Changing the real estate project landscape: a tightrope to walk (The Tale of Two Prominent Cities)

Real estate is a dynamic and potential sector for stakeholders. It incorporates more possibilities and growth avenues than any other. However, in the past couple of days, certain key issues and concerns have adversely affected the performance of this sector. A close look at the property sector presents a not-so-happening image of the sector, as boasted by various experts and media posts. Various challenges and bottlenecks are adversely affecting the sector's ability to perform in the expected way. It would be inappropriate to generalize the thing; however, the recent development raises several questions that need to be addressed adequately to maintain the momentum of growth in the sector. As per the recent news, Chennai showed a 28% surge in new real estate projects in the first quarter of the year. However, a significant downturn in sales of approximately. 44% has been reported.

In this blog post, we will try to understand the changing pattern of the real estate property market and devise the idea of using it for better prospects and growth in the sector.

Jeopardy of success and growth: The real estate market in Chennai shows a contradictory trend. As per recent developments, the Tamil Nadu Real Estate Regulatory Authority (TNRERA) recorded a surge of 28% in new project registrations in the first quarter of 2024. However, in the same quarter, a significant drop of 44% has also been observed in comparison to the last quarter. The report further explains that a total of 78 projects were registered this quarter, out of which 59% were launched by members of leading industry player CREDAI.

Surprisingly, enough growth has been observed in the registration of residential units, with 7218 units in comparison to Q4 of 2023. Only 2983 units were sold in Q1 of 2024, which shows a downturn of 44% in comparison to the previous quarter of 2023, out of which CREDAI members’s property solutions accounted for 89%.

The pervasive effect: Notably, despite having a sluggish sales record, the real estate sector remained a promising sector for developers. A similar pattern of sluggish sales has also been noticed in Gujarat. According to the Gujarat Real Estate Regulatory Authority (GujRERA), a significant drop in registration of 7.7% has been recorded in 2023–24 in comparison to last year. However, the slowdown has impacted all the property options on the market.

Similarly, the affordable housing project also shows a negative trend in new launches. GujRERA data shows that only 443 new projects were launched in 2024, which was noticed as compared to 578 projects last year.

The big reasons for negative sentiment:- Since Chennai and Gujarat share a similar asymmetry and trend in the records, Gujarat adopted the wait-and-watch approach as a precautionary measure to ward off the negative sentiment of the buyers. Moreover, it's a matter of utmost concern to highlight the key issues that caused a headwind to the sector. These are as follows:

• A paradigm shift in investors' preferences:- The post-pandemic record highlights that investors preferred the stock market and gold investments over real estate due to their high liquidity and relatively shorter maturity times. Besides, such investments also garnered a greater yield than real estate, which is why investors changed their investment patterns. According to a real estate consultant, real estate is no longer profitable due to low liquidity, and new projects are costlier than before. As a result, investors look for better avenues to invest.
• Regulatory changes amid uncertainty:- Frequent changes in registration charges and no clear guidelines for under-construction projects also periled the investors to park their money in this sector. That is why Chennai experienced a downfall in sales of properties; however, Mohd. Ali, the president of CREDAI, admits that the sale has been impacted due to uncertainties, yet he believes that the state government will adequately address the concern and come out with a positive development. He further states that the industry will adopt and evolve as required. Investors can expect a positive change soon.
• Rising costs and limited finances:- Many developers are busy completing their unfinished projects and have limited finances to start new projects, which is why they are not coming up with new projects. In addition, the hike in construction costs and land prices by as much as 20% and augmented labor rates caused dwindling profit margins, which makes this sector less preferable to invest in. As per a real estate consultant's words, property prices have not increased proportionally, which has reduced the profit margin. As a result, developers are less interested in new project launches.
• Land scarcity and regional imbalances:- It is important to note that Vadodara, Gujarat, is facing a tough challenge in getting adequate land available for new projects due to delayed town planning. However, Rajkot witnessed a steep fall in mid-segment property launches due to low demand. Whereas premium projects and affordable housing demand performed quite well in other properties. In Ahmedabad and Gujarat, a significant rise of 20% in land prices has been observed, whereas property appreciation accounts for merely 8–10% annually.
• The complex paradox of the market:- Despite having a sluggish sales record, not all the property options have the same impact. The post-pandemic data shows an oversupply of commercial space that stopped developers from coming up with new projects. Moreover, the Gujarat government’s approval of a higher Floor Space Index (FSI) has also allowed for a greater number of storeys in commercial and residential complexes. Due to FSI's increased project size, the number of units in such projects has gone up but has had no impact on the actual supply of new launches.
• Redevelopment of properties:- The past 2 years have evidently augmented growth in redevelopment projects in Ahmedabad. Many old societies in areas such as Vasna, Navrangpura, Memnagar, Naranpura, and Paldi went for redevelopment, due to which the number of houses in such areas doubled, and demand for new apartments experienced a fall.
• Piling up unsold inventories:- Market data for Chennai property shows over 7,700 units of unsold properties of finished projects. This led to delays in new project launches However, industry experts in Gujarat prolong new launches until the upcoming festival season to get rid of unsold inventories and provide a perfect occasion to launch new projects.
• Approval and tax benefit pendency:- According to CREDAI Gujarat President Deepak Patel, a drop in the retail sector has been noticed due to increasing online shopping patterns. However, a significant increase in office space has again gained importance. Besides, due to some technical glitches in GujRERA’s new portal, many approvals are pending, which will soon be sorted out. Meanwhile, developers also said that the central government has no extension in income tax section 80 (IB), which incentivizes developers to launch new projects.

Conclusion:- Amid various prevailing challenges in premium investment cities, the sector still seems to have enough potential to fuel growth. Potential rate cuts with lower inflation, speeding up the approval process, and properly addressing grievances and concerns may provide enough space for development and growth. Moreover, the key focus of government, developers, and industry experts needs to be on affordable housing solutions. The changing preferences of the customers show a positive development in bigger homes for premium and mid-segment real estate projects that perfectly align with the requirements and may provide great scope to the developers. South Chennai shows a comparatively better position with 29% growth in new project registration, following central Chennai with 26% growth.