The Consolidating Real Estate Industry

The Indian Real Estate Industry has disillusioned and dispirited all stakeholders in the last 10 years – be it the consumers, financial institutions, policymakers, or developers.

The IRR of (-0.1 %) over 10 years knocked down and shattered the confidence of the industry. Many opted out to try other sectors, forced to leave Real Estate with a heavy heart.

How do you explain that?
If you dive deep into the ocean of defaults you will find various factors and not just one for this loss of confidence, and loss of trust leading to a blood bath in the Real Estate Sector.

I list factors, which lead to such poor performance of the sector:
On the part of the Regulator/ Policy Maker

1. Single window Clearance yet not approved.
2. Land allotment policy.
3. Slow pace of development of physical infrastructure.
4. Slow pace of resolution of default players, and customer grievances.
5. Slow pace of creation of new economic centers.

On the part of the Developer

1. Over Leveraged
2. Slow Pace of construction, default on the timeline of delivery.
3. Cash flow mismanagement.
4. Wrong identification of land parcel for development.
5. Mindless Marketing policy leading to unproductive sales realization.
6. Corrupt practices.
7. Owner-driven operation instead of process driven.
8. Expansion in work without building capacity

Financial Institution

1. Deployment of funds without proper review: turning a blind eye to supply capability of execution of developer and state of infrastructure.
2. Investing in SOV structure without evaluating the overall financial health of the organization.
3. Investing in owner-driven companies.
4. Subvention Schemes.

This list is longer but I have tried to zero in on just the main points here.

To make matters worse came COVID 2019 and 2020 and robbed of whatever little energy was left in the Real Estate Sector.

The resultant detachment, lassitude, and passivity of the Developer, as well as the Customer, can’t be explained in words.

This decimation led to the total annihilation of the cycle of consolidation in the Real Estate Industry.

I. To start with small time developers who were over-leveraged could not manage cash flow, which led to delays in construction and loss of their business to

a) Large developers inform of outright sale
b) JV: JD or events
c) Bankruptcy
d) NCLT

I. In the last couple of years, we saw the emergence of many small-size and midsize developers, especially regional developers. Consolidation of developers is somewhat visible and in times to come, we will see the surfacing of industry developers who are process driven and follow corporate governance.

II. Consolidation of Developers can lead to Consolidation of Vendors (small &mid-size) as their receivables from developers were previously washed out.

III. Consolidation of Private Investors and small NBFCs was the outcome of default in servicing of interest and loss of capital with developers.

IV. Consolidation: Realtors suffered majorly and had to shut shop and choose alternative careers.

However not all is lost. The years to come look pretty rosy as we can foresee a well

a) Regulated & Strict compliance structure in place.
b) NBFCs / PFs/ BANKS cleaning their books and establishing strict checks before initiating funding.
c) Policy Makers being last in land allocation and also establishing system for timely clearance.
d) Customer gathering complete knowledge before investing.

To my mind the next decade of Real Estate will beat all asset class!