Future of real estate will be pinned on 3Rs – Relief, Restructure and Resilience

July 26, 2021 1:40 PM

Broadly based on themes of the 3Rs, it is high time that the industry and the governing agencies work together for the betterment of real estate as well as the economy.

Amid an enormous and wide-reaching role that the industry plays, it is natural that strains in Indian real estate will have a cascading effect on the economy, which is already floundering in the face of the 2nd lockdown.

The Indian real estate constitutes around ~ 8% of the national GDP. In 2017, the housing market alone was estimated at $180 billion and is expected to reach $650 billion by 2025. In another 5 years, the industry will reach $1 trillion. The importance of the industry is further outlined by the fact that a large workforce (roughly sized ~ 40 million) is directly or indirectly dependent on the sector and around 250 ancillary industries are linked to it.

Amid an enormous and wide-reaching role that the industry plays, it is natural that strains in Indian real estate will have a cascading effect on the economy, which is already floundering in the face of the 2nd lockdown.

The Indian real estate is both stressed and strained at the moment. While piles of unsold inventories over the years have affected the morale of many developers, the whiplash from the lockdown has created a momentary halt in sales. Although the silver lining in the current circumstances lies in the fact that cases have plunged in most of India and economic revival should follow soon. Rating agencies are bullish on the prospect of India in FY 22, despite a softening stand on the economic growth.

Meanwhile, the government and industry bodies must work in tandem and chalk out a sustainable plan. Broadly based on themes of the 3Rs – Relief, Restructure, and Resilience — a term originally coined by the World Bank, it is high time that the industry and the governing agencies work together for the betterment of real estate as well as the economy.

Relief to the Industry

A relief plan should be formulated for the industry, which should not just have policy impetus but also windows for loan restructuring in stressed and stuck projects. By lowering bad debts, not only breathing space will be given to developers but also financial institutions will be unburdened. GOI should also look for direct policy support such as stamp duty reduction and levy in income tax returns to accelerate sales. The industry has seen how stamp duty cuts in certain states such as Maharashtra and Karnataka have resulted in a jump in sales last year. Similar direct incentives can be a real game-changer.

Meanwhile, the industry should take care of their employees, vendors and offer them financial safety. Another important step would be to take initiative and offer vaccine packages to employees. At 360 Realtors, we have taken such steps in a few of our offices. Nothing can be prudent than to be careful of employees’ health, amid a medical crisis of this magnitude.

Restructure the Value Chain

In the middle to long run, it is essential to restructure the industry value chain with the help of technologies. After remaining demure for the past few years, the Indian real estate started embracing the online medium last year, as the pandemic in its first instalment has driven wider behavioral changes. Now the time has come to move to the next level.

The government and industry body should work jointly to not just develop technological innovation but also to scale them fast. Through subsidies, discounts, and other policy incentives, the latest technologies should be developed and deployed – both in construction management as well as transaction cycles. This will help in cohesive backward and forward integration, strengthen unit economics, shorter construction cycles, and optimize the overall operational flow. Likewise, academic institutions should also be roped into Research & Development (R&D).

Besides, the industry needs to relook at its product strategy and understand transformations in consumer preferences. Demands are expected to pick up in product categories such as rental homes, plotted developments, affordable units, co-living spaces, and second homes. Industry players should fine-tune their strategy based on emerging product categories. The government should also support these efforts through policies.

Finally, Resilience will be the Winning Mantra

While relief measures will give breathing space and restructuring will help in adjusting to the new normal, the victory saga will be pinned mainly on one thing – how much resilience do we show in the face of the current crisis. Despite the pandemic-induced fatigue, we have to stay ahead in our game and work with a mindset of continuous evolution.

There is no dearth of housing demand in the country. Favorable socio-economic conditions, a young demographic, an unprecedented rate of urbanization & infrastructure enhancement, and the overall rise in household income will help the industry to move on an upward trajectory. However, to tap into the market, we would require extra efforts at all levels – government, organization, and individual.

Aggressive sales & marketing planning without incurring incremental costs is the need of the hour. New business strategies have to be deployed that can push the run rate but simultaneously contain CAPEX & OPEX. In this regard, franchises are a good option as they offer a profitable platform for the optimal sharing of resources. Both the parent and franchises can enter new market segments and earn more profits without overheads.

(By Ankit Kansal, Founder & MD, 360 Realtors)

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