Organised Indian residential realty to come out of slump: Bain & Co.

From Bain &  Co.

New Delhi – India’s organized real estate sector will turn around over the next few years from its current slump, with demand reaching approximately 1.35 billion square feet by 2020 – up from the current demand of about 880 million square feet, according to a Bain & Company report, Residential Real Estate in India: A new paradigm for success, released today.

The growth will be driven primarily by residential real estate, the reported added.

The projected expansion will be supported by robust underlying market factors such as increasingly favorable macro-economic conditions, rising affordability and urbanization, improved access to credit, as well as the gradual shift from unorganized real estate construction to organized development, the Bain study found.

Further, the research shows that in recent years, short-term demand factors stalled growth with low consumer demand at current prices accentuating the problem. This was coupled with stagnating absorption rates that caused high levels of overhang in major cities. However, there are initial indications of improving conditions in the sector.

“There are the signs of light at the end of the tunnel,” said Gopal Sarma, the head of Bain India’s Real Estate and Infrastructure Practice and lead author of the report. “While quoted property prices have yet to correct for supply overhang, both upfront and discreet discounts have increased, and so have innovative pricing schemes such as possession-linked payment plans and subvention schemes.”

As the residential real estate market picks up in the coming years, Bain says that what it takes to win in this space in the future will be very different from what it is today. Additionally, customer expectations of residential apartments have also changed rapidly.What was considered top-of-the-line in 2010 is a base expectation in 2015.

“Given many residential projects take more than five years to complete – from conceptualization to handover – developers must anticipate what customers will want in the future and then start building that out today,” said Sarma.

Additionally, the report cautions that for developers, honing in on land acquisition and effective coordination with regulatory bodies is no longer sufficient to ensure a successful business model.

Real estate in India is essentially a local business. Developers must focus on becoming strong local market leaders first by being relevant to customers and building a local brand for sustainable growth,” said Parijat Jain, a principal in Bain’s Infrastructure and Real Estate Practice and co-author of the report.

The Bain report, which includes interviews with developers, buyers and real estate agents, elaborates on customer expectations and the need for increased awareness among buyers.

“Buying real estate is often the largest, most significant purchase people make in their lives and, therefore, customers have a high degree of involvement in their decisions,” said Sarma. “There is greater emphasis than ever on word-of-mouth information, including online reviews. Most Indian residential real estate developers need to build on customer-centricity and the customer mindset.”

The report says that, currently, there is poor advocacy of developer brands, with few customers saying they would recommend a developer‘s project to a friend or colleague.

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