3.5.1 EXTERNAL RISK
External risk includes three sub category such as Force majeure, Political risk and Environmental risk.
Force majeure deals with non-political event known as “Acts of God”. Force majeure includes epidemics, earthquake, natural disaster, floods and such other events. The impact these risk factors create on project varies from minor or severe where the damages can make facilities irreparable states(Iyer & Sagheer, 2010). Special condition should be made in the contract agreements for handling these risks
Political risk is the main source and is type of more complicated source of risk. The risk related to politics include democratic decision making, political stability, transparent government management and supervision. The different political parties comes with different attitudes and relatives towards business. So in an unstable political conditions developers are not able to make correct judgment on economic development. The fixed assets investment will get constrained with a limited level. Consequently the real estate developer’s opportunity to gain profits will be small. More seriously once there was a war, it will bring a death blow to real estate development. But in this present condition war risk is small to real estate market.
Late & approval permit is one of the most important factor which is affecting the real estate projects heavily. In major cities about 35 major approvals from various authorities are needed to start real estate project and nearly 10-12 months are needed for getting the complete approval for the project (Earnest & Young Report 2013).
Another important factor is corruption and bribery. According to Earnest & Young report 2013, infrastructure and real estate sectors are perceived ...
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... recession, recovery and prosperity. During declining time, country tightens the credit policy to control the investment which will hold the demand of the real estate. During recession the real investment tend to decrease due to financial tension among the credits force. During the recovery stage the government will start to reduce the interest and credit controls, the real estate demand will go up and price will start increasing consequently- this is termed as the “Golden Period” of the real estate market. During the prosperity stage, every industry expands, GDP grows rapidly and the real estate demand will be more than the supply. So developer should make a strategic investment during declining period, expanding the investment during prosperous period to gain enormous profit and make careful preparation during recovery and recession period.
3.6 RISK ASSESSMENT
Corruption consists in the illegitimate agreement between a corruptor and a corrupted, in which they abuse of their public power in order to obtain personal benefit. Bribery and corruption is something that has been going on for years. According to Allen, “officials perceive themselves as immune to any penalties for demanding and receiving bribes” which she states that it is one of the main reasons for bribery and corruption in underdeveloped countries. According to Transparency International, an organization committed exclusively to end corruption, three of the most corrupt countries in the world are Somalia, North Korea and Afghanistan. This does not mean that corruption is only seen in underdeveloped countries. In international business, corporate employees often find themselves dealing with corruptors in foreign countries and, in most cases, they will give in.
Asmar et al. (2013) found that IPD has been gaining recognition due to the various benefits it offers to the architecture/engineering/construction (AEC) industry and that much research has not been done to gauge the performance of IPD projects in contrast with other project delivery systems such as design-bid-build, design-build and construction management at risk systems. The metrics that are used to analyze the performance of IPD according to Mollaoglu-Korkmaz, Swarup and Riley (2011) are cost, quality, schedule performance, and owners perception of post-occupancy performance)
Second, the project reviews in coastal areas often are cumbersome. Housing projects are required to go through multiple layers of review before approval, each of which increases approval time and complexity. Local government in California coastal metros takes about seven months to issue a building permit, while a common U.S. metro takes less than five months . Additional project review time is related to housing prices as well. In the Bay Area, every additional layer of review is associated with 4% increase in home prices
The runaway corruption in the country harms the business environment and causes collapse of various established institutions and industries.
As project activities are directed and finished, risks components and events will be observed to figure out whether in certainty trigger occasions have happened that would show the risk is currently a reality. In view of trigger occasions that have been reported amid the risk investigation and moderation forms, the project group or project administrators will have the power to order emergency courses of action as esteemed suitable. Everyday risk relief exercises will be instituted and coordinated by the project managers.
Risk is a potential problem which means there is an uncertainty in the occurrence of a problem. Because of this uncertainty it is hard to find whether a particular event is going to be negative impact on the project. Risk can also be defined as the probability of suffering loss. Risks can be categorized into the following subparts:
When prices increase, the quantity decrease (Graph 1) and new firms enter the market in order to make economic profits. However this does not mean the real estate agents or brokers earn more money. On the contrary, the prices they charge may increase, but the number of houses each sell do not change (Goolsbee, 2005, Online). From this it is evident that the price of products in the real estate market is not affected by the entry of new firms.
The real estate sector in India is one of the sectors recognized worldwide. In the country, it is the second largest employer after agriculture and is expected to grow by 30 percent over the next decade. It consists of four sub-sectors - residential, retail, catering and advertising. The growth of this sector is well complemented by the growth of corporate environment and demand for office space, as well as the urban and semi-urban housing. According to a study by ICRA, construction third ranked among the 14 most important sectors in terms of direct, indirect and induced in all areas of business purposes. It is also expected to emerge from this more non-resident sectors (NRI) Indian investments in the near future, according to a
Political instability and corruption is a major impact on growth. The rule of law and appropriate enforcement is needed to create an established system of honesty and loyalty in society. Corruption is people acting in an official capacity of trust and responsibility misusing their position for private gain. When there is this sense of corruption many things are affected. Corruption discourages investment due to lack of business ethics.
The Indian real estate market's total development activity was Rs.47,000 crores by June 2010 or 8.2% of nominal GDP of 2009-2010.The industry grew at a rate of 20% per annum in the five-year period prior to 2010 to become the second highest employment provider after agriculture. Increased income fuelled demand for residential, commercial, and retail real estate in India. Also, traditionally gold and property were preferred investment options for Indians, which multiplied the demand for real
The project can be significantly affected as a result of two top threats. The management has to identify the risk at the beginning of the risk management planning process,
Kearney, A.T. (2001). Corruption and the Globalization Index. Last access on 27 March 2005 at URL: http://www.globalcorruptionreport.org/download/gcr2001/data_and_research.pdf NAIM, Mois´s (1995). Corruption Eruption. Last accessed on 2 April 2005 at URL: http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=648 MORAN, Robert T. and RIESENBERGER, John R. (1994)
In this essay,we have seen evidence that corruption leads to instability in the economy,increases the transactional cost,decreases efficiency, hinders the growth of a healthy marketplace and harms the social and economic development.Therefore,it’s fair to say that Corruption has had a serious effect on the Indian Economy.If left unchecked,India is bound to lose FDI investments as investors will lose trust in the economy. “Lost opportunities caused by corruption in regards to growth,jobs and investment; India has lost up to $45-50 billion a year”(Singh 2010).
Montesh, M. (n.d.). Conceptualizing Corruption: Forms, Causes, Types and Consequences. Retrieved May 4, 2014, from
Corruption is one of the major issues nowadays and is a clear example and consequence of the actual society and culture. A manifestation of this global phenomenon is the construction industry where corruption is really widespread and interconnected with other industries.