3 Key Challenges Faced By Developers In Real Estate Sector In Mumbai.
There are numerous challenges faced by developers & customers alike in the real estate sector in Mumbai. One of the biggest being the sector not recognized as an Industry by the government. I have tried to put together three key challenges faced by developers in the current scenario.
The Indian Real Estate, one of the most globally recognized sectors in the world, is well complemented by the demand for office spaces as well as urban and semi-urban accommodations. Furthermore, it contributes to about 6-7 percent of the country’s GDP. However, the sector is currently in the midst of challenging times owing to a variety of economic factors.
The demonetization move in November 2016 stunted the growth of the real estate sector and reduced the flow of investments, this worsened due to the pandemic COVID - 19. Additionally, the implementation of the Real Estate Regulation Act (RERA) passed by the Centre has resulted in a variety of projects arriving at a standstill. Similarly, there are other such policy and regulation challenges that have plagued the real estate sector in India. 3 key challenges especially faced by developers in Mumbai are highlighted here.
- Delayed Projects:
In addition to the complications faced to acquire funding for the project, the real estate developer in Mumbai has to pass through at numerous different government regulations before commencing construction.
The time-consumed in acquiring these permissions ranges between a couple of months to a year and increases the cost of the property by 5 - 10 percent for both consumers and developers. While MahaRera has succeeded in combating the issue with transparent usage of finances, the sector calls for a single-window clearance system to streamline and fasten the approval mechanism.
- Land availability:
Another challenge that has affected the growth of the real estate sector and the developers is litigated land. According to a survey conducted by the MahaRera, around 16 percent of projects and 31 percent of built-up spaces are or have been, in legal disputes. In Mumbai, these figures tally to about 30 percent of the real estate projects and 50 percent of the built-up space; for Thane, the corresponding figures are 26 percent and 36 percent respectively.
Additionally, there is a large share of underutilized and vacant land parcels that need to be freed for development through land regulations, land readjustment, and pooling policies. These challenges call for a serious revision of the Land Acquisition Resettlement and Rehabilitation Act 2013 which grants compensation, rehabilitation, and resettlement to the affected persons in India.
- Tax and demand shifts:
In addition to the previous financial challenges, the implementation of the GST is another factor that haunts the real estate sector. Before the implementation of GST, a service tax of 4.5 percent was applicable in the case of an under-construction property. However, post-GST, the rate has risen sharply to 12 percent, stealing the attractiveness of the ordeal for property investors.
As buyers were paying registration charges and stamp duty on properties, the inclusion of GST has increased the statutory cost of the property of the investor by 20 percent.
The trends in the real estate sector demand for a revision in policies in multiple areas of the infrastructure development cycle. Additionally, the current economic slowdown is a culmination of the above factors, which often overlap. However, the slump in the real estate segment is not singularly a result of the hurdles for developers, but the ever-changing demands of the buyers.