One of the main factors contributing to the unviability of real estate projects in India is the high cost of land, which can range from 50% to 85% of the project cost in major cities such as NCR, Mumbai, and Bengaluru. Furthermore, the lengthy process of designing the project and obtaining regulatory approvals can take 2-3 years before construction and marketing activities can begin.
Dutt also highlighted that the cost of capital varies widely, ranging from 8.5% for reputed builders to 18% for non-reputed ones. Additionally, developers often launch projects based on current input costs, but these costs can rise significantly during the 5-6 year construction period, leaving developers vulnerable to market fluctuations.
Builders must also contend with constant changes in regulations and other economic and political crises that can occur during the construction cycle of any real estate project. While the government is implementing reforms to boost growth, the constant changes in regulations and other factors make it difficult for builders to plan and execute real estate projects.
Dutt believes that builders must absorb the increase in costs of construction materials and interest rates, leaving projects constantly vulnerable to market conditions. While some funds may be set aside for contingencies, setbacks can be much higher than anticipated.
In conclusion, the high cost of land, capital and construction, coupled with economic uncertainties and constant regulatory changes, are making real estate projects in India unviable. Dutt suggests that holding stakeholders accountable and streamlining the regulatory process could help alleviate some of these challenges.
