Real estate: Challenges ahead - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Real estate: Challenges ahead

Apr 17, 2006

The real estate sector in India has assumed growing importance in the past few years, especially with rising demand and consequently buoyant property rates. Real estate, in fact, has emerged as one of the most appealing investment options for domestic as well as foreign investors. Developments in the sector are being influenced by faster growth of the retail, hospitality and entertainment, economic services and information technology industries. However, despite such strong growth, the Indian real estate market is still in its infancy, largely unorganized and dominated by a large number of small players with very few corporates or large players having national presence. The sector is also having a large number of legislative barriers, which are hindering a much rapid growth. In this write-up, we highlight the major factors that are acting as hindrances to a faster growth of the sector.Legislation: Restrictive legislations are one of the major impediments to growth of the sector. Legislative norms, wit respect to the Tenancy Law, Urban Land Ceiling Act and Rent Control Act are very rigid. The Rent Control Act, in fact, is the single most important reason for the proliferation of slums in India by creating a serious shortage of affordable housing for the low-income families. People find it very difficult to deal with these rigid laws. Moreover, a lot of time is being consumed in completing the legal formalities, thereby leading to delays in project completion.

Transaction Cost: Transaction cost is another major challenge for the real estate sector. There is direct relationship between Registration Act and Stamp Duty. Stamp duty needs to be paid on all documents that are registered and the rate varies from state to state. With stamp duty rates of 13% in Delhi, 14.5% in Uttar Pradesh and 12.5% in Haryana (Source:, India has perhaps one of the highest levels of stamp duty in the world. Some states even have double stamp incidence, first on land and then on its development.

Titles: Another important issue in real estate development is that of title to property. High percent of land holdings do not have clear titles, thereby leading to a lot of problem because ownership is unclear and hence the land is off market.

Urban Land Monopoly: Many cities have created development agencies (like the DDA in Delhi) and handed over control of all urban land within the municipal jurisdiction to them in the belief that they would act in the interests of the public. However, it is in the interests of the monopolist to restrict the development and sale of new land and keep the prices high, so as to maximize its own returns. Introduction of a competitive construction boom requires abolishing the monopoly of such agencies over urban land by completely separating control of land from its development and thereby leading to growth of the real estate.

Apart from the abovementioned factors that have been restricting growth of the real estate sector in India, the rigidity of financing norms laid down by the government is also an issue. To attract investments into this sector, it is imperative that the government increases the comfort level of the existing fund providers through appropriate legal measures and corporatisation of real estate, besides maintaining industry discipline.

Apart from this, improved laws for the sector shall form the basis for the government to permit the setting up of a Real Estate Investment Trust (REIT), which shall consequently open up the investment floodgate for the real estate sector, especially from the retail investors' front. REIT would operate like a mutual fund, where investments of individual investors will be consolidated to invest in real estate, rather than stocks of companies. It would provide a higher level of liquidity.

Now, while the challenges are abound, we believe that the opening up of the sector to greater private and foreign participation is a positive move. This shall not only reduce the existent demand supply gap in the housing market, but will also lead to growth of dependent industries like steel, aluminium, cement and engineering services.

Equitymaster requests your view! Post a comment on "Real estate: Challenges ahead". Click here!


More Views on News

NCC Share Price Up by 5%; BSE REALTY Index Up 1.7% (Market Updates)

Sep 25, 2020 | Updated on Sep 25, 2020

NCC share price is trading up by 5% and its current market price is Rs 32. The BSE REALTY is up by 1.7%. The top gainers in the BSE REALTY Index is NCC (up 5.4%).

SUNTECK REALTY Share Price Up by 5%; BSE REALTY Index Up 1.8% (Market Updates)

Sep 25, 2020 | Updated on Sep 25, 2020

SUNTECK REALTY share price is trading up by 5% and its current market price is Rs 260. The BSE REALTY is up by 1.8%. The top gainers in the BSE REALTY Index are SUNTECK REALTY (up 5.2%) and INDIABULLS REAL EST (up 6.4%). The top losers is OBEROI REALTY (down 1.0%).

PRESTIGE ESTATES Share Price Down by 5%; BSE REALTY Index Up 1.0% (Market Updates)

Sep 25, 2020 | Updated on Sep 25, 2020

PRESTIGE ESTATES share price is trading down by 5% and its current market price is Rs 242. The BSE REALTY is up by 1.0%. The top gainers in the BSE REALTY Index are SOBHA LIMITED (up 3.6%) and INDIABULLS REAL EST (up 3.0%). The top losers are PRESTIGE ESTATES (down 5.4%) and OBEROI REALTY (down 5.3%).

Mindspace Business Parks REIT IPO - Should You Apply? (IPO)

Jul 27, 2020

Should you apply for the IPO of Mindspace Business Parks REIT?

How Modi's Affordable Housing Focus is a Real Game Changer for the Economy (Views On News)

Jul 10, 2019

Government's push to affordable housing will revive the real estate sector.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

Sep 17, 2020

In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 25, 2020 (Close)