Everybody knows somebody who has bought an under-construction house in the past decade or two and then struggled to get possession.
As of February 2019, over 2.3 million houses, spread over 16,330 projects across India, were running behind schedule, data with real-estate consultancy Liases Foras show. To put this in perspective, only about 250,000 houses are sold on average annually in the seven largest cities of India, according to property research and brokerage firm Anarock.
There are many reasons why real estate projects, both residential as well as commercial, are delayed. Most analysts and real estate developers hold the opinion that these delays are largely on account of two significant factors: quickly-piling up inventory and liquidity crunch.
A clutch of factors, including a general slowdown in sales and the passing of Real Estate Regulatory Authority (RERA) Act of 2016, have reduced the availability of funds to developers to a trickle. This has forced them to stop work on a surprisingly high number of projects.
The end result is delayed completion of projects, which further restricts cash returning to developers. This vicious cycle is proving to be difficult to break, even leading to a crisis.
One of the remarkable facts about the Indian real estate sector is how fastidiously it clings to age-old ways of working, even when hit by a crisis. For instance, it is remarkably cold to the use of cutting-edge technology.
The only visible use of modern tech so far in the industry has been in the planning and designing (computer-aided designs and 3D models) function, or in sales and marketing. In the latter, several online portals have sought to shift a buyer’s journey from offline to online. Some of these portals even use augmented reality to produce 3D walk-through tours, allowing prospects to experience a new flat from the comfort of their old homes.
That, though, is nearly all.
This even when a host of technological innovations are available to address some deep-rooted problems affecting the real estate industry in areas ranging from finance & planning to on-site construction.
Indeed, some could even put a majority of the delayed projects on the fast track.
Bring in the tech
Poor cash-flow management is a major factor in a majority of project delays.
In recent years, several fintech companies in markets like the US have come up with solutions to improve the financial management of real estate companies. Some of these target banks and other lenders for faster disbursement and better risk management of loans to developers or buyers, while others help developers or sellers liquidate inventory quickly.
Connecticut-based technology major SS&C Technologies for instance offers a tool for managing and servicing construction loans that provides an automated, real-time snapshot of a project, from its beginning to end, to lenders. SS&C’s Precision LM is used by real estate lenders and property management or commercial lending firms for managing complex construction loans, tracking information on all parties involved in the project, and controlling the project budget.
On the retail side, Fiserv, a global leader in Fintech and payments enabling innovative financial services, facilitates lending, risk management and loan origination. It processes a large number of real estate transactions.
Several other startups like LendingHome, Opendoor, and Roofstock, too, have developed tools that can be classified as proptech or property tech and have redefined the home-buying and financing experience.
Opendoor, headquartered in San Francisco, uses data and algorithm to value and buy homes across 20 US cities, without physically visiting them. It then makes requisite repairs and refurbishing and resells these homes. Oakland-based Roofstock allows property investors to evaluate, buy, or sell rental homes in 41 markets and even guarantees a year’s rent on a vacant property purchased through the platform.
What is arguably the biggest advantage of using technology is visible in day-to-day operations and project management for developers and contractors (in the US). All projects go through a series of stages—architects and designers conjure up the structure, engineers model it, and contractors and fabricators construct it. Nearly all modern projects are designed and modelled using 3D tools. However, these models are then printed on paper before being passed along to contractors and engineers for on-field construction.
As a result, most constructions, even for large projects, still rely on manual guesswork and onsite trial and error, leading to delays and cost escalations.
Modern tech tools are able to digitise this entire workflow. This translates to less delays and fewer onsite errors.
Cutting edge construction project management tools from Indian startups like Delhi-based Tracecost help schedule tasks, monitor task completion and pinpoint responsibility on a specific individual or team for delays. Day-to-day scheduling and real-time cost management allow the entire construction process to be faster, error-free, and with tight cost control. Other homegrown startups like Einsite and FalconBrick, too, are looking to digitise the process.
The biggest challenge for these proptech startups, as remarkable as their products and services are, lies in persuading the Indian real estate players to use their technology. Even though some of the largest banks, developers, and contractors have embraced digitisation, we still have a lot of ground to cover.
Whether or not the present crisis will work as a catalyst is worth watching closely.
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