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How COVID-19 pandemic is an opportunity in disguise for India's realty sector

A second wave of consolidation is imminent, as sweeping changes in business practices, evolution of new strategies, reforms in product design and shifts in consumer behaviour have taken centre stage, pushing smaller players out of the equation

Tanuj Shori | July 28, 2020 | Updated 18:15 IST
How COVID-19 pandemic is an opportunity in disguise for India's realty sector
Transparency, accountability and credibility in the real estate sector will increase as credible players begin to solely drive the sector

The nationwide lockdown has ebbed, and things are crawling back to normal, albeit after reducing real estate sales by over 80%, if compared to the same period last fiscal year.

While businesses across sectors are rebooting themselves after a three-month standstill, a pall of gloom still hangs over the business community about how the future will pan out for it.

By mid-2019, the Indian property market had witnessed a large scale consolidation when data emerged that half of the real estate developers operating in 2011-12 (top 9 Indian cities) had exited the business or merged with large developers due to a multi-year demand slowdown and the changing regulatory environment.

The real estate sector, looking for a fresh start in 2020 riding on hopes of renewed consumer confidence and demand for affordable housing, had its recovery expectations pinned on 2020 and beyond.

However, the COVID-19 induced lockdowns and disruptions ensured that those expectations remained unfulfilled.

Also Read: Coronavirus effect: India's property prices likely to face steep decline

COVID-19 Lockdowns Brew the Perfect Storm

Leaving the top real estate developers aside, a substantial section of players in the real estate sector constantly stared at - financial distress, lack of execution capability, oversupply of inventory, GST complications, excessive land banking, lack of understanding of the demand supply dynamics, unjustified product pricing, and the absence of social and physical infrastructure in emerging markets.

While they hoped that increasing consumer demand for housing would save the day for them, the COVID-19 lockdowns arrived and brought all the distress creating factors together, creating the perfect storm.

A second wave of consolidation is thus imminent, as sweeping changes in business practices, evolution of new strategies, reforms in product design and shifts in consumer behaviour have taken centre stage, pushing smaller players out of the equation. As per recent studies, a further 30% of realty players will look for an exit route.

Exits Begin at a Rapid Rate as Sales Stop

With the biggest engine of sustenance for the sector - home sales, falling off the radar thanks to COVID-19, cases of non-performing assets (NPAs) are set to rise in the real estate sector.

The liquidity crisis faced by developers in tier 2 and 3 cities will further hasten the consolidation, as net disbursals by NBFCs to real estate developers have declined manifold, especially for assets that are in non-metro regions of India.

Also Read: Coronavirus lockdown 2.0: Real estate off-take to fall 20% in 3 weeks, says Hiranandani

The consolidation spree will continue as panic-stricken small to mid-size real estate players rush to liquidate assets and square off debt, leaving a bounty of acquisition opportunities at discounted prices for the big fishes. This is perhaps the best news for home buyers out there, who have lost trust in an industry plagued by failed commitments, missed deliveries and quality concerns.

Missed Technology Bus Complicates Life for Smaller Players

And it's not just the liquidity problems which have forced smaller players to jump ship. They missed the technological bus and just warmed the bench during lockdown while bigger players went digital and registered stupendous sales. And with offline real estate sales looking bleak post COVID-19, the weaker hands will have no choice but to merge their assets with the big shots.

It is no secret that COVID-19 will usher in the biggest consolidation move in the real estate sector as unorganised players are fast losing market share and it's a matter of time when the industry will sing to the tunes of a handful of top real estate developers.

These real estate biggies with strong balance sheets, respected brands, robust digital infrastructure, execution capabilities and ability to adapt and swim with the tide of trends will gain substantial market share and hold the reins of the real estate sector.

All is Not Lost as a New Post-Covid Era Dawns

India's property market, currently battered by plunging sales, piling inventory, stagnant-to-falling prices and an acute liquidity crisis, is now primed for consolidation and today, that is the big theme for the top players, who are equipped with money, ethics, knowhow and technology.

This development will strongly benefit the real estate sector and put it on a strong course of recovery. The residential real estate sector, buoyed by high demand for affordable housing, will bounce back strongly as homebuyers will look to invest in quality homes from renowned developers.

Also Read: COVID-19 impact: RBI may cut lending rates by another 25 bps in August to revive economy

As these big players bring along a strong portfolio and a proven execution track record, they will be able to cater to the demand and chart the recovery story of the real estate sector.

Incomplete, long-haul projects of unorganised real estate players stuck due to liquidity issues and legal intricacies will get a new life as they will be fast-tracked with infusion of liquidity by the established brands. This will give a boost to the supply chains.

Transparency, accountability and credibility in the real estate sector will increase as credible players begin to solely drive the sector. As for the wannabes, they had their moments of glory before COVID-19 accelerated their implosions, leaving a void no one will ever miss, and certainly not the home buyer.

(The author is Founder and CEO, Square Yards)

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