AFFORDABLE, MID & HIGH-END HOUSING DEMAND & SUPPLY
After nearly a decade of struggle in the residential real estate sector, the recent one and a half to two years have shown significant improvements. Developers are expressing enthusiasm about these positive changes. Gulam Zia Senior Executive Director- Research, Advisory, Infrastructure, and Valuation, Knight Frank (India) Pvt. Ltd. said, “If the real estate cycle serves as an indicator, it appears we are transitioning from a challenging period to more favorable conditions, with ample room for continued growth. Undoubtedly, there is a consensus on a strong recovery being witnessed among developers. Generally, the real estate market sees cyclical shifts and throughout each cycle, some existing developers cease involvement, while new developers emerge.” In response to whether the current supply of developers can meet demand, and if handling an annual turnover of 20,000 to 30,000 crores is feasible for developers, Parth Mehta, CMD & Chief Mentoring Officer, Paradigm Realty, commented, “There are three categories of developers: large listed companies, medium-sized supported by financial institutions, and small-scale developers. Growth potential in Mumbai is mostly driven by MMR region and developers that follow RERA regulations, focus on project completion, sales, financial closure, and efficient exits are making the best of the upcycle in the market.” Samira Lalani, Partner, Trilegal, articulated, “As members of the legal profession, we have the unique opportunity to observe both sides of the real estate sector. We work with developers from various regions. Their forecasts for the market are generally optimistic, despite external factors like inflation. With adequate resources for acquisitions, funding, and timely delivery, developers remain confident in launching new projects and securing funds. We have observed a trend of large foreign funds shifting from established developers of West India to emerging North India developers. While brand reputation plays a significant role, the overall market prospects too play a major role.” When asked if he would be interested in exploring new opportunities and directing his investments toward residential real estate opportunities, Puneet Bhatia, Senior Director, ICICI Venture expressed that COVID has indeed acted as a catalyst for the residential sector, demonstrating the industry's maturity. “Developers have become more strategic and focused in their city selection, ensuring adequate infrastructure is in place. The number of developers too have increased, with both new entrants and established players in the market However, caution and prudence are evident among them while undertaking new projects which raises confidence among the investor.” Reflecting his views on the general opinion that at present, approximately 60% of housing sales consist of mid to high-end properties, while the lower-end market underperforms, Pankaj Kapoor, Founder & MD, Liases Foras Real Estate Rating & Research Pvt. Ltd., clarified, “In the previous financial year, we observed a decline in the market, despite its overall growth. The market value rose 45% between FY22 and FY23 due to price stagnation and COVID-19 effects. Increased sales were driven by reduced prices, housing demand, and end-user demand focus. Challenges are the withdrawal of CLSS and remote location of some residential projects. The current market discourse focuses on leading developers but lacks attention to local or regional developers. The real estate landscape consists of micro and local segments, making expansion and growth difficult. Major developers face challenges in affordable markets due to diverse regional demands. Lenders now extend credit to smaller developers, thus changing the future of real estate. Recognizing and supporting RERA-backed growing developers is crucial." Elaborating on the requirements to serve the lower end of the residential real estate market, Sanjeev Chandiramani, Chief Executive Officer, Ruparel Realty, said, “Our group has mainly concentrated on the affordable housing segment, with over 50% of our stock consisting of 1 BHK units. Despite high premiums and relatively higher prices in comparison to other states, we developers can play a significant role in Mumbai's affordable housing market. To foster growth in this sector, greater access to capital and increased bank and fund’s involvement is crucial. Addressing internal challenges such as high entry barriers, stringent regulations, and the need to strengthen the base at a local level is also essential before expanding nationally. Finally, improved affordability and accessibility to land, along with better transportation options, will contribute to the growth of the affordable housing market.” PROMISE AND CHALLENGE OF AFFORDABLE HOUSING The rising cost of land and construction materials has made addressing the affordable housing a challenge. Even more pressing is the rising cost of living in urban areas for young adults and low income households. There is no one size fits all solution for affordable housing, it’s not just about building housing, but also about mobility and transport infrastructure. Gulam Zia added, “While discussing the current housing boom with a renowned statistician, we came across startling findings. Mumbai ranks as the 12th wealthiest city globally, yet faces significant housing affordability issues due to high prices and shrinking room sizes. Real estate players suggest solutions like stamp duty and premium reductions. The government should prioritize housing affordability to help more people achieve homeownership within the next decade.” Sharing his views on whether the capital accessibility is going to improve, in the coming future, Puneet Bhatia articulated, “The Indian residential real estate sector has grown to $115 billion since 2009, with available bank capital and partnerships with over 360 developers. However, concerns over funding sufficiency remain, as offshore equity capital participation is low post-Lehman era. The housing boom in India presents significant opportunities for growth and addressing housing demands”. RERA has improved the system, especially in Mumbai, but the sector still faces challenges due to high construction costs and land expenses constituting nearly half of a project's total cost.” Commenting on the possibility of the central government reevaluating the 70-30 Act concerning redevelopment projectestate industry through a 70-30 split regulation. States interpret this differently, with Maharashtra allowing funding flexibility and NCR limiting expenses to 30%. State boards can offer clarity and guidelines, and they have recently shown increased flexibility in addressing cash flow issues arising from this mandated split.” The Indian real estate market is currently estimated at approximately $500 billion, comprising a significant portion of the nation's total GDP, which nears $4 trillion. Pankaj Kapoor stated, “The housing demand and shortage in the affordable category must be addressed. Past issues such as inflated land prices and stalled projects were caused by over-financializas, Samira Lalani said, “The central government aims to create a customer-friendly realtion. Despite limited capital access, the real estate sector experienced growth. Cheaper capital and feasible interest rates are necessary, along with maintaining discipline to avoid unsustainable trends. A modest increase in real estate's contribution to India's GDP is desired, rather than an excessive one. I am not suggesting aiming for 9% or 10%. Previously, customer advances covered 60% of the project costs, but this declined to 30% over the past decade. Now, due to RERA and other factors, customer advances have improved, indicating prudent practices. In a country with high inflation and interest rates like ours, minimal capital is required through efficient pricing and sustained demand dynamics.” Sanjeev Chandiramani said, “Last year, our turnover reached 1200 crores, indicating industry maturity and a promising future. The industry has adapted well to changes and new regulations; however, the concept of one-window clearance remains elusive. To further fuel growth, we require stability in rules and regulations, as well as appropriate capital allocation during crucial stages.” Parth Mehta added, “Unfair growth of large corporations and struggling small businesses requires rectification, hopefully in next five years. Various factors like diverse capital and financing, contributes to this issue. Moreover, given the huge number of clearances required for a project, as a developer, my focus should be on creating high-quality products, but I spend most of my time troubleshooting regulatory hiccups.” IMPROVED AFFORDABILITY AND ACCESSIBILITY TO LAND, ALONG WITH BETTER TRANSPORTATION OPTIONS, WILL CONTRIBUTE TO THE GROWTH OF AFFORDABLE HOUSING MARKET-SANJEEV CHANDIRAMANI TODAY THE ENTRY BARRIER IS QUITE HIGH AND INVESTMENT IN ANY KIND OF PROJECT IS RELATIVELY HIGH GIVEN THE RERA REGULATIONS. THE SO CALLED FLY BY NIGHT OPERATORS DON’T EXIST ANYMORE- GULAM ZIA GIVEN THE HUGE NUMBER OF CLEARANCES REQUIRED, A DEVELOPER RATHER THAN FOCUSING ON CREATING QUALITY PROJECTS, SPENDS MOST OF THE TIME TROUBLESHOOTING REGULATORY HICCUPS-PARTH MEHTA THE AFFORDABLE HOUSING FUTURE RELIES ON GOVERNMENT INITIATIVES, INFRASTRUCTURE, CONNECTIVITY, POTENTIAL CLSS REVIVAL, AND HIGHER INVESTMENTS IN URBAN DEVELOPMENT-PANKAJ KAPOOR RAPID GROWTH IS UNCERTAIN, AND EXPERIENCE AND IMPLEMENTATION ARE CRUCIAL FOR LESSERKNOWN REAL ESTATE COMPANIES TO EXCEL DESPITE MODEST MARKETING EFFORTS-SAMIRA LALANI LENDERS PREFER THOSE WITH PROVEN TRACK RECORDS AND ARE ALSO OPEN TO FIRSTTIME DEVELOPERS WHO PRESENT PROMISING OPPORTUNITIES AND POSSESS THE REQUIRED CAPABILITIES-PUNEET BHATIA
Tags : Sanjeev Chandiramani Pankaj Kapoor affordable markets Gulam Zia Puneet Bhatia Parth Mehta