The big picture

The sector will increasingly see the presence of large players as investors would prefer to tie up with those who have a certain scale of operations, rather than small-time ones. “The spectre of rising land prices, long delays for clearances to be obtained and projects to commence , the construction of large townships, all are compelling reasons for the presence of developers with deep pockets who have the buying and staying power,” points out Deepak Goradia, Managing Director, Dosti Group.

Explaining the reason for the growing number of large developers, Anuj Puri, Managing Director, Trammell Crow Meghraj Consultants Ltd, says, “The market is expanding at a rapid rate with the accent on city centre developments . Large plots are selling at high premiums and availing them is beyond the power of smaller developers. With smaller plots having dried up, the focus is now on the outskirts, where only large developments make sense.

The large developers also have the necessary line of credit with banks. ” Though the FDI norms were relaxed about a year ago, there were not too many joint ventures, mainly because of a mismatch in expectations, says Akash Deep Jyoti, head - corporate and infrastructure sector ratings, Crisil, the foremost rating agency in the country. He says, “Phase I saw investors expecting a whole lot of corporates or builders to troop in for funds, while not realising that they would have to contend with issues of transparency, lack of track record, poor data base and other problems.

The developers too slowly realised that if they wanted funds, they would have to set their house in order. We are now thus seeing a realignment of expectations, and consequently more joint ventures. We can expect developer quality to improve and an increasing number of regional players growing to become larger. Developers who were operating under different banners will now form single entities to get a piece of the action.”

As Rajnish Chandrani, partner, foreign equity fund, Red Fort Capital, LLC, puts it, private equity capital in real estate will serve as a force driver, helping mid-size developers grow in scale and scope. It will give a boost to developers who have the vision but lack the means to grow in size. As far as the buyer is concerned, the impact would be far-reaching . The next five years will see high quality developers pricing the product at what the market can take.

There will be a far higher reliability of product, and promises adhered to in terms of quality and timely delivery. Large developers will construct in large volumes where the emphasis would be on the quality and infrastructure in the projects. Smaller developers, on the other hand, will concentrate on budget-oriented projects.

In the medium to long term, there will be a process of natural selection, hereby buyers know where to look and whom to approach, depending on their requirements and budget. This is the present trend, and it will be more clearly defined in the future, says Puri.

Endorsing this view point, Sunny Wadhawan , Managing Director, Housing Development & Infrastructure Ltd [HDIL], a pan- India infrastructure and realty company says the entire concept of development today is centered around value to customer, ecofriendly , timely delivery, innovation and contemporary design principles and there is a good future for new developers who stand by these values. The market today comprises both the mass and the niche segment.

Presently, it’s mostly the big construction houses that are catering to the niche segment. Considering India’s ever growing economy, the product that is niche today will be a mass target tomorrow, says Saurabh Agarwal, manager, business development , RNA Builders [AA].

The quality of construction and the trust element is also a big advantage to the buyer of tomorrow, he points out. The presence of large players, and players catering to different classes would mean customers having different options to choose from. The market, says Wadhawan, can accommodate every ‘income group’ category. As more reforms are injected into the system, prices will get revised by at least 20-25 % in the next two years.

New projects will always command a premium, but re-sale properties will be the next big thing in realty, and a structured marketplace will emerge for this segment, he says. Thus competition will bring in quality, transparency and accountability, besides the right kind of pricing.

Experts say that if we want our economy to grow at eight per cent, this sector has to become the backbone of this growth. The ASEAN economies and China are growing on the backbone of the real estate sector. In India , the IT sector in the mid- ’80s saw small companies coming in.

In the ’90s they became large companies, which later started competing for global contracts. This will also be the case with real estate companies, with real estate markets today seeing the influence of global markets and global practices.

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