Skyscraper dilemma: India’s real estate boom hits a major snag – Money News

A new skyline is taking shape in the heart of India’s booming cities. Towering structures soar into the sky, promising luxury, convenience, and a slice of urban utopia. But behind this dazzling facade lies a serious challenge that threatens to destabilize India’s real estate market: a critical shortage of skilled contractors capable of delivering these ambitious projects.

As demand for housing increases, developers find themselves in a precarious situation. On the one hand, the market offers a wealth of opportunities; on the other, the lack of qualified contractors poses a serious risk to even the most carefully planned projects.

The scale of this expansion is massive. Data from Anarock Research shows that residential unit launches in India’s top seven cities have jumped from a pre-pandemic average of 60,000 per quarter to a staggering 1.25 lakh units, more than doubling the market in a short span.

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This growth poses a significant challenge for developers who are struggling to secure suitable contractors for their projects, a problem compounded by the numerous ongoing government infrastructure projects. In addition, rapid advances in construction technology have made it even more difficult to find contractors who can deliver high-quality projects using the latest techniques within tight deadlines.

The statistics clearly illustrate this explosive growth. In 2019, 2.36 lakh residential units were delivered across the top seven cities. The pandemic caused a decline to 1.27 lakh units in 2020, but the market rebounded in 2021, returning to the 2019 levels. The subsequent years saw exponential growth, with 3.57 lakh units delivered in 2022 and a record 4.45 lakh units in 2023. Industry experts predict that the 5 lakh mark could be crossed in 2024, marking a new milestone in India’s real estate journey.

Sailing through the storm

While this rapid expansion underlines India’s economic strength, it has also created a host of challenges for developers, the most pressing of which is the shortage of skilled contractors.

“Securing reliable contractors has become increasingly difficult with the rise in new projects. Builders are now more focused than ever on ensuring quality and on-time completion. Active management involvement at every stage of construction has become essential to prevent delays and maintain high standards. The challenge is multi-faceted. First, the sheer number of projects is overwhelming the limited pool of skilled labour. Second, the rapid evolution of construction technology means that many contractors are struggling to keep up with the latest innovations. Third, the simultaneous boom in government infrastructure projects has further strained the available labour force,” says Pradeep Mishra, CMD, Oram Developments.

Innovative strategies in difficult times

In response to these challenges, developers are using a number of innovative strategies to keep their projects on track.

1. Strengthening internal teams

Some developers are strengthening their in-house construction teams, which gives them more control over project execution and quality. This allows them to maintain high standards and ensure projects are completed on time, rather than relying solely on external partners. However, this approach requires a significant investment in training and equipment, which may not be feasible for all developers.

2. Engaging international contractors

To overcome the skills shortage, some developers are turning to international contractors who have experience handling large, complex projects. For example, TARC Ltd recently appointed Abu Dhabi-based Arabian Construction Company as the main contractor for its luxury residential projects in Delhi and Gurgaon. While this strategy provides access to world-class expertise and technology, it also introduces higher costs and potential cultural and regulatory challenges.

3. Cooperation with technology companies from the construction industry

The rise of construction technology startups offers another solution for developers looking to bridge the skills gap. “These companies offer advanced technologies and innovative project management techniques, helping developers optimize processes and increase efficiency. For example, Mytek Innovations, a contract manufacturing and design platform, plans to raise $10 million to expand its order book by fiscal 2025, giving developers access to a network of vetted contractors and advanced project management tools,” says Mishra.

4. Investing in Skill Development

Recognising that the long-term solution lies in increasing the pool of skilled workers, some industry players are investing heavily in training and skill development programmes. The Confederation of Real Estate Developers Associations of India (CREDAI) has been particularly vocal about the need for such initiatives. CREDAI advocates a two-pronged approach: proper training of workers and setting up a regulatory framework to govern their employment and working conditions. They believe this is key to improving both the quality and speed of construction in the long run.

Broader impact

The shortage of skilled contractors has far-reaching consequences for the entire real estate ecosystem and, more broadly, the Indian economy.

1. Project delays and cost overruns

The most immediate impact is on project schedules and budgets. As developers struggle to find qualified contractors, projects are increasingly likely to suffer delays and cost overruns. This not only cuts into developer profits, but also frustrates homebuyers, potentially reducing demand in a hot market.

2. Quality Concerns

The pressure to deliver projects on time, coupled with a shortage of skilled contractors, is raising concerns about the quality of construction. While reputable developers are doubling down on quality control measures, there is a risk that less scrupulous players may cut corners, potentially compromising the safety and durability of the structure.

3. Market imbalances

The competition for skilled contractors creates a market imbalance, with larger, more established developers able to acquire the best talent. This can squeeze out smaller players, reducing competition and diversity in the market.

4. Impact on housing availability

The shortage of builders could have a particularly serious impact on the affordable housing segment, where margins are already thin. As costs rise due to a shortage of skilled labor, developers may shy away from this key sector, deepening India’s housing affordability crisis.

5. Innovation catalyst

On a more positive note, current challenges are driving innovation in the construction industry. From modular construction techniques to the use of AI in project management, developers and contractors are being forced to think creatively, potentially leading to long-term improvements in efficiency and quality.

Building a stronger future

As the Indian real estate sector grapples with these challenges, it is clear that there are no quick fixes. The solution will require a collective effort from all stakeholders – developers, builders, government agencies and educational institutions.

1. Skills development programs

There is an urgent need for large-scale skill development programmes to create a new generation of construction professionals capable of handling modern projects. Collaboration between industry bodies such as CREDAI, educational institutions and the government will be essential.

2. Regulatory reforms

“The government can play a key role by introducing reforms to streamline the construction industry. This could include measures to formalize the workforce, introduce standard training and certification programs, and create a more conducive environment for technology adoption,” suggests Mishra.

3. Using technology

Adopting advanced construction technologies can help alleviate some of the challenges of labor shortages. From 3D printing building components to using drones for site surveys, technology offers numerous opportunities to increase efficiency and quality.

4. Cooperation models

Developers may need to explore more collaboration models, such as joint ventures or consortiums, to pool resources and expertise. This approach can help spread risk and provide access to high-quality contractors, even for smaller players.

5. Learning from global best practices

While the challenges facing the Indian real estate sector are unique, there is much to be learned from global best practices. Collaborating with international experts and studying successful models from other fast-growing markets can provide valuable insights.

Conclusion: Building Stronger Foundations

India’s real estate boom represents a significant opportunity – not just for developers and homebuyers, but for the country as a whole. It is a symbol of the country’s economic aspirations and a key driver of jobs and growth. But the current shortage of skilled contractors threatens to undermine that potential.

“By prioritizing collaboration, innovation, and transparency with its construction partners, India can set new standards of quality and efficiency in the industry. The skyscrapers that tower over India’s urban landscape are more than just buildings; they are testaments to the country’s ambition and potential. Addressing the construction shortage head-on, through a combination of skill development, technological innovation, and regulatory reform, will ensure that India’s real estate renaissance is built on the strongest possible foundation,” says Mishra.

The solutions developed to address today’s challenges will shape the cityscapes—and the lives—of millions of Indians for generations. It’s a responsibility that carries a heavy burden, but also offers unprecedented opportunities for those brave enough to reach for the sky.