🚟Supply-side Analysis

Demand and supply situation of real estate market and the effect of supply of housing

There are some problems in the Indian Real Estate Industry from both the supply side as well as the demand side of the equation. For instance, many major Metros in India often suffer from a glut of capacity wherein there are homes aplenty, but not enough buyers mainly due to such homes being used to park funds by the builders.

In other words, despite several measures, the government has been unable to rein the tendency to build homes without assessing the demand and in turn, use the excess funds and the liquidity in the system to be exploited by the builders who use such funds to build mega projects, some of which turn out to be White Elephants that are built for building’s sake and without any homes actually being occupied.

On the other hand, genuine homebuyers in these metros often find that there is a shortage of capacity within their affordability and means as most homes are either overpriced or too far from the city downtown to be bought.

Thus, the Indian Real Estate Sector is down in the dumps also due to mismanagement and misalignment of the demand and supply equations that tend to skew the availability and consequent shortage in a manner where the problems are too many to be addressed in a meaningful fashion.

While Demonetization and the RERA were supposed to rein the sector and bring some discipline, the key aspect here is that the government should have gone the distance and tackled the problems mentioned above. For instance, it could have touched upon the potential Hot Potato of Benami ownership that has been identified as a key problem and that too, very sensitive to resolve. Indeed, there were high hopes after the Demonetization and the passage of the RERA that these problems would be addressed as well though what transpired was entirely different.

the basic problem with the Indian Real Estate Sector is structural. What this means is that due to its cash driven nature and means of funding, often from dubious sources, as well as lack of transparency and accountability, the sector is unlike what is the case with the developed economies where these problems are either negligible or are managed well.

This is in contrast with the Indian Scenario where transparency and accountability are major problems. For instance, nearly 60% of the projects are either delayed or handed over incomplete fashion making it harder for the homebuyers to move in into fully finished homes.

Apart from this, most builders do not seek the necessary approvals before embarking on the projects, which can be a source of irritation and downright nuisance for the homebuyers who are then left grappling with these problems. In addition, builders rarely compensate for the delayed projects as well as refuse to take responsibility for unfinished or incomplete as well as defective buildings.