6 Key Reasons Why Rising Land Costs and Delays Are Slowing Down Indian Real Estate Projects

Rising land costs and prolonged approval delays are significantly slowing down real estate project launches in India. Developers are facing challenges with land acquisition, regulatory hurdles, and increasing legal disputes, leading to a supply-demand mismatch across major cities like Mumbai, Bengaluru, and Delhi-NCR.

GHAR explores the key reasons behind the slowdown and how Indian property developers are adapting to these challenges:

1. Rising Land Costs Hindering New Projects

Land acquisition challenges, paired with increasing land prices, are creating roadblocks for new project launches and property sales across India.In cities like Mumbai, Delhi-NCR, Bengaluru, Hyderabad, and Chennai, a sharp 10% year-on-year drop in new housing supply was reported in the June quarter, with only 102,488 units launched.Developers are facing difficulties pricing new projects competitively, resulting in at least a 50% increase in property prices across various segments.

2. Delays in Approvals Extending Project Timelines

Approvals for land conversion, especially agricultural land, have become a significant hurdle.What used to take six months now stretches to 10-14 months or longer, delaying project launches and slowing down the real estate market significantly.

3. Supply-Demand Mismatch Emerging

Total absorption of housing surpassed the new supply by 18%, leading to a 15% reduction in inventory.Despite fewer launches, cities like Pune, Hyderabad, and Kolkata experienced steep declines in new supply, with reductions between 44% to 49%.While over 107,000 units were sold in Q3 2024 across the top seven cities, sales were still down from the 120,000 units sold in Q3 2023.

4. Impact of Legal Disputes Over Land Ownership

Skyrocketing land prices have triggered a rise in legal disputes, particularly regarding ownership conflicts.These disputes are further delaying already stalled projects, particularly in high-demand regions such as Bengaluru and Mumbai.

5. Developers Respond with Caution

Developers are not intentionally withholding projects. However, higher market prices and unpredictable litigation are causing delays in project starts and sales transactions.Large developers are adapting by utilizing expertise, capital, and technologies to maintain a resilient pipeline and manage market fluctuations.

6. Developers Securing Land for Future Projects

To combat the challenges, some developers are building land banks for future ventures and forming joint developments and joint ventures.Prestige Estates, for instance, has invested ₹6,000 crore in land across Delhi-NCR, Mumbai, Hyderabad, and Bengaluru in the last six quarters. They plan to have 50 million sq ft of projects under development over the next 3-5 years.

Key Facts and Figures

• New supply in Tier I cities: 102,488 units (June quarter)
• Decline in new supply: 10% year-on-year
• Absorption rate: 18% higher than supply
• Inventory reduction: 15% in the June quarter