What is today a fragmented group of building and developing firms is slowly coalescing into one organized real estate industry. It has taken 40 years to make a beginning but the signs are unmistakable. The flushes of corporatisation are there and within a span of two years, the momentum will gather to envelop at least 10% of the all-India real estate industry within the corporatisation ambit. Industrial houses, with their large surplus lands have found to their pleasant surprise that developing their land assets unlocks tremendous value, which they can use for their industrial expansion, acquisitions or venturing into new fields.
According to IndiaProperties Research Division, the process of coalescing is slow because unlike other industries, consolidations or mergers do not take place and acquisitions are few and far in-between. What is clear however is the beginning of the end of the small builder/developer. Growing foreign direct investment (FDI) into real estate development companies, entry of industrial houses, introduction of real estate mutual funds and ventures by foreign developers signify that corporatisation is inevitable. Foreign investors/developers with their huge resources insist on large-scale projects, as small ones are not viable enough to generate the kind of valuations they aim for. Large projects in turn bring in economies of scale and consequently affordable prices. Says Naresh Malkani, CEO of IndiaProperties, Pvt. Ltd. "While prices may not be lower in absolute terms, as compared to the non-corporate small developer because of the superior quality of construction, the benefits of scaling are usually ploughed back into the project by providing excellent amenities. This finds ready acceptance by the property buyer." Reason? The demographics of the property buyer are changing.
The 50+ year old on-the-verge-of-retirement employee dipping into his lifelong savings and the provident fund account type of property buyer no longer exists. Today's property buyer is no longer the successful 35-year old well-settled professional. It is more the 25 year-old ascending executive (male or female) with a high salary and an equally high eligibility for home loan. According to IndiaProperties Associates Mr. Ronnie Desouza, of Pune and Mr. Sreedhar Reddy of Hyderabad, such property buyers prefer a host of amenities like gyms, cafeterias, clubhouse, piped gas, shopping facilities and many more. Buyers also look for committed possession schedules, transparency in dealings, clear documentation, quality construction with warranty and delivery of promised fittings and features. Global real estate players win hands down on these factors. Hence the new generation would tend to gravitate towards such projects, leaving the small builder in the lurch and the medium sized builder with unsold inventory. Land banks will be the prerogative of larger players. Global players will play on "Value for Money". Local players will play on "Price". When the "Value for Money" concept reaches critical mass, SME developers will feel the heat and precipitate a drop in price. The drop will not be monumental but in the region of 20% to 25% by price. 'Grow or perish' has never sounded so true!
The market is definitely overheated today but is righting itself. "This is the trend we are seeing", reports IndiaProperties. The expected stabilisation swing will be in the range of 15% to 20%. The 20% correction is more likely for high-end properties that are promoted by small scale builders who work on one to three projects. While at this stage, one cannot term even a 20% correction a crash, anything above that percentage will precipitate distress sales by developers and signal a crash, this coupled with the increase in interest rates, the scenario however looks likely for the moment.
Medium sized construction companies face a piquant situation. They have neither the negligible overheads of small builders nor the financial clout of the large ones to sustain the level of overheads required of them. A few medium sized developers seem to have become aware of the coalescing process that has begun and have taken seriously the "Grow or perish" adage. Since the suburbs of major cities have been developed to a large extent, these developers are adopting a trickle down approach - of moving from larger cities to smaller ones. The shift is lateral - residential to residential, commercial to commercial. A small segment though does not mind catering to other segments - notably retail. The other shift that is noticeable is when large builders move from metro to vacant spaces 40 to 50 kilometres away and develop these hitherto undeveloped areas. They may or may not strictly fall in the legal definition of 'township'. The move is primarily due to availability of large tracts of land, deep pockets to undertake such a move and holding capacity to wait till the area matures.
Will this strategy of shifting 50 kilometres pay dividend? Most likely. At least in the BPO sector, a leading IT company has set up a BPO in a village in Andhra Pradesh. As a rule, human settlements develop in areas that can sustain economic activity. Are we seeing the days when a settlement will be developed first in isolation and economic activity injected into it later?
Courtesy By :- http://ezinearticles.com/?The-Evolution-Of-The-Real-Estate-Industry-In-India&id=828851
No comments:
Post a Comment