Bottom Line: The execution challenges, new regulations and fiscal planning forces the builders to take up small residential projects than large townships, of late.
Manjeet Dabral has always been impressed with big housing projects in Dubai and preferred to stay in one such apartment over there. On his return to India he wished to live in one of the largest housing projects of Mumbai.
However, his visualization of larger housing project to provide an ambience of grandeur soon turned out to be nightmare. Maintenance of this large project has been quite challenging and he soon shifted to a smaller housing project that turned out to be a much better maintained apartment.
“Creating consensus over basic issues in large housing projects is a huge challenge in a city like Mumbai. Forget the role of the developer’s facility management team, even the residents do not agree on most of the things. I feel we are way short of global standards and mindset to live in larger housing projects and hence living in a smaller building makes more sense,” says Dabral.
The perception of this homebuyer might have been shaped out of some very specific reasons, but it is quite obvious that he is not alone in the metro cities today who thinks that smaller projects are better option than the larger size projects.
It seems within the built environment of Indian real estate not only the homebuyers but also the developers are realizing the advantages of smaller housing projects as against the larger ones. And hence, the new fad is to divide the project into phases and make it smaller projects.
Market realities
- With regulator on anvil the developers are getting realistic with execution capabilities and hence smaller projects are new fad
- From fiscal management to project timelines, smaller projects make more sense
- Amenities are lesser in smaller projects as compared to large projects
As an outside view, it might give the impression that it is the execution challenges and approval bottlenecks that is goading the developers to opt for smaller projects, but even more driving factor is the realization that the new regulatory regime post the formation of real estate regulator would make it safer for the market to embrace the idea. Developers seem to agree with this.
Vineet Relia, Managing Director, SARE Homes agrees that breaking down the bigger projects into smaller phases or units has always been a better strategy in terms of both money and time management. Since, according to the new laws all such phases or units can be registered as an independent project; it will be easier to finish a small project in the stipulated time frame.
“we are already working on the same model and understand the advantages of dividing the project into phases. What amenities need to be added in the smaller or larger project is completely at the discretion of the builders, as there is always a cost attached with all these benefits and facilities. Since, townships are planned communities they always offer better amenities than the standalone properties, but are 10-15 per cent costlier,” says Relia.
The question is whether small projects can give the kind of amenities that large projects do offer. Opinion is divided but Nikhil Hawelia, Managing Director of Hawelia Group defends the smaller project philosophy. According to him, a smaller project is financially more viable for the developer even when something goes wrong in terms of fiscal planning or execution risks. For a buyer also, it is lesser burden on the pocket for multiple of amenities that one may not be availing in the long term but have to pay for its maintenance.
“From my experience in the Noida Extension market, I can vouchsafe that most of the stalled or delayed projects are large format developments. The basic amenities remains the same – whether small project or large ones – but for some fancy amenities in the large projects the buyer eventually ends up paying extra, while the developer tempts them with offerings that are often beyond their execution capabilities,” says Hawelia.
Analysts point out that the developers have done their cost and benefit analysis and have come to the conclusion that there are four main reasons in Mumbai why they should adopt this model of breaking up larger projects into smaller ones. One is that to manage the large amount of cash flow is challenging in larger projects. If the developer does it in parts, he has to manage the cash flow in smaller amounts which is more manageable.
Secondly, with a very large project, there comes the sales challenge of a large inventory. This inventory can also lead to pile up inventory when the market is sluggish. Smaller projects open less inventory and when that is sold it also helps generate funds for the further project.
Third reason is that the developers also consider appreciation over a period of time. Hence, if they do it in phases, the project in the later phase might be able to avail the appreciation in price.
And last, but not the least, smaller phases can give better control of operating processes which enables the developer to concentrate on quality of the work.
Arvind Nandan, Director – South Asia with Colliers International sums it up as the market realities of the real estate business added with the challenge to deal with the emerging regulatory framework. According to him, the developers are doing the smart thing by going back to the drawing board and executing what they are capable of, instead of getting into large-scale projects where execution risk has always been very high.
“It is not just smaller developers but even the large ticket developers are also trying to adopt a business model where disclosures are easy to comply with. It is a good thing for the homebuyers also who in any case are no more ready to wait endlessly due to the delays. In my opinion, it is a phase of consolidation and the market will definitely get more matured out of this process,” says Nandan.
In a nutshell, whether it is the execution risk or the regulatory risk ahead, the developers are increasingly realizing the advantages of dividing the larger projects into smaller ones. This sounds well for the homebuyers since the execution timelines and the fiscal management of smaller projects are more realistic as against the larger projects where many a times the project goes out of the hands of the developers despite of his best of intentions.
Will it be a temporary phenomenon till the regulator assumes the office and the developers learn to live with the emerging realities? Or smaller projects are the future of Indian real estate? Well, it is too early and as of now the developers are finding more benefits than the cost of doing projects into phases.
By: Ravi Sinha
