What recent surveys indicate?
Recently released numbers in several studies have illustrated with clarity that home buyers are veering towards top developers, while smaller developers are not being approached as much. This, thanks to rampant frauds, stalled projects and fly-by-night operations, which had become a norm in the industry, often by reputed developers as well.
Per observation from reports doing the rounds today, it seems several factors have forced over 50% of real estate developers to exit the industry between FY12 and FY18. The biggest decline was seen in Chennai. Noida and Gurugram are close behind, followed by Bangalore. Pune has seen the lowest decline in the number of builders comparatively, but overall, across India’s top cities, the number of builders dwindled by more than half.
According to some industry experts, the fall in numbers show that property developers are consolidating in the market. The unorganized small-scale developers have either exited the market or are teaming up with larger developers via routes like acquisition, joint-venture and development management agreements. As a result of this, credible developers who deliver products on time and meet all regulatory requirements have benefited. The market share of such entities has also increased, especially for the top 10 builders in the country.
Experts feel that this churn is probably going to continue for a while.
Several reasons have possibly contributed in ways big and small to lead up to this.
Primarily, the small and unorganized developers had become infamous examples of execution failures. Then there was an oversupply of inventory plus other factors like GST and demonetization played their own parts to ground half of India’s builders.
There was also excessive, herd-mentality driven land banking practiced by these developers without a proper understanding of the demand and supply dynamics. Completely unjustified price appreciation drives were whimsical and cartel like, in the backdrop of a severe lack of social and physical infrastructure to support so much real estate.
The telltale signs have been around for a while though, albeit brushed under the carpet, when the number of new project-launches in India peaked during the period between 2010 to 2013. The supply was high and much of this was absorbed by large investors. This created a pseudo illusion of demand that led to newer launches, resulting in a demand-supply mismatch, particularly in India’s Tier 1 cities, leading to the days of mass builder exodus.
Also, unorganized players were not used to working under a strict framework which was implemented through RERA. This led to most of them suffocating and leaving the industry in search of newer trades, leaving more and much needed space for larger players to operate in.
These larger players are successfully ushering in a new era of better practices, improved corporate governance and transparency, thereby slowly filling the trust gap; a first but sure step towards the long-term good health of Indian real estate.
What happens now?
A definite answer to that is beyond the scope of this short analysis. But Jet Airways does come to mind. Will rival airlines like Indigo and Spicejet profit from Jet’s sudden demise? Similarly, will the remaining larger real estate developers see a surge in demand for housing as smaller builders exit the industry? Will it renew a buyer’s faith in the industry? Will it go beyond a short time spike in demand for their inventory? And, finally, will that be enough to streamline the transition in India’s sunshine industry. Time will tell.
