Consolidation among real estate developers wherein the most capable ones with a consistent track record of execution, fiscal discipline, transparency, and corporate governance, will gain the majority of the market share and thrive during and after COVID-19. Also, the current growth in the market is sustainable and prices are not likely to increase immediately but may after a couple of quarters, real estate experts have said.
For the time being, consolidation of real estate assets is a reality and the sector is likely to witness more joint developments, joint ventures and development management agreements between small developers and established players. This trend will eventually benefit consumers, as financially weak developers are weeded out and incomplete projects will finally see the light of day, they said at the 3rd CII Real Estate Confluence titled Vision 2025 for India Real Estate: Tech & Expertise – The Potential Gamechangers.
Consolidation is happening between all stakeholders whether it is the lenders, NBFCs, the intermediaries and the developers. It is good for the industry especially considering the fact that the industry is becoming mature, said Anuj Puri, chairman – CII Real Estate Confluence 2021 and chairman – ANAROCK Property Consultants.
The share of listed developers from 2017 onwards has grown from 17% to 44% at the end of the last calendar year. “We are going to see bottoming of the market for only select developers. Overall market in terms of sales and launches has shrunk. In a shrinking market, developers who had corporate governance, who had financial discipline, were customer centric would see an upswing over the next three to five year cycle,” Puri said.
Of all the developers active in the market until 2012, only 53% of them are still around – clearly the market has consolidated, he said.
Ultimately it will be the financial health of a developer and the homebuyers who are expected to drive consolidation, experts said at the event.
Puri noted that lenders would only lend to quality developers and without debt and reasonable sales it is doubtful that projects will be completed. “That invariably will lead to consolidation. All C grade under construction projects may find it difficult to sell units in a projects. It is therefore certain that at some stage we will see private equity coming into play and it will only be established developers who will attract private equity.”
As for prices, they may not rise before the next two quarters and that is when the market will “conclusively recognise that there has been an upswing on certain good quality developers,” he added.
As per ANAROCK Research, there are approximately 5.46 lakh unsold units across the top 7 cities priced up to Rs 1.5 crore, with another 49,500 units priced between Rs 1.5 crore to Rs 2.5 crore.
Mohit Malhotra, MD and CEO of Godrej Properties, also pointed out that the trend of consolidation is only going to accelerate going forward. “The worst is behind us and people who have survived these shocks will thrive in the next few years. Also, bid developers will acquire mega status… consolidation is a trend which is bound to accelerate post COVID-19.”
The top 10 real estate developers in India have a market share of around 11% on a pan-India basis and this trend is going to accelerate and we will see emergence of very large developers in India. The top 10 developers in India will become pan-India players over the next five to seven year horizon, he said.
He cited the example of China wherein the top 50 players control 45% of China’s real estate market. “The top 10 have close to 25% market share and after COVID-19 this would have gone up. This shows the potential of consolidation when it starts playing out. For China consolidation started in 2008 and for us it began in 2017,” he explained.
Access to consumers (homebuyers) will play a major role going forward and a strong brand would be essential for any Indian real estate company wanting to sell an under construction project.
“Access to capital will play a key role going forward,” Malhotra said, adding access to debt and equity capital is restricted to quality players and therefore all this will lead to consolidation. It may not be surprising if the top 10 players double their market share in the next five years
Yet another trend that has emerged in the last one year is that the real estate sector has grown into a consumer led industry.
From being dependent on the supply side of the business where access to land was the key factor. The industry today is largely dependent on the demand side of the business where consumer is the king.
“Developers today have to look at redesigning their organization to ensure that customer is the heart of the organization and all processes are taken care in terms of design and service quality,” he said.
Asked if the current demand in the real estate market is sustainable and whether prices are expected to increase going forward, experts said that a “catch up” in terms of volumes is the need of the hour and that demand is systematic and long term.
“There will be a very sharp increase in demand and it is sustainable demand. India has a young population and home ownership will grow. People waiting in the sidelines are coming forward,” Malhotra said.
As for prices, the probability of price hike is far higher than the probability of a price drop. “We will see a strong volumes growth in the next couple of quarters after which prices will start catching up. Price hike is a couple of quarters away but the market is witnessing a sustainable recovery,” Malhotra added.
“The market is fundamentally and more structurally sound today because supply and demand is driven by the ability to sell. There is going to be a limited number of capable developers going forward. These will include those who are capable of selling under construction and good quality developments,” said Abhishek Lodha, managing director, Lodha Group said at the CII event.
The residential market is expected to experience the same discipline that the commercial segment went through after 2014, he added.
(Source: Moneycontrol)
