how customers are going to get their houses? Is there any way for that…

Until then…

Published By: akash On 03/31/21 8:06 AM