Real estate poised for mega growth, but challenges for construction business remain

Published: October 13, 2017 6:15 PM

India’s real estate market is expected to increase by 7 times by 2028. However, the construction industry is at a crossroads currently.

 Real estate, real estate poised for mega growth, construction business, challenges remainTechnology has transformed the construction industry, and those who cannot keep up with it will be left behind in the coming days.

By Amrit Singla

The number of Indians living in urban areas will increase from 434 million in 2015 to about 600 million by 2031. The market size of India’s real estate is expected to reach $853 billion by 2028, increasing from $126 billion in 2015. It is the 4th largest sector in India in terms of FDI inflows and growth of FDI is estimated to grow to $25 billion by FY22. Overall India’s real estate market is expected to increase by 7 times by 2028.

However, the construction industry is at a crossroads in India currently. Companies that will address these challenges head-on and re-imagine their business processes are poised for significant growth, but businesses that fail to take the challenges seriously, however, face an uphill battle for viability.

While four months may be a very short time to look back at the RERA implementation, there are certainly some key challenges that have cropped up along the way in the first few months of its implementation. There is still no clarity on this cut-off date, which has created a pall of uncertainty over most projects. Also, the aspect of depositing 70% of deposit money in a separate escrow account. The existing buyers who have booked properties are not very clear about whether this rule should apply to under-construction projects or only projects that commenced after May 1st. There is also a high degree of confusion among brokers and distributors on the aspect of marketing of projects to customers. Aspects like restrictions on creation of builder micro-site, restrictions on selling, KYC etc are still not too clear.

While there is a good demand for housing and commercial projects in the country, the non-availability of land within city limits along with the rising land and construction cost is leading to an increase in the overall cost of the projects. Thus, making the projects non-feasible, the construction Industry has implications on developers, buyers encompassing cost of land, material and building cost. The cost of materials in the course of GST has undergone some minor changes, like cement, paints and plasters are taxed at 28% while iron material at the rate of 18%. Building houses with high quality materials have alleviated the overall cost as most of the materials fall in the 28% tax category. These together act as one of the challenges for the construction business.

The construction industry has been on the rise for the past few years and is expected to continue to grow in 2017. Despite this growth, 70% of contractors say that they are having a difficult time finding qualified workers or professionals to fill these growing positions. Up to this point, companies have taken some steps to try and combat this issue such as increasing pay and benefits and investing in training. Despite these efforts, it is a continuing problem that the industry has yet to resolve. Many firms are concerned that the lack of a skilled workforce will negatively affect safety.

Technology has transformed the construction industry, and those who cannot keep up with it will be left behind in the coming days. This has become especially true as competition increases both in attracting workers and competing for projects. Necessary construction technology includes cloud-based software, integrated collaboration, and mobile project management. Companies must use technology to reap its benefits.

Many a time people itself act as a hindrance for the construction business. For instance, very recently a patch of road was to be constructed at Gurgaon Sector-83. Locals of the area did not allow the work, defining the work as illegal.

The government always plays a very important role in the development of the economy. It makes policies, which may sometimes not be in favour of the construction fraternity. In the years ahead, the construction industry in India has to overcome various challenges. Technocrats associated with the Indian construction industry need to employ innovative technologies and skilled project handling strategies to overcome these challenges. The outstanding performance under demanding situations in the past will stand in good stead and give confidence to the Indian construction industry to bring about an overall development in the infrastructure of the nation. The gains of large investments in mega projects will eventually feed back to the construction industry itself in the form of better economy and improved work conditions.

(The author is CMD, Mapsko Builders Pvt Ltd)

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