India’s real estate sector, particularly in the urban markets like Mumbai, is facing significant challenges nowadays. The rising cost of housing, often exceeding the market price of Rs1 crore per studio apartment or a small house in urban areas, has made the home ownership increasingly difficult for the middle class in the country. India has a high demand for affordable housing, but the supply is not keeping up. While more than half of housing demand in India is for affordable housing, only 15-20 per cent of new housing supply caters to this segment.
These views were shared by The Wadhwa Construction Group’s managing director, Navin Makhija. Founded in 1969, The Wadhwa Construction Group is one of Mumbai’s leading real estate companies having constructed over 250 buildings and is developing residential, commercial and township projects spread across about 4.1 million sqm.
”The price surge of residential and commercial properties, driven by escalating construction costs -- be it land, labour, or materials -- has pushed development expenses higher across the board. The number of infra projects undertaken by the Central and state governments across the country have increased significantly, which also has resulted in increase of all resources cost and scarcity of skilled labour,” said Makhija. “Additionally, while regulatory reforms have brought much-needed transparency and accountability to the sector, they have also introduced new complexities. These factors combined have created a market environment where affordability is a major concern, and navigating these challenges requires a strategic and adaptive approach,” he added.
Public-private partnerships in India’s real estate sector play a crucial role by bringing together resources to design, finance and build housing developments that may be unfeasible for private developers or difficult for local governments to fund alone. Makhija felt that government’s subsidies and financial schemes can provide essential support to middle-class families aiming to purchase homes. “The PM Awas Yojana-Urban, with its significant allocation of R10 lakh crore to address the housing needs of 10 million poor and middle-class families, is a commendable step in this direction,” he explained.
With inflation and housing loan interest rates not seeming to be falling down in the near future, buying a residential home is becoming more expensive in metro cities of India for the middle-class segment. Eventually, the growth of the low-cost housing market could retard in the long run. Makhija felt that to keep the market healthy, the government might need to look into options like tax breaks on home loan interest, reducing stamp duty, or offering property tax relief.
Major hurdle
The Goods & Services Tax (GST) levied by the Indian government on the construction of residential properties as a major hurdle in the growth of the country’s housing market in non-luxurious segment, Makhija argued. GST was introduced to simplify taxation and increase transparency. However, its complex structure and compliance requirements have created challenges for both developers and residential property buyers and also have impacted the pace of growth in the real estate sector. “To address these issues, the government could streamline the GST system specifically for the real estate sector,” Makhija stressed. “Simplifying rules for redevelopment projects, joint development projects and co-operative housing societies would reduce confusion and uncertainty. Regular discussions with industry stakeholders could help identify and fix specific challenges. Implementing these changes could create a more supportive environment for the real estate sector’s growth in India.”
Makhija was of the opinion that skyscrapers over 40 floors are expected to increase by 34 per cent in Mumbai city by 2030; the city is thus poised for a vertical growth in the years to come. By 2031, over 600 million people are expected to be living in urban India, which indicates a need for more affordable housing. Redevelopment of residential properties will hence become a lucrative business for the real estate developers. However, redevelopment construction in Mumbai can be highly lucrative, but it’s not without its challenges. With high land costs and strong demand for housing, redeveloping existing properties can offer significant returns. Redevelopment process is often slowed down by regulatory hurdles, lengthy approval processes, and complex negotiations with existing society members and property owners.
The Wadhwa Construction Group plans to invest R1,000 crore over the next 18 months, primarily in residential redevelopment projects. The group’s current commercial portfolio of 1.8 million sq ft is 98 per cent leased out on a long-term basis. The company is also evaluating real estate investment trust listing for this leased portfolio and is also considering more projects under the leased portfolio.