Real Estate Market Watch

Liberalisation of the economy in the last decade of the 20th century opened numerous business opportunities. India immediately emerged as a major marketplace for multinationals keen to reap the dividends of a diverse demography, domestic consumption, and an educated working populace suitable for serving offshore clients. To ‘accommodate’ this growth story, real estate emerged as a prime business opportunity to fulfil the burgeoning space requirements of this rising economy. In the 1980s and 1990s, real estate developments were largely limited to state or central government agencies. It was only in 2001 – the beginning of the 21st century – that India began seeing private participation in real estate.

The field of opportunity was ripe for harvesting. Availability of large land parcels, improving infrastructure and rising demand for commercial and residential assets fuelled growth. Large development firms arrived, but so did any number of self-proclaimed private sector players who have limited or no experience in managing the various aspects of real estate business. This caused challenges aplenty. The smaller, unorganised players seriously lacked the skills required to execute and complete projects. There was a marked dearth of real technical know-how, financial discipline and the ability to gauge demand.

Inevitably, this led to a demand-supply mismatch as well as escalating stress and severe project delays. Buyers’ confidence was understandably shaken. Clearly needed structural reforms and policy changes arrived only from 2016 onwards. In quick succession, DeMo, GST, RERA and key Insolvency and Bankruptcy Code amendments were deployed. They aimed to enable and streamline structured growth of the real estate sector. The ease (or lack of it) with which developers began to abide by them was an important indicator of future viability. Unsurprisingly, corporate or organised developers emerged as the most transparent and capable.

Driven by Changes

The changes that followed the reforms continue to drive the formalisation of the sector. So does the ongoing liquidity crunch, which has very clearly separated viable from non-viable players. Fortunately, the market share of corporate developers is rising steadily – they account for between 30-40 per cent of the current market, and their numbers are increasing. Corporate India across diverse sectors such as telecom, automobiles, consumer goods, textiles, steel, pharmaceuticals and engineering are spearheading the transformation of Indian real estate. Raymond Group, Dabur, TVS and Kirloskar are some of the new entrants in the Indian real estate space.

Thus, a regulated and efficient real estate sector offers immense possibilities to be unlocked in a country growing economically. Corporate and other large developers today are better equipped to manage the business efficiently and profitably. They have successfully launched and executed several residential and commercial projects. Their ability to invest on advisory to identify the right opportunity, product and timing appears to be crucial in the success of their business. Given their strong background and capabilities, it is easier for them to raise capital and liquidate their products owing to a healthy record of execution and deliveries. Buyers today are more demanding, and they prefer to purchase from or invest in projects by these developers. 

According to the latest ANAROCK consumer sentiment survey, the demand for branded developers continues to rise. The ratio for branded versus non-branded developers currently stands at 69:31 post-pandemic against 52:48 in the pre-pandemic period. These include listed players or developers who have been operating for a decade and more, or even newly formed entities of large conglomerates and those with sizeable areas under development either locally or pan-India. Corporate developers are thus gaining acceptance and buyers are prepared to be associated with such players. Their portfolio and the horizon will continue to expand and penetrate Tier II cities as well. Home buyers today have realised that paying a premium in lieu of discounts and low prices will pay off in the long run.

Diversified Real Estate Offerings

Many corporate developers were predominantly focused on developing high-end residential assets earlier. Today, they have diversified their offerings in order to address a wider spectrum of demand. While high-end products continue to be developed by them, there is significant increase in affordable and mid segment projects. Real estate developers such as Tata Housing, Godrej Properties, Kolte Patil Developers and Puravankara Limited have already forayed into these budget categories. Additionally, they have widened their horizons into markets beyond major cities and ventured into Tier II cities. 

Going forward, the Indian residential real estate space is likely to be ruled by the corporate players as they are better prepared to adhere to changing market dynamics and regulations. Other developers will also be seeking their association to leverage their brand value to market the projects and use their execution capabilities to ensure completion. The future of the Indian residential real estate segment is likely to be structured and developed on the pillars of trust, transparency and efficiency, ushered in by the corporate players.