Real Estate Data

 The year 2017 was considered to be a watershed year for the real estate industry in India. After the trilogy of Demonetization, GST and RERA, the sector was reeling in despair. However, the indomitable spirit of India's real estate developers has not faded a bit. They embraced the opportunity and began to repackage the product, price and promotion of their unsold home inventory. In terms of sales and marketing, they tried to raise the bar to appease the demanding customer. Some of the initiatives that caught the eye were in the form of upselling the product, adding a service element to the product, dove tailing technology with homes, bundling offers with home financing. Domestic developers have also attempted superlatives, peppering it with Bollywood and sports celebrities endorsing various residential projects. Projects have been rebranded with international brands and innovative launches have been made in line with global best practices. Many developers have even completed the micro-level infrastructure adjacent to their projects, taking on the government's role of providing external and internal work. The government continued to pursue a nonchalant approach to urban planning and infrastructure, further damaging customer sentiment. Many times a home buyer has made it home but with no road leading to her house. While all this was happening, the government was also trying to pull itself together, albeit at a snail's pace. The central government announced RERA (Real Estate Regulation Act) and states started its implementation in the third quarter of 2017. This prompted developers to complete projects quickly and a certain deadline was announced. Many residential projects were completed in this rush of deadlines, but the speed of sales did not match the speed of completion of these projects. Ultimately, the implementation of RERA failed completely in most states and could not fulfill its objective of providing transparency to the domestic buyer. Rather, it has worsened the confidence and hope of homebuyers in Indian real estate. Therefore, the home buyer continued to delay the home buying decision and felt comfortable as a "fence sitter". Because of this conundrum, working capital problems have reached unsustainable levels for most domestic developers. Many times the monthly sales still didn't match to meet / clear the creditors liability as well. The government came with some impetus to announce the affordable housing policy, hoping that it could turn the tables on both the customer and the developer. The intention was to ensure faster delivery at a good price to the customer and subsequently achieve good working capital for the developer. Many developers have diversified into this space and many new entrants have also emerged in this space, including some companies. However, the product suffered immensely as these new affordable homes were too small and located in remote areas. Therefore, after the initial euphoria, the affordable home policy failed to sustain buyer interest.

So after all the buzz of innovative marketing, compliance with government regulations and regulations over the past few years, sales have continued to decline. Inflation in construction costs has caused a double whammy for the industry. Construction costs have taken an upward trajectory due to inflation in cement and steel prices. The regulator also continued its risk weighting on real estate. The costs of financing real estate projects, especially in the residential part, therefore continued to vary between 15-24% per year. With rising construction costs, draining sales and rising borrowing costs, the domestic developer was pushed to the limit.

While all this happened, the ancient mantra of "lower prices and sell more" was reborn. Residential home prices, which had been chasing Manhattan prices, began their journey back home. Home developers who have followed this mantra have achieved massive success, breaking sales records while others continue to sweat it out. Speed of sale became the buzzword and everything else was put on the backburner. Some home developers have begun to understand the sales velocity equation more pragmatically. Rather than increasing volume and increasing sales activity, the focus has shifted to win rate and reducing the sales cycle. Once the focus changed from increasing sales activity to increasing win rates, sales velocity began to increase at a good pace. Among the various real estate developers' associations, such sales successes were initially derided as "black swan events" and these developers were referred to as "outliers" in a negative sense. There have been corridor conversations that such developers are killing the industry. However, lenders have welcomed the move and are now gearing up to give more support to these developers in such challenging times. There is now a sense of recognition of these developers in many areas and the corridor talk has died its natural death. Many other developers in the last quarter of 2018 are expected to follow suit and focus on reducing the sales cycle and thereby increasing the speed of sales. After all, nothing succeeds like success.

This article is written to appreciate those real estate entrepreneurs who have accepted the challenge to adjust their prices to achieve a faster sales rate. This article is an attempt to also encourage others to follow suit. Let there be price sustainability for the home buyer. It is an important way to achieve reasonable growth in real estate business in India. Once this is achieved, the economy will start favoring home developers again and happier Sundays!

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