Branded realty bucks the trend in a sluggish realty market

From Business Standard

Recently, when Godrej Properties, the real estate arm of the Godrej group, launched its flagship project ‘The Trees’ in Vikhroli, in suburban Mumbai, many were skeptical about its success. Despite the city’s fabled appetite for real estate, the past three years had done what many had deemed impossible: dampened real estate sales across the country, even Mumbai. And it did seem like Godrej was being overly optimistic, expecting to sell the 375 apartments under the project, at a minimum price tag of Rs 1.6 crore (480 sq ft).

Proving its naysayers wrong, the company sold over 300 apartments and raked in more than Rs 800 crore, within a week of the launch. Another Mumbai-based realty developer Oberoi Realty launched its new project ‘Sky City’ in Borivali, a western suburb of Mumbai late last year and sold 543 apartments within three days of the launch. Oberoi released 900 apartments in the first phase, making around Rs 1,350 crore from sales. Most of the apartments were three-bedroom units with a price tag of Rs 2.4 crore apiece. Earlier, the same developer had sold 300-odd apartments out of 563 apartments within four days of the launch in Mulund, a suburb teeming with unsold apartments. Oberoi realty, however, managed to make Rs 850 crore from the sales.

Another example is the Lodha group, which sold over 1,500 units within nine days of the launch of its project in Thane in 2015 and got in orders worth another Rs 500 crore for its premium project in Mumbai’s Altamount Road within two-and-a-half months of its launch. Are we seeing the emergence of brand loyalty in the real estate market where location and price were all that buyers once cared about? Going by the numbers released by the companies cited above, the answer seems to be yes.

Drawn to the big names
Given the wariness exhibited by buyers and investors in recent years, these numbers are a big surprise. According to PropTiger’s report, ‘Realty Decoder Q2FY2016’, the top nine cities have over three lakh unsold housing units. The total unsold stock in Mumbai is at around 1,50,000 units, Bengaluru has 1,00,000 units and NCR has 1,40,000 units in the cans.

“For most purchasers, associating with a brand with good track record is important,” said Sanjay Dutt, managing director of property consultancy Cushman & Wakefield. He believes that buyers have been flocking to projects helmed by Godrej and Oberoi because they are assured of timely delivery, good construction and the safety of their investments.

Abhishek Lodha, managing director of Lodha Developers said, “When people buy from Lodha, they are assured of quality and a high level of service. Today, buyers are not looking for the lowest price but the highest value and lowest risk.” This is especially true since the market is slow and stories of fraudulent realtors are a dime a dozen. According to Samar Sarda, an analyst with Kotak Securities, the organised/branded players are continuing to gain market share and increase in business activity because, he writes in a report released towards the end of 2015, “As the Indian consumer becomes more educated on buying real estate, developers with good delivery track record and better business practices will outperform others as price premium drops to 10-20 per cent.”

In fact, there has been a surge in small and even large developers in distress partnering with branded realtors to bring about a change in fortunes. Nearly 60 per cent of the tie-ups have happened in FY2016 alone, compared to those between FY2004-15. Brand consultant, Harish Bijoor believes that this is because people are ready to pay more for good brands.

Right brand at the right price
While big names draw in the buyers, many believe that they are also looking at picking up good brands on the cheap. It’s value for money that the real estate investor is after. Ashwinder Singh, CEO, residential services at JLL said, “One of the reasons is the confidence that such investments will offer better returns when the markets will revive.”

Sarda said that land owners, corporates and developers that tie up with big brands sell well. “Prestige (Lodha Developers) leads the industry on business development while Godrej has capitalised the most on its brand equity from FY2013 on the structure of projects added and sales velocity of launches,” he added. What he means is that the new projects are not as capital heavy because they are joint ventures and this makes it easier to turn in the big numbers too.

“Brands certainly perform better during slowdowns, not just because they are brands but because they are the best value,” Lodha said. The two are inextricably linked. Bijoor believes that good brands are better able to fight price-tumbles. Good brands establish a pricing policy that keeps them at a distance from the commodity offerings. This price-distance is the premium and this needs to be reasonable he said, adding, “A good number in real estate is a low of 20 per cent and a high of even 35 per cent in a market like Mumbai.”

It pays be a trusted brand, but that is not enough.

Dutt said brands are not insulated from market dynamics beyond a certain point. If the slowdown is deep and long term, even the best brands will be impacted. Brands have to work hard to keep the advantage. He said, “A good brand is resilient but only if it gets everything else right.”

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