The Challenges and Rewards of Running a Real Estate Business in India
In a candid conversation with Zerodha co-founder Nikhil Kamath, leading figures from Bengaluru’s real estate sector shared their insights on the challenges and joys of running a business in one of the most dynamic markets in India.
Real EstateBengaluruProperty MarketAffordable HousingUrbanizationReal Estate MaharashtraOct 15, 2024
In a conversation with Zerodha co-founder Nikhil Kamath on his show titled ‘WTF are Indian Real Estate Giants Up To?’, three prominent names from Bengaluru’s real estate community — Prestige MD Irfan Razack, Brigade Group Joint MD Nirupa Shankar, and WeWork India CEO Karan Virwani — provided some insights.
Nirupa Shankar, who has been a key figure in the Brigade Group, was candid about the challenges. “I wouldn’t say real estate is easy; it is a lot of donkey work,” she said. Her sentiments were echoed by Irfan Razack, who has been in the business for over four decades. “It is the most difficult business to be in. Every single land purchase requires securing hundreds of licenses. You need to be diplomatic and maintain a positive attitude even when faced with challenges,” Razack added.
Despite the difficulties, there are aspects of the business that these leaders find deeply rewarding. Razack explained, “What I love most is the creation process. Starting from a barren piece of land and transforming it into a vibrant community is truly energizing.” Shankar also shared her journey, saying, “If you ask me today, do I love what I do? Yes, I love it, but it has been a journey. I learned to love what I do.”
One of the significant challenges in the real estate sector is the execution of affordable housing projects. Shankar pointed out, “It is very hard to do so-called affordable housing. The definition of affordable housing is around ₹45 lakh, but with land prices, it often costs around ₹60 lakh. This makes it difficult to execute affordable housing projects.”
From the customer’s perspective, Shankar noted that transaction costs and long-term capital gain taxes make real estate a relatively illiquid asset. When asked for advice to aspiring entrepreneurs with a ₹10 crore corpus, the leaders suggested exploring land aggregation and joint development with existing landowners. “If I had ₹10 crore, I would look to do a Joint Development Agreement (JDA) with someone who already has expensive land, such as a small CBD property. You can use the ₹10 crore as equity and get the balance as debt from a bank for construction financing,” Shankar advised.
The trio remains bullish on the future of the real estate market in India. Razack commented, “With the population we have, this is just the tip of the iceberg. There is still a lot more urbanization to come. A lot more people are aspirational and want to buy homes.” Virwani added, “The demographic volumes are so high that the demand will sustain for multiple decades. Given India’s population and growing aspirations, it is physically impossible to build enough capacity to outpace demand.”
Bengaluru, in particular, has an inventory overhang of 3.5 quarters, and securing approvals for new projects can take 9-12 months. “If we don’t launch more projects, the current inventory will run out, highlighting the strong demand,” Shankar explained.
According to World Bank's Country Director for India, Auguste Tano Kouamé, by 2036, India’s towns and cities will be home to 600 million people, or 40% of the population, up from 31% in 2011. Urban areas are expected to contribute almost 70% to the GDP, and nearly 70% of the urban infrastructure needed by 2047 is yet to be built.
Frequently Asked Questions
What are the main challenges in the real estate business in India?
The main challenges include obtaining numerous licenses for each land purchase, dealing with regulatory and bureaucratic hurdles, and managing the high costs associated with land and construction. Additionally, creating affordable housing is particularly difficult due to rising land prices.
What do real estate leaders find rewarding about their jobs?
Real estate leaders find the process of creating something from a barren piece of land to be deeply rewarding. The transformation of land into vibrant communities and the positive impact on people's lives are significant sources of satisfaction.
Why is affordable housing difficult to execute in India?
Affordable housing is challenging to execute due to the high cost of land. The definition of affordable housing is around ₹45 lakh, but with additional costs, the price often reaches around ₹60 lakh, making it difficult to keep the projects affordable.
What advice do real estate leaders have for aspiring entrepreneurs with a ₹10 crore corpus?
Real estate leaders recommend exploring land aggregation and joint development with existing landowners. Using the ₹10 crore as equity and securing the rest as debt from a bank for construction financing is a viable strategy.
What is the future outlook for the real estate market in India?
The future outlook for the real estate market in India is optimistic. The population is growing, and there is a strong demand for housing. Urbanization is expected to continue, and the demographic volumes are high, ensuring sustained demand for multiple decades.
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