The real estate sector is in complete doldrums. Rising interest rates means that buyers are delaying their purchases. Further, increasing input cost is also impacting the margin profile of the developers. However, it seems that in addition to these dual catastrophes yet another adversity is knocking on the doors of the real estate industry. And it pertains to the execution risks which have accelerated the pain in the real estate sector. Considering the heightened delivery commitments made during the boom times this was pretty much on the cards. And rising input costs have further impacted the execution cycle of the developers.
In a scenario when input costs are rising any delays on the execution front means that the property prices may rise further (builders are most likely to pass on the hike in input cost inflation). However, considering the lack of buying interest it would be interesting to see what strategy the developers adopt.
Delays and irregularity in approvals is another reason which has been impacting the execution cycle of the developers. Currently, numerous bureaucratic interferences have been clogging the system. We believe that it's high time we address these issues. And this can be done by having one central regulatory authority for real estate. Right now, a large number of approvals are needed from various government agencies which delays the decision making process.
Perhaps, the time is ripe to have a real estate regulatory body in India. This can sort out the execution issues and also put the noose around rampant corruption prevailing in the sector.
A regulatory body coming into place means that the consumer interests are better protected. It can also act as a single window for clearance of all projects and regulate the construction activities. This would change the landscape of real estate business in India.
Apart from the need for having a regulator we also need land acquisition reforms. Land is the most important component of construction cost. And many politicians have vested interests in land parcels. Thus, the nexus between developers and politicians has to be resolved to bring in any sort of transparency into the business. Only then can the regulator (if in existence) play its role in streamlining the issues prevalent at the moment.