Last year saw the pareto principle or 80:20 rule getting accelerated in the Indian real estate industry. While the residential market (new launches, new sales) has shrunk between 2018 as compared to 2015 or 2016, the fall has been more dramatic for a large number of developers. While the stronger ones, who had a good track record of project completion, good customer feedback perception, are well funded and less stretched are gaining a disproportionate percentage of sales and have seen increased market share.
What we witnessed in the year that went by
The GST impact on under construction residential sales impacted the market severely. While moderately priced projects of good developers bucked the trend, most buyers are preferring to wait for the project to be completed and OC to be obtained before buying the unit to save on the GST cost.
New residential launches fell to a trickle. The developers are concentrating on completing their projects and hoping to see sell their unsold stock as the project nears completion/is completed rather than thinking of launching new projects.
Commercial is the new mantra – Many developers have started focusing on commercial (office) development as they believe the scope and potential for this are far better in the next couple of years. They believe that under the Rera regime and the current state of the market, residential will be a challenge.
Deal-making on the pre-leased commercial asset space continued unabated. There are limited Grade A buildings in the country and those coming up for disposition are seeing increased interest not only from the likes of traditional aggressive players like Blackstone, etc., but also folks like Xander Funds. They have been joined by Indian incorporated funds and domestic insurance companies who have started looking aggressively at pre-yielding office assets. The new trend (as the war on cap rates gets aggressive) is to look at structured transactions like forward sales, partly leased assets as buyers believe that there is a better opportunity at pushing up their IRR’s.
What should we expect in 2019
There will be opportunities galore to pick up land, stalled projects, and even assets as some the developers get deeper into the quagmire if the funding situation does not improve by the end of March 2019. They would look at liquidating land and other assets to keep meeting their financial obligations to lenders and their commitments to customers. Lenders would also nudge them to liquidate assets before problems arise. Strong developers/funds would have the opportunity to pick up land parcels, assets at reasonable values.
Residential to make a comeback: As new residential launches continue to be slow and as more and more developers concentrate more on commercial – gradually reducing inventory would also mean a big opportunity in residential by the second half of 2019. The better-placed developers would see much higher offtakes and the trend of corporate (with the presence in other sectors) developers making an entry would become more commonplace. The stronger developers will capitalize on their brand to strike even better joint development and venture deals.
Source: Financial Express