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Approvals Biggest Building Block To Unlock Potential Of Gujarat Realty
Track2Realty [ 02-12-2013 ]

Gujarat real estate has seen phenomenal growth in the last over a decade and property markets of Ahmedabad and Vadodara are among the most sought after hot spots. The growth story, however, would be incomplete without understanding the stress level of the sector which weathers multiple challenges to perform, with approvals being the biggest challenge.

And hence, to say that Gujarat realty has picked up momentum would be an under-statement for the true potential of the real estate prospects in the state. There, of course, is a mismatch between the potential and the performance. Approvals at every level are coming in the way of unlocking the true potential of the real estate in Gujarat.

It would be safe to maintain that Gujarat real estate has rather modestly performed, if not outrightly under-performed, in the last few years and its true potential is yet to be unlocked. Approvals are proving to be the biggest building block and developers assert it is also affecting their execution capabilities, input costs, finances and sales. This vicious cycle often takes the project out of the hands of the developers, particularly for small developers with limited resources and urgent need to finish and sale the project.

Facts speak for themselves. Data collated by Track2Realty finds that realty projects worth around Rs 12,000 crore have been waiting for clearance in the state. This statistics has piled up in the last around four years only and is compounding on a year-on-year basis. Post the Central government’s directive in 2009 which makes it mandatory for all realtors to get an environment clearance certificate from the Union Ministry of Environment and Forest (MOEF) or its state-level body before launching building projects, many projects are stuck in the state. Some developers have even been forced to scrap the projects due to this policy hurdle.

Developers crib that once a file is moved for environment clearance, it takes about six to eight months to complete all formalities and then an equal time is necessary for the plan approval by urban authorities. This causes inordinate delays and jeopardises projects as in some case it becomes financially unviable for the developers. The corporation and urban bodies in Gujarat approve the building plan only after they have drainage and sewerage disposal systems in place. This takes care of the environment concerns. However, the concerned authorities have no deadline pressure to clear the files on a timely manner and the developers are forced to wait endlessly.

Dhaval Ajmera, Director, Ajmera Realty & Infra says approval procedure has been the foremost hindrance for the real estate sector. A single window clearance can facilitate in reducing the time taken to secure permissions and thereby allow developers to seek all the requisite permissions in a time bound and rationalized manner.

“Gujarat real estate market has tremendous potential and is seeing a huge boom in realty. Gujarat has witnessed soaring raw material prices, shortage of labour, which have been minor hindrances, but with the infrastructure boom the State has been vibrant and developers are ensuring to meet up with the challenges of the ever growing demands of the buyers. Approvals often play the dampener,” says Ajmera.

The developers complain their input goes up due to delay in approvals as delay in approvals further leads to steady rise in the price of construction material, like cement, steel, bricks, coupled with a shortage of skilled labourers, which also leads to further sky rocketing prices. They demand a more pro-active response by the authorities to ease the pressure on them. Timely clearances will eventually be beneficial for the end-users as well, they maintain.

Manan Choksi, Regional Head, RE/MAX, Ahmedabad points out that it is not just the environment clearance that is causing the delay but due to new city plan the approvals are stuck. There is lack of clarity in the developers mind regarding the new laws. The new projects are not launched because of approval delays. Among his wish list to make Gujarat property market more delivery oriented are good public transportation, inviting FDI openly and the government should have policy clarity.

“Project delays in Gujarat are beyond mere delay in approvals. Lack of booking is also major problem, as the builder is not able to sell fast, he cannot finish the project early. Lack of construction capability is an issue as most builders have not finished the project in time except a select few. As a result, there is at least 25 per cent increase in the total cost of project due to delay in approvals. This is due to interest on capital employed, increase in raw materials cost due to inflation and interest to be paid in booking done,” says Choksi.

So, there is a major cost increase due to delay in approvals. This usually is borne as a profit loss or an increase in cost by the end user. The developers assert they are not against environment clearance but let such regulation should be implemented for projects that are spread over more than 20 lakh sq metres.

Furthermore, they demand that the MOEF should simultaneously allow the developer to move his project file for environment clearance while he acquires the final approval from the civic bodies. Many within the built environment of Gujarat real estate believe the state is better poised to meet the challenges of slowdown than any other state provided the ‘approval of uncertainty’ is not hanging over their head all the time.

 
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