Organised players are growing and within organised, large players will grow faster and consolidation will bring in small players into large players.
As the country’s beleaguered real estate sector faces one of its toughest times in the last few years with the Covid-19 pandemic, Bengaluru-based developer Puravankara’s chief operating officer (residential) Abhishek Kapoor feels that this will further speed up consolidation in the industry. In an interview with FE’s Rishi Ranjan Kala, Kapoor said that the lockdown impacted construction and sales, making it difficult for financially weak and unorganised players to perform, which will lead to further consolidation. Financially secure, reputed and organised players would be able to grow in size. Excerpts:
Going ahead, how do you see the real estate sector performing?
It’s been five years since demonetisation happened, then GST, RERA and the NBFC crisis came. Currently, I think a large number of players who do not have the skill set, organisation structure and ability to build business professionally and be able to adapt and be agile, will go out of business. For instance, If the pie was Rs 200, of which at one point the organised and unorganised were equal at Rs 100. Now the pie’s annual volume has come down to Rs 160-170, but the share of organised has gone to Rs 120, and this now will get more accentuated.
How do you see consolidation taking place in the sector?
I think the number of large players will come down, but their individual size would be very large. So consolidation is happening at two levels. Organised players are growing and within organised, large players will grow faster and consolidation will bring in small players into large players. Earlier, prices were going up, but now its tough. Margins have squeezed and you cannot sit over a project. You need to complete it or else costs will get to you.
What are the components that will spur this drive towards making the sector more organised?
Organising a sector means multiple things. It would mean transparency. A lot of good has happened because of RERA. It also accentuated consolidation. Second is how financial markets are looking at the sector and going forward, how they are developing products for it. A lot of change happened, but a lot needs to happen. Third is the ability of the sector’s stakeholders to evolve and mature, and to be agile. They have to create an organised, efficient structure for consumers. This has been tricky and that’s why the larger players will be able to do this and survive.
What are the challenges before the sector in increasing its share of organised players?
I think one of the biggest challenges that we face and which may slow down this process of maturity is going to be how the economy does. How the financial markets and government treat this sector.
Would this consolidation differ in different parts in the country?
As of now, there has been no national real estate player in this country. It has been region-specific. I think that a region-specific situation will continue for some time. It is not easy to be multi-regional and we have not seen that success so far. But opportunities are there and are evolving. Regional players will be multi-regional players and hopefully some players will come out to be national players finally.
How do you anticipate the price trajectory on housing units?
Price is a derivation of the cost of land, capital, government charges and lastly, margins. In Mumbai, land prices are very high and more than 35% of collection is paid to the government. The industry is stressed for a very long time, especially in the NCR and MMR. So where is the room for developers to slash prices? They are working on very thin margins and risk-reward is completely skewed towards them. This will also fuel consolidation.