Saturday, 4 May 2013

Why real estate projects are getting delayed in Patna.


Lately real estate projects in Patna, both commercial and residential are getting delayed. General causes for delay in projects in the real estate Patna market varies from funding issues to delay in regulatory approvals and weakening demand. Lack of funds due to slowing investor activity is another reason for delay in residential and commercial projects in Patna. But the most significant reason remains lack of demand. The main reasons for lack of demand are recessionary and inflationary pressures. 

A major reason for delayed projects in Patna is believed to be entry of new players in real estate arena. Many experts think that opportunists, who joined real estate business in Patna when the market was buoyant, are suffering the most. Many developers in Patna, who started their projects when realty market in Patna was booming, lost their way once recession struck. As these new entrants lacked resources to build large size projects, they started failing to maintain their cash flows once recession struck. Because of lack of credentials, the bankers also didn’t extend funding to them. Now most of these new realtors in Patna are either trying to sell their projects to reputed developers or manage funds instead of completing their projects in Patna. Thus their projects are getting delayed in Patna.

But many projects of reputed developers in Patna are also getting delayed due to decrease in inflow of Foreign direct investment ( FDI) after 2009. After 2005, when government allowed FDI in realty sector, FDI inflow in realty sector in Patna increased steeply. In 2003-04, share of realty sector in total FDI inflow was 4.5% which increased to 10.6% in 2004-05 and 16% in 2005-06. But after recession crept in 2009, fall in FDI inflow was observed. This downward trend is continuing till date. This fall in FDI inflow has contributed to delays in completion of large number of projects in Patna.

Another small but significant reason effecting funding is increase of minimum investment limit in private equity funds (PE) to Rs.1 crore, by Securities and Exchange Board of India (Sebi). Many small investors are finding it difficult to raise such a hefty amount. This is adversely effecting investment through PE funds.

Apart from funding issues and issues related to slackening demand, increase in input costs is yet another contributing factor in delay of projects in Patna. Increasing input costs have decreased the margins of developers in Patna drastically. This is affecting the profitability of many ongoing and yet to be started projects, which are getting delayed in Patna. Rising land cost in Patna is another major reasons of delay in launch of new projects.

So, it can be concluded that delay in projects in Patna is an offshoot of problems like funding, weakening of demand and increase in input costs and rising land cost. These issues can be addressed only by regaining investor confidence, increasing fund inflow and inducing demand in Patna real estate market.

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