Demand is currently lower than the pre-March situation but is building up. The first few weeks into the lockdown were a complete paralysis.
By Malini Bhupta
Few would have thought a lockdown could prompt people to consider buying a property. Much to their surprise, corporate developers are seeing a hint of this trend. Arvind Subramanian, CEO, Mahindra Happinest and MD & CEO-designate, Mahindra Lifespaces, tells Malini Bhupta that while actual buying may still take 6-12 months, but first-time home buyers and mid-segment buyers will be prompted to purchase. Edited Excerpts:
How will the pandemic impact the real estate sector?
Real estate is a broad spectrum of assets. My view is that commercial real estate and retail will be severely hit. While social distancing norms will force new formats in retail, the increasing comfort with work from home and other concepts like hot desking will have a long-term impact on office space demand.
I am bullish around residential real estate — particularly affordable and mid-range residential. I think there is going to be a spurt of accelerated demand. The other one which is poised for a leapfrog is industrial infrastructure — warehousing, SEZs and industrial townships — which is to do with current developments around China.
Coming back to residential, I feel there will not only be a recovery but a rebound. Being locked up in homes for two months has precipitated in the minds of consumers to this point of decision making that they are no longer willing to live with compromises. Deciding to make a purchase versus actually buying may still take 6-12 months as this is a high involvement category, but I do feel that first-time home buyers and mid-segment buyers will be prompted to purchase due to their experience in the last two months.
What about sales models changing with digitisation?
I think real estate has a lot of catching up to do when compared to other categories like e-commerce. Sales in real estate have been driven by how to make a consumer visit to a construction site and/or a sample flat. This is deeply instilled in the sales channel and in the consumer’s mind too. This bottleneck needs to be addressed. Also, the economics of the brokers is based on having driven a site visit. They might face challenges in closing a transaction remotely. This needs to be changed and new capabilities need to be built for digital sales. Even if I am able to sell digitally, the sale won’t be complete until the home loan is disbursed. Mortgage companies are telling us that the NHB is insisting on wet ink signatures on agreements for sale even though many states have e-registration. Digital will move in fits and starts until all these issues are stitched together.
Is there sufficient inventory or could supply become a constraint?
Everybody is talking about demand compression but there will be supply constraints with the migrant labours moving back to their villages. We are now allowed to start construction at sites where we have labour camps, but the workers have been getting calls from their homes for the last two months daily and they are anxious to go back. There is no way to prevent this. Also, the workers are so anxious that they cannot work even though work has started. They may not return for several months because of the scarring experience.
What are you doing to mitigate this problem?
We are looking at a lot more automation and prefabricated construction to overcome this situation. We’ve been working for the last one year on improving our understanding of these technologies. The conventional construction with plywood shuttering has been replaced with Aluminum Formwork. In high-rise construction, particularly in metro cities, most developers use this. But taking a step ahead, it is about how we can make certain parts in a factory and assemble it on-site. This is prefabricated construction and it involves varying degrees of complexity. One can have a prefabricated wall or prefabricate an entire house like a Lego block and place it on-site.
These technologies have existed for a while but the trade-off between labour cost and capital cost has always been adverse and therefore it has not found much traction as the technology promises. Now, with the unavailability of construction workers, developers will start embracing this. The economics will improve with greater adoption. This is a long-term structural change and the industry will likely never go back to the older ways. In the long-term, this might have social implications as the industry employs about 50 million unskilled labourers. There are also other elements to prefabricated design like having an entire bathroom including tiling and sanitary fittings and then just fit it on the floor where cement structure is ready. So there are various levels of integration and assembly that are possible and hence, the economies that were not conducive earlier are starting to look more favourable now.
What would be the cost differential?
Today the difference is 15-20% on a higher side. But the variable costs will come down with larger volumes and the differential cost maybe only 5-7% going forward. A lot of the vagaries will be addressed with this form of construction.
How do you see real estate business change, thanks to this pandemic? What are the deeper shifts which will play out?
I think there will be several changes and consolidation is the way, but I don’t think that the big players will get bigger and smaller ones will be wiped out. The smaller players have an important role to play. The overleveraged will go through a tough test.
I also think there is a large shift in the management of operations. How will people work when travel would be an issue? We need management and monitoring tools that are amenable to doing things remotely.
How does demand compare to pre-lockdown?
Demand is currently lower than the pre-March situation but is building up. The first few weeks into the lockdown were a complete paralysis. However, we have witnessed a sharp shift this month as conversations have picked up. We have started with targeted digital campaigns this month and are seeing traction. The best response is for homes in an affordable range of Rs 20 to Rs 50 lakh.
If you see demand for housing to come back then how have your bookings been?
There are very interesting patterns as far as demand is concerned. Enquiries are coming from people who have not visited the site and are responding to our digital ads or are responding to word of mouth. The second category is those who had visited our sites in January or February and had not taken a decision but are now keen to move forward. Third, is existing buyers coming back to book bigger flats. We are seeing demand from the local market but also increasing demand enquiries from NRIs based in the Middle East, South East Asia, etc. In India, there is a fairly even distribution of enquiries across Mumbai, Pune, Bangalore and Chennai.