©GITAM Journal of Management, Volume 17, No.

2, pp 63-74 (April – June 2019)

A STUDY OF THE CAUSAL FACTORS OF THE FAILURE OF REAL ESTATE PROJECTS

Ramakrishna Nallathiga1
Associate Professor, National Institute of Construction Management and Research, Pune
Naman Bahl, Vaibhav Parihar and Naveen Bomb
PGP REUIM Students, National Institute of Construction Management and Research, Pune

Abstract
Real estate sector was one of the rapidly growing sectors in India since after 2004, but it was hit hard
during the period of 2009-11 due to global financial crisis. After becoming one of the major
contributors to the economy in terms of both income and employment, the real estate sector began
to slow down on growth in the recent past and inventories began to pile up in many cities. Although
real estate projects are undertaken and managed with utmost care, their performance appears to be
upset by a variety of causal factors and there have been some major project failures. Therefore,
understanding these factors affecting the failure of real estate projects is of importance to the
management of several such projects that are being undertaken. In light of this, a study has been
made to identify them. This paper reports an analysis of the causal factors of failure of real estate
projects based on the survey of project professionals at various levels in real estate sector. The
major factors are identified through the analysis of responses using conventional measures such as
mean scores and RII. Further the responses are analysed from the stakeholder point of view and
also the rank correlations across them were analysed to further understand the major causal factors.

Key words: Real estate projects, project management, ranking analysis, internal and external factors

1. Introduction

The real estate sector is considered as one of the rapidly growing sector of the Indian economy,
particularly during the economic boom period of 2004-2011, after achieving a Compound Annual
Growth Rate (CAGR) of about 30% (Ernst and Young 2010). The stupendous growth achieved by real
estate sector in the past is considered to be due to the following (Ernst and Young 2010):
 Continuous growth of urban population
 Population migration towards urban areas
 Rise in job opportunities in service sectors
 Growing income levels of urban households
 Rising trend towards nuclear families
 Easy availability of institutional finance

However, the growth sustainability of real estate sector lies in the demand forces (Essays UK 2013):
 Rapid expansion of the IT/ ITES as well as BPO segments
 Rising demand in residential sector, due to increasing income levels;
 Emergence of shopping malls as “one stop destination” for buyers;
 Continuation of SEZs as preferred destinations for manufacturing and service sector.

Among all of the above segments, residential sector is the largest sector – both in terms of volumes
and gross value addition. The NBO (2005) survey had estimated that there was shortage of urban
residential housing for MIG and LIG/EWS housing to the tune of 24.9 million housing units. This was

 Corresponding Author e-mail- nramakrishna@nicmar.ac.in

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later revised by the Kundu Committee to 18.2 million in 2010, based on the additions made during
the period (Kumar 2015). It is clear that the industrial supply is not matching in pace with housing
requirements. In order to plug the huge supply deficit, the Government of India has revised policy to
allow FDI up to 100% under automatic route in specified real estate development projects, including
but not restricted to townships, infrastructure development and house construction projects.

As demand for houses increased considerably and the supply of them did not keep the pace with it,
there was a steep rise in residential property values in urban areas. Broadly, residential real estate
sector can be divided into four growth phases (KPMG 2015):
 Growth Phase (2001-2005): Initial growth phase with off take and prices picking up.
 Momentum Phase (2006-2008): High growth phase with high demand and high prices.
 Recession Phase (2009-2010): Slowdown in demand due to low affordability and poor
economic environment.
 Consolidation Phase (2011-2014): Stabilisation of demand, supply and prices gradually
moving up with improvement in economic environment.

Despite some strong fundamentals, the residential real estate segment is greatly influenced by
economic market cycles or business cycles. Owing to global financial meltdown, the residential real
estate market in India too witnessed a fall in demand and so also a fall in property values, between
2008 -2009. However, it picked up with a rise in demand during after 2009 across major Indian cities,
which is mainly attributed to improvement in economy. Residential projects across cities saw several
new mid-income housing projects being launched by developers to attract potential buyers. About
668 million square feet of residential house space was constructed between 2009-11 in top 10 cities
of India, which account for around about 15-20 per cent of overall housing supply in urban India
(CRISIL 2012)2. Yet, there has been an inventory pile up of real estate due to changing circumstances
– particularly in the large cities like Mumbai, NCR Delhi, Hyderabad, Bengaluru and Kolkata.

2. Real Estate Project Failure

Real Estate Projects often fail due to several reasons related to management e.g., poor planning, lack
of leadership, inadequate knowledge, people problems, lifecycle problems. Real estate sector is
ridded with volatility due to various ‘internal’ and ‘external’ factors of supply organisation as well as
market. Here, ‘Project Failure’ broadly refers to not meeting the objective and, therefore, may be
viewed as the opposite of success. Figure 1 shows the dimensions of real estate project failure.

Scope

Schedule Budget

Real
Estate
Project
Failure

Risk Quality

Resourc
es

Source: Authors’ Own

Figure 1: Real estate project failure dimensions

2
These include: Mumbai, NCR, Bangalore, Chennai, Kolkata, Ahmadabad, Kochi, Chandigarh, Pune and Hyderabad

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2. Literature Review

There has been a good amount of international and Indian literature that dealt with breadth and
depth of the issues of project success/failure, and different studies have used different frameworks
but most of them used the ranking analysis based on mean scores or the RII or its variants for
identifying critical success/failure factors. Further, some research studies went beyond the project
success/ failure to reach out different areas of construction/infrastructure sectors

Nallathiga et al (2012) conducted a study of the major determinants of real estate construction
projects in India. A survey of real estate/ construction professionals (categorized into project client,
project consultant and project contractor) was undertaken to obtain their responses on Likert scale.
The major determinant factors were identified based on the correlation coefficients between the
responses of the above three groups rather than ranking. They identify the major determinant
factors of project success as: Client objectives, Core competency, Project team leadership and
Managerial actions. They also identify sub-factors within each of the major factors.

Doloi (2013) makes a comprehensive assessment of projects success/ failure by considering

exhaustive list of factors and categorizes them under: (i) contract related (ii) project management
team related (iii) quality related (iv) planning related (v) contractor related. It also classifies the
existing literature on project success/failure into those related to (a) project planning and
monitoring (b) design efficiency (c) effective site management (d) communication (e) contractor’s
efficiency (f) project clearances (g) due diligence (h) market competition.

Patil et al (2013) conducted a study to determine the causes of project delays and their importance
according to project participants, i.e., project owner, consultant and contractor. Sixty four causes of
delay were identified in the research. Project delays are common and notable - as 72% of the total
projects (reported by all respondents) were delivered late, whereas only 28% were completed on
time. Client respondents indicated that 59% of the public projects they were involved in were
delivered late. Consultant respondents reported that 62% of the projects they were involved in were
completed late. Contractor respondents also share similar view and articulated that 77% of the
projects they are involved in exceeded the preset duration.

Rajan et al (2014) conducted a study of project success/failure in terms of cost/time overruns, and
assessed the importance of (a) technical parameters (d) economic parameters and (c) state specific
factors in a diagnostic framework. They also conducted a survey of professionals using a Likert scale
of significance. They finally list out the success/failure factors within each of the major parameters
based on the ranking of parameters using the Relative Importance Index (RII).

3. Research Design

Objectives
The current research is concerned with the Causes of failure of Projects in Real Estate Sector IN
India. The study objectives are the following:
 To identify the cases of failure of real estate projects at different stages of project cycle.
 To study the stages and steps involved in a cycle of project.
 To identify the key critical issues which are to be considered with prime attention and
decisions taken for them very carefully

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Study Framework
The study focus is on the various internal and external factors lead to the failure of Real Estate
projects, which have implications to their management. Figure 2 shows the study framework
comprising the internal and external factors and the sub-factors.

Figure 2 Framework of failure factors concerning the study

Methodology
Figure 3 shows the methodology adopted in the study. The study involved collecting primary data
through a questionnaire survey. Prior to the questionnaire survey, the project cases were analysed
to find the key management issues, which helped us to identify/list out the factors In the process,
the study confined to projects in real estate sector only and that too with Pune region only.

Source: Authors Own

Figure 3 Study Methodology

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©GITAM Journal of Management, Volume 17, No. 2, pp 63-74 (April – June 2019)

Questionnaire Design
A questionnaire of 5 pages length was used to conduct a survey of sector professionals in Pune
Region of Maharashtra, India. It comprised of the factors that are shown in the study framework
shown in Figure 1. The respondents were asked to assess the factors as per their importance to
becoming a reason for failure of project as in form of ‘Likert’ scale shown below:
1. Unimportant
2. Slightly Important
3. Important
4. Most Important
5. Critical

Sampling Framework
A questionnaire concerning the factors affecting real estate projects was used for the survey of
project professionals based in real estate companies and their projects, who were chosen randomly
(convenience sampling) but in a stratified manner. The strata used here are the sector professionals
who are categorised into - Developers, Project Managers, Architects and Engineers, who are also
termed as project stakeholders of Real Estate Sector. A total of 28 respondents, who were
involved in real estate projects, provided the responses. Figure 4 shows the respondents mix.

Source: Authors Own

Figure 4 Respondent Categories/Stakeholders Mix

Analysis Framework
The survey respondents’ assessment on ‘Likert’ scale for different critical factors in real estate
projects was first summed up in the form of mean scores of the responses. All the factors are
analysed and grouped to obtain ratings over their impact on the project and its failure. While the
ranking of factors as per the mean score of responses was primarily used in the analysis, the Relative
Importance Index (RII) was also used for ranking the factors. Further, a correlation analysis was also
performed to assess the convergence. The factors are ranked according to the different stakeholders
(or, respondent types) and their convergence is also analysed with reference to the factors.

4. Study Results

The results of ranking analysis are shown in three different methods of analysis:
(i) Mean Score based ranking
(ii) RII based ranking
(iii) Stakeholder-wise ranking

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4.1 Mean Score based ranking

The responses analysed as mentioned in the previous section are summarised using the mean score
and ranked as shown in the Table 1.

Table 1 Failure Factors and Ranking on Mean Score

Factor Relating to Failure Factor Mean Score Rank
Internal Factors
Project Management Project Management Team 3.64 9
Technical Complexity 3.35 15
Design Team Architectural Design 3.67 13
Design Coordination 3.42 17
Location Planning 3.32 7
Human Resource Leadership 3.85 2
Decision making 3.78 3
Finance Financial Planning 3.89 1
Forecasting 3.79 5
Procurement Selection of Contractor 3.67 8
Selection of Vendor 3.42 14
External Factors
Market Marketing of Project 3.78 4
Marketing Research 3.46 11
Political Environment Land acquisition and Settlement 3.5 10
Political aspects 3.32 18
Socio-political environment 3.17 20
Political 3.14 21
Government Work Approvals 3.67 6
Government Policies 3.46 12
Litigation and Legal Offences 3.28 19
FDI Inflow 2.57 25
Industrial Relations and Environment Disputes among Stakeholders 3.35 16
Power Positions 2.89 23
Strikes 2.39 27
Economic Environment Economic Conditions 3.10 22
RBI Policy 2.5 26
Rupee Depreciation 2.03 28
Economic Changes 2.82 24
Source: Authors Own

4.2 RII based ranking

Another attempt is also made for summarising the scores through Relative Importance Index (RII)
using the following formula:

Relative Importance Index (RII) = ∑iSi×Ni/ (A×N)

Where Si is the scores on the ‘Likert’ scale used, Ni is the number of responses to the Likert scale
score, A is the highest score and N is the total number of respondents (here, 28)

The results arising from it are shown in Table 2

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Table 2 Failure Factors and Ranking on RII

Factor Relating to Failure Factor RII Rank
Internal Factors
Project Management Project Management Team 0.7285 12
Technical Complexity 0.6714 19
Design Team Architectural Design 0.6857 17
Design Coordination 0.6643 21
Location Planning 0.7357 10
Human Resource Leadership 0.7714 5
Decision making 0.7571 6
Finance Financial Planning 0.7785 4
Forecasting 0.7428 8
Procurement Selection of Contractor 0.7357 11
Selection of Vendor 0.6857 18
External Factors
Market Marketing of Project 0.7571 7
Marketing Research 0.6928 15
Political Environment Land acquisition and Settlement 0.7000 14
Political aspects 0.7857 3
Socio-political environment 0.7946 2
Political 0.6643 22
Government Work Approvals 0.7357 9
Government Policies 0.6928 16
Litigation and Legal Offences 0.8214 1
FDI Inflow 0.5143 26
Industrial Relations and Environment Disputes among Stakeholders 0.6714 20
Power Positions 0.7232 13
Strikes 0.5982 24
Economic Environment Economic Conditions 0.6214 23
RBI Policy 0.5000 27
Rupee Depreciation 0.4071 28
Economic Changes 0.5643 25
Source: Authors Own

4.3 Stakeholder based ranking

Apart from the aggregate analysis, the ranking analysis was also performed according to the project
stakeholders based on the mean score as explained earlier. Table 3 shows the project stakeholder-
wise ranking of the real estate project failure factors. Further, the rank association among the
project stakeholders has also been performed and is shown in Table 4.

Table 3 Failure Factors and Ranking on RII

Factor Relating to Failure Factor Developer Project Architect Engineer
Manager
Internal Factors
Project Management Project Management Team 5 6 15 12
Technical Complexity 21 13 13 16
Design Team Architectural Design 9 20 8 23
Design Coordination 16 20 9 15
Location Planning 3 17 6 14
Human Resource Leadership 7 10 2 2

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Decision making 4 18 1 8
Finance Financial Planning 19 1 12 1
Forecasting 1 5 14 9
Procurement Selection of Contractor 8 7 10 5
Selection of Vendor 13 11 11 6
External Factors
Market Marketing of Project 10 8 4 4
Market Research 11 19 5 13
Political Environment Land acquisition and 12 23 3 3
Settlement
Political aspects 22 15 22 7
Socio-political environment 24 16 19 19
Political Institutions 22 3 23 10
Government Work Approvals 2 14 7 11
Government Policies 23 2 16 24
Litigation and Legal Offences 14 9 17 21
FDI Inflow 17 27 21 28
Industrial Relations Disputes among 20 4 18 17
and Environment Stakeholders
Power Positions 28 12 26 26
Strikes 27 24 28 28
Economic Economic Conditions 18 21 24 22
Environment
RBI Policy 25 26 25 25
Rupee Depreciation 26 28 27 27
Economic Changes 6 25 20 20
Source: Authors Own

Table 4: Rank Correlation Matrix among the Stakeholders

Developer Project manager Architect Engineer
Developer 1 0.127 0.730 0.528
Project Manager 1 0.203 0.449
Architect 1 0.684
Engineer 1
Source: Authors Own

5. Conclusions

This paper brought out the failure factors of real estate projects based on a survey of project
professionals in the Western region of India. The ranking analysis results show that the top most
important factors are – Financial planning, Leadership, Project management and Decision making.
The bottom 5 factors are - Power positions, Economic changes, RBI Policy, Rupee depreciation and
Strikes. Incidentally, all the top 5 factors are internal factors that are within the control of project
organisation and resources, and all the bottom 5 factors are external factors that are outside the
control of projects. This shows the importance of exercising better project management in the
success/ failure of real estate sector projects. The Stakeholder ranking analysis also more or less
corroborates the means and RII based ranking analysis results and it is also found that is more
convergence on ranking among the developers, architects and engineers. The implications are that
improvements in the management of real estate projects lead to less chances of their failure.

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