Bottom Line: Beyond the overtones of a large section of developers calling the year 2017 as the year of consolidation, the fact remains that 2018 would herald with lot of confusion.
The changing dynamics of the market, certain policy interventions and the overall market forces are compelling for developers to change in the year ahead.
Despite these changes, the year comes as a confusing year for both the builders as well as the homebuyers. While the developers are confused with streamlining the processes after the regulatory changes of 2017, the buyers are confused because all the reports of transparency in the sector is not visible on the ground.
What would hurt both the buyers as well as the builders is the fact that the property buying and selling would continue to be at standstill. The job market is not picking in any given industry and it would hurt the overall business.
The developers, on the face value, sound optimistic and cite many reasons for optimism, ranging from RERA, demonetization, GST, Benami Transaction Act, and infra status to affordable housing.
Jitu Virwani, CMD of Embassy Group says the year 2017 has been a positive year despite the short-term turmoil, but is surely part of the positive long-term transformation of the Indian business ecosystem. It is imperative that we continue to have a larger vision of 3-5 years to see significant outcomes, of the key measures being implemented this year. This time horizon will help businesses, investors and consumers to continue investing in the India growth story.
“In terms of reforms, compliance to RERA will reinforce the trend for timely delivery, accountability and transparency. It will certainly add costs and in the short-term, delay project completions and also launches, however once this supply/demand mismatch catches up, RERA compliant homes will boost consumer confidence in the sector,” says Virwani.
Bijay Agarwal, Managing Director, Salarpuria Sattva Group maintains that the recent initiatives and policies introduced by the government like RERA, REIT and GST, transparency and subsequently the buyer’s confidence will only increase in the realty market. 2017 trends like the affordable housing segment, co-working spaces and the transformation of the office sector will only continue, and be further strengthened.
“If you are transparent, loyal and honest, you will be rewarded by the customers. One thing to be avoided is that you don’t stretch yourself for debt, avoid debt as much as possible,” says Agarwal.
Rattan Hawelia, Chairmn, Hawelia Group admits that many of the developers had undergone the tough period in 2017 which had ben the news highlight of the year, particularly due to over scaling their scope of work without proper planning. Today, because of the government initiatives the real estate buyers have better knowledge and are well informed of their rights. They have better medium to choose the right property fulfilling their requirements as all the private developers are on a single platform of their offerings.
“Developer fraternity are streamlining their professional intent and adopting transparent & clear mode of dealing with their customers. They have understood that instead of being only the product & promise-based industry, real estate is more about services and addressing the concerns and issues of consumer on realistic ground. The intent is to prioritize the customer needs and focus on their actual problems,” says Hawelia.
Beyond the optimistic overtones of the developers, a Track2Realty research concludes some of the defining trends for the year 2018. These are not very comforting for the developers, and definitely not for those who are resisting the changes in the emerging market dynamics.
Over-supply kills affordable market: Affordable housing, of course, is the buzzword in the market today but any project of mass housing won’t work for the developers. The case in point is markets like New Rajarhat in Kolkata and Noida Extension in Delhi-NCR where the houses at the rate of around INR 3500 have few takers.
Research to define demand: Developers are left with no choice but to get into serious research vis-à-vis the demand in the given market. Only right property, in the right market, and at the right price point would sell. One can even sell luxury housing in Tier-II cities, if the developer knows his audience, their purchase parity and customizes his offerings.
Affordable luxury: Affordable luxury, a very relative concept, would be the market driver in the year ahead. In some of the non-descript markets with over-supply of mass housing, the projects that are selling are the ones where the developer has tried to add aspirational elements to the otherwise affordable projects, since affordable segment is extremely competitive today due to over-supply.
Smaller projects: The developers are today left with no choice but to go for smaller projects, or to split the large projects into phases. This would not only save them from RERA penalties, but would also take care of cash flows and course correction, if needed. Developers would avoid inventory overhang in the year ahead.
Focus on execution: The year 2018 would be year of execution. With a large number of projects running behind schedule, the year could see good supply of houses across the major markets of India. The developers would also prefer to deliver first than going for the new launches. Land bank has already turned out to be land liability for many, and hence no one would be willing to invest in pipeline visibility of next 10-20 years anymore.
JV/JD & consolidation: JV & JD model would be the market trend of the year and there will be major industry consolidation. Some of the distressed and fiscally mismanaged developers will be taken over by the larger players. The trend could possibly clean up the market to some extent.
Emergence of Cities: With traffic bottlenecks killing productive time, cost of doing business per sq feet, and reality of more compensation to migrant workforce in the metro cities, the corporate sector would evaluate the prospects of operating out of Tier-II cities. The demand would thus force the commercial developers towards Tier II cities.
By: Ravi Sinha
