Post Covid, the Indian real estate is witness to a K-shape recovery where the listed & larger players are increasing their market share at the cost of smaller ones. Prima facie, what sounds like a market-linked reform, have concerns & repercussions that run much deeper. Is the current criterion of assessing a market with fiscal performance justified? Can only a handful of branded developers be the answer to India’s housing woes, questions Track2Realty.
This is the best time to buy a house
Sales bookings are at a historical high
Home buyers are looking for bigger homes
Millennials too have understood the importance of a house
Size of Indian real estate is set to be 1 trillion USD by 2030
Indian real estate is set to attract billion-dollar investment now
These are some of the narratives set by the real estate stakeholders. What is being cited as a credible piece of evidence is the fact that the sales volume of all the large & listed players are high; fiscal top line is best ever; stock performance skyrocketing; debt is down; and inventory is also low. Doesn’t it seem to be an indication of a booming market? Yes it does! But then statistics only tell half the story; often conceals more than it reveals.
Post the pandemic, the Indian real estate has been the witness to a K-shape recovery. The listed players have grown inorganically while the large universe of the developers is crying for survival. As per reports, the share of sales by the top 8 listed players have increased by 22 per cent.
Another report by ICICI Securities claims the pan-Indian residential market share of the top listed developers will grow from 25 per cent in FY21 to 29 per cent in FY24. Mind you! We are talking about only a handful of listed players as against the large universe of some 12,000 developers, as per the membership of real estate industry body CREDAI.
Thus, it is evident that in a market consolidation the larger players are growing at the cost of developers at large. In a market like India crying for standardisation, professionalism and best practices in real estate, all this sounds like music to the ears of the consumers.
Now I may sound like a pessimist or devil’s advocate, but I often end up questioning this K-shape recovery where the larger & listed players are eating up the market share of smaller developers. Not that I don’t look forward to larger players professionalising the business. I have been a great proponent of real estate market reforms, but then the cost & benefit analysis suggests larger real estate developers are luxury and they come with a price tag that only a few can afford.
What it is that is goading the northwards curve of the biggies of the real estate business?
Larger developers have a pool of investors & underwriters to sail them
Larger developers command much higher premium
Larger developers can even afford to hold in case of slow sales
Build & sell or 20-80 scheme is only within the fiscal bandwidth of large developers
Larger developers can afford higher marketing cost to sell
But then larger players are a luxury that an average home buyer, the cost-conscious home buyer, can hardly afford. Indian housing market is price sensitive. What about the housing needs of masses at large? Are large players catering to mass housing and affordable housing?
Furthermore, can a handful of real estate players, say around 20 large & listed ones, serve the entire country? Most of the big brands are hardly present in 10-12 cities. Even in the 10 odd cities the big brands are launching in the select upscale micro market and in the premium segment only. Aren’t we looking for mass housing across the country? Will the big brands enter into Tier II and other under-served markets?
There are more questions than what one could probably answer at this point of time. But what could definitely be vouchsafed is the fact that only a handful of large & listed developers are not the ideal solution for the Indian housing market. This K-shape recovery of Indian housing market post Covid is as much a bane as it is a boon for the housing supply in the country.
Then there is also a question of sustainability of this housing boom post Covid. The larger players in the premium and luxury segment of housing are laughing their way to the bank, while the majority of the developers in affordable and low-cost housing are wondering as to where have the buyers gone. Today’s K-shape recovery is also investor driven who have got deep pockets to take the benefits of inflation driven economy.
We can probably take a leaf out of China market, where the large players like Evergrande and China Properties Group grew large enough to get over-leveraged. Their massive expansion and market dominance ultimately proved to be the nemesis when they could not sustain operations after expanding beyond execution capabilities.
Back in India, players like Unitech, Jaypee or Amrapali are also case studies in how large developers are loaded with the potential to disrupt the entire business eco system for all the wrong reasons.
It is true that the larger developers managed to sell off the entire inventory post Covid; their fiscal top line has been phenomenal; and they could also get funds & investors for the new launches. The question that remains unanswered is:
To what extent can a handful of large developers drive the market?
What is the depth of the financial market to fund these developers once their ready inventory is sold?
How many large & listed developers would venture into affordable & mass housing where margins are lower?
While euphoria around a K-shape recovery has its own merit, with statistics on scalability of larger and listed developers, other parameters indicating a lopsided growth has to be factored in for a comprehensive picture. Large & listed real estate developers with good brand value serving across India is a wishful thinking. For the wish to be fulfilled, there has to have some entry barrier and strict regulation. No one would deny the need to weed out unscrupulous developers from the housing market in India.
The answer to India’s housing malpractices is definitely not the K-shape growth where the rich developers manage to serve the rich home buyers while housing is either a luxury or dream gone sour for the rest of the Indians.
Ravi Sinha
#RaviTrack2Media
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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