Small is Big

Written by Garima Pant | Updated: Apr 13 2009, 05:02am hrs
Amol Paranjpe began his foray in the real estate sector in 2007 as a partner in Sankalp Developers, a real estate firm in Mumbai. Little did he realise that barely after a year of beginning his career, the sector would witness a change of fortune of such dynamic proportions. At a time when a majority of the big players are grappling with the volatile market situation, Paranjpe is not perturbed.

Our business has not been affected by recession to that extent, primarily because our projects are within the city, where demand still exists, says Paranjpe. He does admit that they have been forced to reduce prices by 10-15%, but that is all we have done. Though we are going slow on our projects and also adopting the wait and watch policy. Yet we know that we have genuine buyers, which makes our place relatively secure in this market, he adds.

Swapnaja Mathure has a similar story. Another Mumbai-based developer, she agrees that there isnt much of a problem now. Our business is based on strict timeline as we are concentrating on projects within the city limits as going beyond that will require big investment, says this partner in Ganraj Developers. Talk about recession and Mathure is quick to add, Where is the recession People are thronging to buy the smaller apartments, especially in the 1BHK category, says Mathure. With developers like Paranjpe and Mathure doing a steady business, it becomes interesting to find out how recession is actually hitting the small time developers.

Select affect

Ashutosh Limaye, Associate Director, Strategic Consulting, Jones Lang Lasalle Meghraj believes that the extent to which these small developers have been hit by recession would vary on a case-to-case basis and would depend primarily on the stage in which their projects were when the downturn set in. Those who were half-way into completion of their projects have been affected the most, since they had to invest the same amount already put in to see the project through, says Limaye. This spells bad news, especially in a scenario when funding is extremely tight. Those developers whose projects were near completion were better off, since they could exit at a lower profit but also a lower cost to them, he adds. He also points to instances of a number of developers who had their projects in their early stages and chose not to launch them at all.

Recession is a reality for everybody, says Vineet Singh, Business Head, He adds that the small-time developers have been hit pretty badly by the global economic downturn, especially in case of ongoing projects or the ones launched 6-10 months back. All these projects have been delayed due to the current crisis. The rising insecurity in the market is also delaying the completion of these projects, says Singh. The costs material and labour have not gone up, except in tandem with inflation. But those developers who had not organised sufficient finances to see their projects through right from the outset are in distress. There is currently next to no fresh finance available and if there is a shortfall, available finance comes at a high cost, says Limaye Paranjpe agrees. There is no easy money to play around and that is the reason why we are just concentrating on ongoing projects, he says as he aims to finish his low-cost middle-income housing scheme in Mumbai by the year 2010.

Changing market

The global downturn and the subsequent turmoil in the real estate market have changed the dynamics of the entire sector. Even the market segments where the players used to operate have been undergoing a radical shift. Earlier, the bigger players were in a different higher segment, separate from the fields where the small developers were operating in. For instance a two BHK flat which could be purchased within Rs 30-35 lakh rage has now come down to Rs 20-25 lakh, says Singh.

And this change, feel industry experts, will further add to the woes of the small developers. The coming 10-12 months, the entire market dynamics will undergo a change. However, the smaller players may still have some advantage of their positioning and the land banks they have, adds Singh. Limaye feels that the future for small developers looks manageable as long as they do not bite off more than they can chew. Moreover, they are not under as much stress as large development houses, since they do not have to sell as many units. As already stated, such developers will ride the storm as long as their ambitions do not outgrow the current market realities, adds Limaye.

Looking ahead

Bhim Yadav, CEO, Falcon Realty Services believes that correct pricing is the key to survive under current market situation. Location, the big gap between demand and supply of property in the particular zone and the upcoming projects of same quality and the pricing are the factors which affects the small developers. And apt pricing will help the small developers survive the market onslaught, says Yadav. Industry experts believe that signs of change can be witnessed in the market and its the sentiments that are driving the real estate market. Buyers who are in the comfort zone, who can spare the money and are not in any kind of debt are also not buying. They are waiting for the interest rates to come down further. Buyers fatigue is setting in, says Kumar Gera, Chairman, Confederation of Real Estate Developers Associations of India (CREDAI).

He elaborates that it is under these circumstances that a market tends to go in a positive direction. It seems that the market is looking up. Whether it gets better or worse, it is anybodys guess. Paranjpe is also hopeful that by the third quarter of 2010, the market is expected to head in a positive direction. This is one sentiment that will be echoed by the entire real estate fraternity.