The Indian property market is passing through a major consolidation as half of the real estate developers operating in 2011-12 across the top nine cities have exited the business or tied up with big builders due to a multi-year demand slowdown and regulatory compliance, according to data analytics firm PropEquity. The entry of big corporate houses like Tata, Mahindra, Godrej, Piramal and Adani in the real estate business and default in delivery of apartments to home buyers by realty firms have been a major catalyst for this consolidation process.
The number of developers in nine major cities -- Gurugram, Noida, Mumbai, Thane, Pune, Bengaluru, Hyderabad, Chennai and Kolkata -- has shrunk by 51 per cent to 1,745 in 2017-18 from 3,538 in 2011-12, PropEquity said in a report. There has been a massive consolidation with over 50 per cent of the total developers that existed in 2011-12 leaving the market by 2017-18, PropEquity said.
"Consumers are now looking for developers with excellent track records in terms of quality and execution. This will further refine the developer market based on their sustainability in terms of deliveries and fair practices," PropEquity founder and MD Samir Jasuja said. As per the data, the number of developers has declined by 70-80 per cent in Gurugram, Noida, and Chennai during the period under review.
Kolkata, Bengaluru and Hyderabad saw a 60-65 per cent drop in the number of builders operating in the city. The number of developers fell by 48 per cent in Thane, 32 per cent in Mumbai and 19 per cent in Pune. As a result of this consolidation, PropEquity said, the share of top 10 developers operating in each of these nine cities has increased in sales as well as launches.
Jasuja said data shows that top developers have replaced the smaller players in the market. "Financial distress of small developers, lack of execution capability, oversupply of inventory, GST, demonetization, excessive land banking, lack of understanding of the demand-supply dynamics, unjustified price appreciation, lack of social and physical infrastructure in emerging markets are all distress creating factors but when they occur together, it is the perfect storm," he said.
Jasuja said this storm started building way back in 2010. Maximum launches in India were witnessed during 2010 to 2013 leading to a situation of high supply and consequent absorption being largely led by investors. This illusion of demand led to more launches and a huge demand-supply mismatch especially in tier-I cities and most specifically in the National Capital Region, the consultant said.
"Today the effects of this perfect storm have led to the consolidation of developer numbers across India. The unorganized players have been unable to cope with all these years on year mounting market issues with the final impact of RERA that insists on regulatory compliances," Jasuja said. As a result of this, credible developers who deliver products on time and meet all regulatory requirement have benefited, the report said.
Most of the small-scale developers either exited the market or joined hands with larger developers, it added. Implementation of the new realty law RERA, after the initial turbulence, is leading to the transformation of the industry for the better.
PropEquity, owned and operated by P.E. Analytics, is an online subscription-based real estate data and analytics platform covering over 1,10,124 projects of 30,597 developers across over 42 cities in India.
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