Listed property developers are increasingly gaining market share with many private developers being shunted out after the enforcement of the Real Estate (Regulation and Development) Act (RERA), and the pandemic, which made survival of smaller developers difficult.
The market share of listed developers is set to rise to 29% in FY23 from 16% in FY20 at a pan-India level, a recent report by ICICI Securities said. Further, it is set to grow to 33% in FY25.
“We believe that owing to healthy balance sheets, access to capital and many unlisted, weaker developers being shunted out of the market, the market share of large organised developers is set to grow further in the next two-to-three years,” said Adhidev Chattopadhyay, vice-president, equity research at ICICI Securities.
Most developers in the listed space have aggressive launch plans for FY23-25 and are looking to grow at a double-digit sales value CAGR (compounded annual growth rate) over the next two years, Chattopadhyay added.
Mahaveer Shankarlal, director – corporates, India Ratings and Research, said that the consolidation trend started following demonetisation and the implementation of RERA, and will continue benefiting tier-1 developers. “Many of tier 2 & 3 developers are finding it difficult to raise debt funds at reasonable costs. Many banks need a minimum investment grade ratings to sanction loans. So, apart from trust issues, the financial flexibility is also impaired for non-tier 1 developers,” he said, adding that this trend is likely to sustain in the medium term as well. The non-tier 1 developer project execution is also at a slower pace which adds up to the costs with interest during construction.
In the listed space, based on their data set of total aggregate sales value of Rs 49,000 crore in the last 12 months, the top 10 contributed roughly about 73% of sales and the top 5 contributed around 57%. However, India could probably become a Rs 2.25 trillion annual sales market and the listed players could be 20-25%, but there are strong unlisted entities as well, Shankarlal said. “Our view is there is a long runway for consolidation for tier-1 players (both listed and unlisted,” he said.
According to Anarock Property Consultants, more than 60% of the 358,000 units launched in 2022 were by branded developers — who also sold more than 55% of the 366,000 units purchased in this period. “This trend continues and buyers don’t mind paying a little extra because their desire to avoid construction-related risks also plays a role,” Anuj Puri, chairman, Anarock, said.
Pavitra Shankar, managing director, Brigade Enterprises, said a set of legislature and developments since 2016 such as demonetisation, enforcement of RERA, changeover from service tax and VAT regime to GST, the NBFC crisis as a fallout of the IL&FS bankruptcy, overnight change to the input cost structure by disallowance of input tax credit under the GST regime, and then finally the lockdown and the pandemic severely impacted the business models of developers.
“As a result, the industry has consolidated substantially with some markets seeing 60% or more of players exiting the business. The market share of those developers who could withstand the shocks to the system, access capital, and deliver quality product on time thus increased substantially,” Shankar said.
She further said during the pandemic, customers reset the perceived value of their living spaces and opted for different propositions of larger homes or more amenities or different locations afforded by flexible working arrangements. “The residential sector saw a huge increase in demand since September 2020, sustained by historically low home mortgage rates and higher levels of discretionary spends from the excellent job market for the IT and services sector. This spike in demand has carried over from a preference for completed inventory post lockdown to new launches, and the sector has now rebounded in terms of inventory pipeline,” she said.
Gaurav Pandey, managing director and chief executive, Godrej Properties, said that post-pandemic, consumer preference has shifted towards home ownership and a secured gated environment, offering multifunctional spaces and sustainable living. “Consolidation in the real estate sector and consumer preference towards reputed national players has largely benefited us. On the back of our strong product offerings and a strong balance sheet, we remain bullish towards meeting our medium and long-term goals with consistent project additions,” Pandey said.
