Cash-rich real estate developers reap lockdown benefits with increase in market share

2 min read

India’s real estate sector is weathering another storm of late after being caught in the thick of a raging pandemic. Flagging sales, squishing margins and continuing liquidity crunch have come back to haunt the property sector again after a strict lockdown was enforced; at a time when the sector was picking up its pieces to restore its lost glory.

The real estate sector which contributes nearly a tenth to India’s GDP has had its fair share of tragedies in its lifetime. The sector was going great guns when it went through a change of fate a couple of years ago with structural changes, policy reforms and liquidity crises. The property sector witnessed major consolidation then as more than half of the real estate developers who were active in the market in 2011-12, left by the year 2017-19.

This consolidation at that time resulted in an increase in market share of projects by top 10 developers by 2018. Fast forward a couple of years and the real estate sector is witnessing a similar story.

The unexpected arrival of the pandemic had caught the real estate sector unawares. The subsequent lockdown made matters worse as real estate operations were completely shut. Reputed real estate developers with healthy balance sheets went digital and parked their inventory on online real estate portals. Devising attractive payment plans and discounts, they had a field day during the lockdown tenure.

The cash-starved smaller real estate players were however left in the lurch. Without strong corporate value and averse to technology, these stressed developers had to stay out of the digital real estate game while their rich counterparts sailed through this crisis riding on technology.

With the real estate market competition cut to the bone with the ouster of the smaller players, the cash-rich developers utilized the pent-up demand well and registered stupendous sales, thus increasing their market share by a considerable margin within 3 months.

According to sources, the market share of top 10 real estate developers surged to 37% in the April-June quarter in 2020 from 7% in 2015. Real estate experts are of the opinion that the market share of these cash-rich developers may rise further as they are well-positioned to take on the next leg of growth.

The ongoing pandemic has accelerated another wave of consolidation which renowned real estate developers are keen to capitalize on. Smaller builders are looking to liquidate their assets in favour of financially-sound property developers.

Some others are entering into joint ventures with the rich fellas, by monetising their land and extending development management contracts. This development will augur well for the large developers looking to increase their market share and will put them in the driver’s seat. With good property execution records and ability to maintain cash flows with finesse, they can attract a sizeable number of homebuyers to buy their inventory.

Looking at the tremendous prowess of digital and the surprising response from homebuyers to this new-found mode of digital real estate transaction, renowned developers will invest more on this trend and tap into new technologies to further their ambitions. They will stay with this digital move for the time being and leverage cost-effective construction solutions to speed up inventory development.

The pandemic has conjured up a frantic homebuying phenomenon witnessed on online real estate portals. Homebuyers wary of hygiene and safety are going for mid-segment homes in the price bracket of 50Lakh-1Cr, developed by renowned real estate developers. They opine that top developers are well-versed with sustainable property development solutions, make good use of property spaces and include robust health amenities which are needed to stay safe while co-living with a virus.

Also, in India most large developers focus on mid-segment homes with sizes hovering between 500-1000 sqft owing to greater profits, this is an opportune time for them to capture a major chunk of the demand and cement their position in the real estate spectrum.

Going ahead, factors like financial health of developers, adoption of innovative real estate technologies, strong execution capabilities, and balancing product-price mix will ensure a healthy growth trajectory for top real estate developers in the Indian market. This will in turn pave the way for green shoots of recovery for the real estate sector and take it back to its normal state.

Sumit Mondal Content Analyst at Square Yards
Sumit Mondal Content Analyst at Square Yards