Who’s winning in India’s crowded market?

October 19, 2016 / By  

In India’s seven biggest cities, less than 10% of developers have consistently delivered projects since 2005.  The numbers point to a fragamented market with thousands of developers, many of whom have been in the business for barely a decade.

In such challenging market conditions, those with poor track records will be left behind and as the market expands and matures, consolidation is expected to improve market transparency and further boost foreign participation.

A lack of financial discipline and the failure to fulfill promises by some of these companies have damaged the market’s credibility and have affected buying sentiment. PE Funds have always spoken about their struggle to find the right partners.

However, more and more developers have sought membership of industry associations, which have helped to facilitate mutual learning among peers, inculcating best practices already followed by reputed developers and to benefit from market research such agencies regularly conduct.

For example, the Maharashtra Chambers of Housing Industry (MCHI) has seen its membership grow from 500 to more than 1,000 in the last six years and other developer associations such as CREDAI[1] and NAREDCO[2] have had large increases in membership as well.

India’s property market growth cycle may be divided into three phases. The industry grew rapidly between 2005 and 2008 before being hit by the global financial crisis from 2009 to 2011, and has been rebuilding since. The value of properties under construction has grown by 2.5 times to US$233 billion with residential construction making up 49% of the market and commercial space accounting for the rest.

Among the active developers in the top seven cities, and only 44 have delivered projects in the office sector across all three phases. Only five developers have delivered malls consistently. Consistency, vision and having long-term business plans pays, and these 49 developers enjoy high occupancy rates, premium rents, and faster leasing velocity for their projects.

For the vast Indian residential market, only about 124 developers have delivered during both the good and the bad times. With due respect to developers active beyond the top seven cities, this number could be more, but its proportion of the total universe of developers is likely to be quite small nonetheless. This also highlights the importance of building credibility to win the market’s trust. Only half of the developers launching projects in the current phase were able to ensure their completion[3].

Over time, we expect to see steady additions to the “consistent developer” group, and those developers that invest the time and capital will succeed in reaping the fruits of transparency and maturity.

Table 1: India’s developer community is big, but those that are consistent are few*
 * Excluding recently launched projects that will see completions in future.

[1] Confederation of Real Estate Developers Associations of India
[2] National Real Estate Development Council, India
[3] Excluding recently launched projects that will see completions in the future

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