Are High Land Costs and Volatility Making Real Estate Projects in India Unprofitable?

Challenges of Developing Real Estate Projects in India?

At a time when real estate projects in India are proliferating and the sales of homes and real estate in India are at an all-time high, a different viewpoint from some of the most experienced real estate celebrities in India merits significant consideration and deliberation.

Sanjay Dutt, the chief executive officer of Tata Realty and Infrastructure Ltd, recently remarked that the high cost of land, money, and construction, as well as other economic concerns, make Indian real estate projects unprofitable.

To simplify matters, Dutt thinks that the government and courts should hold all parties responsible for the approval and development of real estate projects.

The high cost of land, which may range from 50 to 85 percent of the project cost in major cities such as NCR, Mumbai, and Bengaluru, is one of the primary issues leading to the unprofitability of real estate projects in India. In addition, the long process of planning the project and securing regulatory permits might take two to three years before building and marketing can begin.

Dutt further emphasised that the cost of capital is very variable, ranging from 8.5% for reputable builders to 18% for unreliable ones. In addition, developers often initiate projects based on current input prices, but these costs might increase substantially throughout the 5 to 6 year building period, leaving them subject to market volatility.

Throughout the development phase of any real estate project, builders must also fight with continuous changes in legislation as well as other economic and political issues. Constant changes in legislation and other variables make it difficult for builders to plan and execute real estate projects, despite the government's efforts to spur development.

Dutt argues that construction companies must absorb the rise in the cost of building materials and financing rates, leaving projects perpetually susceptible to market circumstances. Despite the fact that some cash may be put aside for eventualities, losses might be far more than planned.

In conclusion, the high cost of land, money, and construction, combined with economic unpredictability and ongoing legislative changes, renders real estate developments in India unprofitable. Dutt says that keeping stakeholders responsible and expediting the regulatory process might assist in mitigating a portion of these difficulties.