Real estate projects turning unviable

New Delhi: The development of real estate projects in India is becoming unviable due to high cost of land, capital and construction, along with other economic uncertainties, said Sanjay Dutt, MD & CEO of Tata Realty and Infrastructure Ltd.

Dutt, who also heads Tata Housing, said the government as well as judiciary should hold accountable all stakeholders that are involved in approval and development of real estate project to make things easier. Real estate projects are on the verge of becoming unviable, he remarked. When asked about the factors making projects unviable, Dutt pointed out, "Real estate requires a lot of capital in India, first of all to acquire land. In major cities such as NCR, Mumbai and Bengaluru, it (land cost) is almost 50 per cent to 80-85 per cent of the project cost."

He mentioned that it takes another 2-3 years in designing the project and getting all regulatory approvals to start construction and marketing activities. Dutt said the cost of capital varies a lot, from 8.5 per cent for reputed builders to 18 per cent for non reputed ones. Elaborating further, he said the developers launch projects at a price based on the current input cost, but the same can rise significantly during the 5-6 years construction period.

"You decide to launch today at a price but you don't know the cost of steel and how much it will change in the next five or six years. That you have to absorb, but you've already sold the project," said Dutt. He said the builders are forced to absorb increase in costs of construction materials and interest among others. "So your project is constantly vulnerable to market," he said, adding that the builders do set aside some fund for contingencies but the market setbacks could be much higher.

Moreover, he said the government is bringing reforms at a fast pace for boosting growth of the country.