7 Critical Errors Entrepreneurs Must Avoid if Dealing in Real Estate
Factors Why Real Estate Biz Fails
The Indian real estate market is expected to touch US$180 billion by 2020. The housing sector is expected to contribute around 11 percent to India’s GDP by 2020. In the period FY2008-2020, the market size of this sector is expected to increase at a Compound Annual Growth Rate (CAGR) of 11.2 percent. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for India's growing needs.
Developers across the country are grappling with a massive unsold inventory of more than 7 lakh units being unsold in the top 7 cities alone.
Anuj Puri, Chairman, ANAROCK Property Consultants, points out 7 critical points, which aspiring businessmen can avoid if they are looking for a future in real estate business.
The factors that result in failed real estate projects can be many, but if we study the recent stories of failure closely, we can isolate the seven most critical errors:
- Ignoring the all-important location factor: Venturing into areas which are bereft of necessary support infrastructure with no immediate possibility of it getting deployed.
- Following the herd: Starting projects in micro-locations which already have too much supply
- Launching without adequate capitalization to complete projects: A serious drawback if one also lacks an established track record and therefore wields no clout with banks and other financial institutions
- Excessive focus on land aggregation: Just because the land was cheap at some point - primarily to drive up the company’s valuation, with no focus on actual project execution.
- Diversifying into non-core businesses: And diverting funds meant for real estate projects to these ventures. Diversification is a good thing if it starts from a strong base and is backed by the right intent – many of India’s largest players are well-diversified. However, if diversification merely equals diversion and nothing else, it will backfire
- Failing to undertake micro-location research: Investing no effort in trying to understand the product typology which is in highest demand, and merely developing the same product mix that had previously succeeded
- Failing to innovate: Trying to replicate a housing model that worked well previously, without checking how the competition is innovating and what customers expect now.
This article was originally published on Franchise India by Nibedita Mohanta.