Real Estate

Realty sector in consolidation mode even as it awaits stable recovery

G Balachandar Chennai | Updated on January 28, 2020 Published on January 28, 2020

Reputed developers with healthy balance sheets sailed through 2019, while the smaller ones faced extreme financial constraints

About five years ago, the managing director of a leading property firm in south India had said at a realty sector convention outside the country that future meetings of developers would take place in boardrooms, and not in ballrooms. He made the remarks after sensing the government’s mood and view about the realty sector at that point in time.

His prediction of a lesser number of players in the sector appears to have come true. The real estate industry in the country is seeing a consolidation now.

Three major reforms – demonetisation, GST and Real Estate (Regulation and Development) Act, 2016 (RERA) – have had a significant impact on the realty sector, leading to the exit of numerous small players.

GST and the stringent regulatory regime RERA marked a paradigm shift for real estate developers. With transparency and accountability becoming new watch-words, there are no short cuts anymore. The realty sector has been forced to follow rules and norms.

The bigger and smarter players managed to tweak their business to adjust to new rules, while smaller and unorganised players struggled to formalise their business, and faced huge challenges.

M Murali, Chairman & Managing Director, Shriram Properties, agrees that the realty sector has been going through a consolidation mode.

“We estimate not more than 50-60 real estate developers in the country going forward. These will take care of 95 per cent of the market. There will be another 1,000 players serving the remaining 5 per cent of the market. This is what we see now. Every city may have 10-15 big players serving most of the demand,” he added.

Ramesh Nair, CEO and Country Head, JLL India, also points out that the number of developers operating in the Indian market had been reduced by nearly 50 per cent in the past four to five years.

Reputed developers with healthy balance sheets sailed through 2019, while the smaller ones faced extreme financial constraints. This has driven non-serious players out of the market while other smaller players joined hands with larger developers, he added.

However, Niranjan Hiranandani, National President, National Real Estate Development Council (NAREDCO), felt that it would be difficult to term the ‘churn’ of developers to contractors and vice versa as ‘consolidation’.

“Traditionally, we have seen contractors try and scale up their work and to become developers. Similarly, developers with spare capacity tend to take up contracting work for others. So, those who are over-leveraged would, in any case, have to merge with or be taken over by fiscally-sound companies; RERA has probably speeded up the process,” he stated.

In addition to key major reforms, the liquidity crunch caused by the IL&FS crisis also adversely affected most of the developers, resulting in the rationalisation of business operations. On the other hand, housing demand was impacted by the prolonged economic slowdown that led to muted consumer sentiments with slower growth in residential sales.

While regulations have been a major factor in triggering consolidation in the realty space, changing buyer needs have also played a vital role. Hence, realty players who couldn’t keep ‘in sync’ with buyer requirements and couldn’t adapt to the new customer requirements had to leave the market, pointed out Hiranandani.

Homebuyers have become more informed and cautious while making their home purchase decisions. They now prefer buying in projects by developers with established track record in terms of transparency, quality and timely execution, said Nair.

Amid all this, the realty sector appears to be seeing a revival in demand. Though it is not even, many markets have seen a spike in housing sales, and unsold inventory is getting reduced. In 2019, housing sales witnessed a 6 per cent growth year-on-year. New housing project launches grew 25 per cent in the top eight cities in the mid- and low-ticket size category during the December 2019 quarter.

Even as the industry awaits some sops in the upcoming Budget to drive housing demand, the industry believes that the new mantra is ‘perform or perish’. RERA lays down the framework under which one has to perform. Those who adapt to the new system will remain in business, it is that simple.

Published on January 28, 2020

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.