Indian Real-estate — A Changing Narrative of Buyers, Builders, and Markets.
Those familiar with the pre-2012 era in real-estate would vouch for what was considered the golden period in the Indian real estate, is now a distant dream being chased since then. While today’s buyer, end-users, if you will, are steering the markets and has become the quintessential king(remember the ‘customer is a king’ adage). The narrative has not only changed for the real estate market, but for its most important stakeholders, namely buyer, builders. This article is an attempt to see the shift in the narrative.
Who is the real King?
In the good old time, that’s revered by the investor of the real-estate(not the end-user), the end users comprised of 20–25% share of the total buyer’s at the time. The changing time of regulated regime, demonetization, and to top it all NBFC crisis lead to a mass exodus of investors to seek commercial real-estate or other forms of alternative investment, offering conservative returns.
While this made the original 20–25% shareholders the KING, with more power to negotiate prices or get the best deal in the bargain. With a cautious approach to investing, end-users either switched only to ready-to-move-in homes or trusted credible corporate players offering under-construction homes with their money.
Perhaps the muck is being cleared with the actions of regulators, bankruptcy law in action, the water still looks murkier to old-timers stuck with their investments. Shifting of the focus by the govt towards ‘housing for all’, a new category of affordable homes took birth, to woo another segment of the buyers in the market. Affordable homes by the builders have perfectly epitomized and enchased on what we call in marketing psychology — ‘a deprival super reaction’ using draw of lots for allotments of home.
With the light at the end of the tunnel, what has remained stress-free in the times of stress are 2 extremes — one is affordable and the other is luxury housing. Budget, Premium, and super-premium homes is where the stress is most visible.
Amidst the choices of unsold inventories from the builders and lucrative offers, the end-users are the one who is having the last laugh. They are the king of the present times, if not of good times(for the market).
Have you heard someone say that real-estate is a recession-free industry?
Never imagined, that sun would ever set for real-estate developers, but it did. Many learnt the hard way, some improvised(reluctantly though), and there were some who found the opportunity apt to foray their age-old legacy in real-estate. Plummeting home sales in the market damaged the cash-flows vicious circle of borrowing & loan servicing, post-NBFC Crisis. Pivoted by tightened rules ensuring fiscal discipline by the RBI.
Easy liquidity through borrowing, a norm, to manage working capital/financing the construction/land purchase activities and its subsequent crunch by RBI was like a pulling the plug on the lifeline of many developers. Some could survive and the others crumbled. While this created an opportunity for the much-needed market correction and clearing of the muck, but it left a lot of buyers at lurch. Of those who got sold into wrong investments decisions, without knowing the delivery record of the developer, some were driven by pure greed of high returns and the others by oblivion or the genuine dream of owning a home.
To solve the problem, some of the developers who could survive shook hands with credible corporate players, to encash on their partners brand value. There was another genre of developers who, quite reluctantly, succumbed to the pressures from their lenders and tied up with better brands to avoid insolvency in view of defaults. Corporate players with strong governance, fiscal discipline, execution mindset, ring-fencing of funds and respect for law of the land, emerged as the quintessential real-estate players, who would define the new rules of engagements in the industry.
Perform or perish mindset is making the markets competitive and customer-oriented. Accepting the reality of the market, sooner than later has an advantage for those still stuck in the past or waiting to turn the clock back.
To answer the most common question you can’t avoid being asked if you are in the real estate market or an enthusiast is, “ When will this improve?”. The short answer to that is — markets will only improve to become better in terms of the regulations and professionalism, but the ‘high risk & high returns’ on every investment can’t be a generalized principle for the industry.
Long term investment horizons will see respectable returns, but the bubble of high demands and high short terms returns in the good old times has seen the burst. Real-estate is now being viewed as either end-user aspiration or long term(7–8 years) investment horizon. Anything more or less in this narrative is only an unfounded assumption.
Like a true optimist, let us not miss the silver lining in the whole transformation, real-estate is and will always remain a much sought-after investment option for generations to come, provided one knows the purpose of investing with no dearth of patience to see it grow.