In the past few years, several reforms, such as demonetisation, the Real Estate (Regulation and Development) Act (RERA), Benami Transactions (Prohibition) Act and Goods and Services Tax (GST), have formalised the real estate sector in India. The stringent requirements under RERA and the compliance of the GST law have forced developers to realign their business models. Further, the liquidity crunch pronounced by the IL&FS crisis has adversely affected most of the developers, resulting in the rationalisation of business operations.
The role of technology in real estate has also come to the fore with a thrust on proptech and the development of cost-effective construction solutions. These leaps have triggered transparency and consolidation in the erstwhile fragmented sector while bridging the gap between developers and homebuyers.
Despite the sector facing prolonged sluggishness, reputed developers with healthy balance sheets sailed through 2019, while the smaller ones faced extreme operational and financial constraints. This drove non-serious players out of the market, whereas many small ones joined hands with established developers. According to various market sources, the number of developers operating in the Indian market has reduced by nearly 50% in the past 4-5 years. Increased compliance costs and greater levels of monitoring are likely to compel smaller and unorganised players to eventually move out of the market.
In this scenario, the organised and listed players are relatively better placed to align themselves with the changing dynamics, as they are less averse to transparency and disclosure. A quick analysis of the pattern in new project launches during the past 4-5 years indicates the growing prominence of established developers, even in the large markets of Mumbai and Delhi NCR (see chart below).
Figure 1: Share of launches by developers
Inner circle represents Pre-2016 and outer circle represents Post-2016 period
Source: JLL Research
More specifically, reforms such as RERA and the Benami Transactions (Prohibition) Act have not only improved transparency but also raised consumer activism on the back of inordinate delays in the delivery of projects by developers. There are several instances of legal actions against builders, such as Unitech, JP Infra and Amrapali, to name a few leading ones.
On the demand side, the prolonged economic slowdown led to muted consumer sentiments with slower growth in residential sales. despite a strong recovery in the second half of 2018. Homebuyers became more informed and cautious, affecting their home purchase decision. Now they prefer investing in projects by developers with an established track record, in terms of transparency, quality of construction and timely delivery of projects. This resulted in credible developers benefiting and capturing a big chunk of the market, thus helping the real estate sector to become more streamlined and homebuyer-friendly.
Going ahead, factors such as financial health of developers, strong execution capability, stringent regulatory compliance, land bank and balancing the product-price mix will chart the growth trajectory of developers in the Indian market. This, in turn, will aid a sustainable recovery and ensure higher growth of the real estate sector in the country.
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