By Varun Singh

Post demonetization, Indian housing sales have outstripped new supply, reveals ANAROCK Research. Confusion and uncertainty immediately after demonetization notwithstanding, the negative impact has receded after a major market derailment within the first year of its announcement.

Anuj Puri, Chairman – ANAROCK Group, says, “A notable impact of the triple whammy of DeMo, RERA, and GST was a significant deceleration in new property launches. ANAROCK data shows that in the pre-DeMo period between 2013 till Q3 2016, the top 7 cities saw approx. 16.15 lakh new units launched while the post-DeMo period (Q4 2016-Q3 2021) saw 9.04 lakh units launched in the top 7 cities – a drop of nearly 44% between the two periods.”

“In the pre-DeMo period, new supply outstripped housing sales – whereas, in the post-DeMo period, housing sales overtook new supply in the top 7 cities”, says Puri. “In the pre-DeMo period (2013-Q3 2016), the top 7 cities saw approx. 16.15 lakh units launched while housing sales in this period stood at approx. 11.78 lakh units. After DeMo, between Q4 2016 and Q3 2021, these cities saw cumulative new launches of approx. 9.04 lakh units and housing sales clocked in at approx. 10.37 lakh units.”

With major lessons learned and a huge market realignment following this period of upheaval, the ongoing trend of sales exceeding supply will continue as developers keep a sharp eye on the demand-supply gap. 

‘What does not kill us makes us stronger’

In his book ‘Twilight of the Idols’, the German philosopher Friedrich Nietzsche’s words – ‘what does not kill us makes us stronger’ aptly sum up the long-term effects of demonetization on the real estate sector. The housing market has emerged stronger, with speculative buying and selling now done away with and end-users firmly in the driver’s seat. Even luxury housing, which took a major hit after DeMo, has seen a significant resurgence after the COVID-19 pandemic caused latent demand to surface strongly.

Impact on cash transactions in real estate

Predictably, the secondary sales or resale housing market proved far more vulnerable to demonetization than the primary market. This segment, along with luxury housing, historically drew the bulk of ‘cash components’. While the resale housing sector continues to reel from the aftereffects of DeMo, affordable and mid-segment housing demand in primary sales (sales by developers) increased.

Has the once-ubiquitous cash component been fully eradicated from Indian housing?

“Not completely,” says Puri. “However, unlike earlier, people no longer buy homes primarily to get rid of black money – they now buy them because they want to own homes. Most of the end-users now majorly driving housing sales expect their property transactions to be transparent and above-board. Nevertheless, black money is still finding its way into property transactions in smaller towns and peri-urban areas. Overall, the use of black money in Indian housing has reduced by at least 75-80%.”

One major driving factor behind this is that branded, listed players – who now attract a significant majority of housing demand to their projects – play by the book and avoid unaccounted monies in their transactions. After DeMo and the roll-out of RERA and GST, homebuyer demand gravitates towards branded products. Leading developers shifted their previous focus on luxury projects to the new demand for affordable and mid-segment housing.

This demand-supply equilibrium has helped keep the sales momentum going, especially when housing demand rose significantly during the pandemic. As per ANAROCK Research, of the total sales from April to December 2020, the top 8 listed realty players’ share in overall housing sales rose to 22% from the modest 6% in FY 2017. Even strong non-listed developers ramped up their sales share – from 11% in FY 2017 to 18% in the first three quarters of FY21.

Today, the housing sector’s rough ride due to demonetization has smoothened. Still, DeMo has changed the very fundamentals of why and how residential real estate is bought and sold in India. Today, housing sales happen because of actual demand, not as a means to launder black money.

This is a major evolutionary step that would have taken decades to bring about under any other circumstances.

Also Read: Bhushan Kumar Of T-Series Paid Rs 167 Crore For Juhu Bungalow

The post Black Money Deals Down 75-80% in Post DeMo era appeared first on Square Feat India.

By Varun Singh

On a positive note, due to demonetization, the pouring of unaccounted capital into the real estate sector has become virtually impossible. The future growth in the sector will be based on much more credible and sustainable principles than ever before. In the post-RERA era, all the property transactions today are already taking place on the basis of transparent cheque payments and legal online payment gateways.

From a consumer’s perspective, due to demonetization, the influx of liquidity in the system has ensured attractive home loan rates which are at their lowest in almost a decade. Owing to the ongoing transformation, developers have also been offering attractive rates and payment plans to draw potential buyers.

The real estate industry share their views on demonetization on its 5th Anniversary: 

Pritam Chivukula, Co-Founder & Director, Tridhaatu Realty, and Hon. Secretary, CREDAI MCHI
“It has been five years since the government took a stringent step by announcing demonetization while encouraging to adopt digital transactions over cash transactions. An important goal of demonetization was to reduce the use of cash in transactions and inspire people to pay using non-cash modes. The real estate industry has welcomed this move towards the positive side since it helped the sector to increase the direct tax collections. This has brought a large number of evaders in the tax net. It has indirectly made things more systematic, accountable and transparent. Overall, the move has declined cash transactions, increased the bank deposits and financial savings has seen an uptick too.”

Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory
“Even though the sudden and initial impact of demonetization over the economy was severe and real estate was the worst hit sector. However, today I feel that it was a much-calculated move by the government to streamline the economy and bring transparency in key sectors. It has helped the sector to consolidate the market, it brought a level playing field for the organised and transparent entities. It has prevented the inflow of black money and nearly wiped-out the unorganised players. More importantly, it has paved the path for corporate and listed companies to expand and grow, which in other cases was tilted in favour of local and unorganised players.

Demonetization has also increased the awareness about digital payments and online transactions amongst the home buyers. This has drastically helped the sector to eradicate the age-old menace of illicit transactions and dubious sales. In a nutshell, Demonetization along with RERA has made the sector more organized, transparent, and robust which appears to me as the stepping stones towards attaining the much-awaited industry status for Real Estate.”

Himanshu Jain, VP – Sales, Marketing and CRM, Satellite Developers Private Limited (SDPL)
“Just like the Covid-19 pandemic, initially we thought that demonetization would affect all the major industries including real estate. But the move has created a positive impact and the real estate industry has done better in the last 5 years. Demonetization has led to a level playing field in a lot many sectors including real estate. It led to further consolidation in the category, nearly wiping out the non-serious players. It has also led to an increased understanding of digital payments and financial transactions amongst the people of India. Since the announcement, the government has incentivised digital payments and desires to envision a country which survives with limited requirements of cash based dealings. Demonetization has brought in much needed transparency and helped to double the trust of the investors in the real estate sector.”

Vedanshu Kedia, Director, Prescon Group
“The impact of demonetization has had a positive impact in the long run on the real estate industry. The move has had an impact on the perception of real estate transactions. All the 3 major objectives of curbing black money, fake notes and most importantly creating a cashless economy have been achieved as India has become one of the largest markets for digital payments. After demonetization, a large share of the population has gone digital and have adopted cashless transactions. There are many proptech startup’s now that are working on creating platforms that allow homebuyers to experience property and make a block on their inventory by committing an expression of interest. This will definitely enable ease of doing business and bring liquidity to the real estate market.”

Piyush Gupta, Managing Director, Capital Markets & Investment Services, Colliers India
“The big-ticket Reforms in Indian Business started with Demonetisation in 2016 followed by RERA, single tax regime of GST and Real Estate sector has witnessed the significant impact of these reforms. Overall past five years, there is a significant improvement in Corporate Governance and Transparency in Real Estate and the confidence of Investors and end buyers to acquire Real Estate has got better. The Real Estate Sector as a whole has moved up the curve on organisation and administration since reforms started, it helped navigate the crisis such as NBFC and then Covid”

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The post Real Estate 5 years After Demonetization appeared first on Square Feat India.

By Pankaj Kapoor

The standard narrative of most talk shows, media articles, and investor presentations suggests the consolidation in the real estate market. The general perception is that the demonetization and introduction of RERA and GST compliances have made real estate a business of deep pockets. Smaller developers have been or are being acquired by the large developers. Thus there is massive consolidation in the market. However, the data from Liases Foras shows an entirely different story.

We have analyzed the consolidation theory from three angles.

1. Is the real estate market witnessing a reduction in the number of developers?
2. Is the contribution of revenue and sales skewed towards the Top 50, 100, 200
   developers?
3. Are supply-side consolidation, joint ventures, and takeovers increasing the supply
   magnitude of large developers, and has this increased their revenue?

Methods
Since most of the interventions mentioned above were introduced post-2015, Demonetisation in 2016, RERA, and GST came into force in 2017; thus, we decided to look at the data trends from 2015 from the perspective of the above three questions.

Liases Foras has been tracking the real estate market across 60 cities in India, monitoring active projects’ performance in primary marketable supply.

At present (as of Dec 2020), there were 11,620 developers with 17,022 active projects. The definition of marketable supply is that the developers should have unsold inventory for those projects, and he is offering them for sale in the market. Thus this consists of only primary supply and does not include resales or proposed supply.

Far from consolidation, the supplier ecosystem is broadening

Data shows a steady increase in developers’ number from 7,876 developers in 2015, growing over 50% to 12,249 by 2019. The number of builders has been increasing every year, except during CY 2020, which has reduced the number of developers with active supply mainly because of the Covid-19 impact.

Instead of consolidation, the trend suggests that the real estate market has been broad basing all these years.

Total sales value increased, but the share of top builders fell.

The value of the stock sold also shows similar trends.

The annual value of sales contributed by all the builders show an upward trend. In contrast, the percentage share of top builders witnessed a decrease, especially from CY 2018, which offers a broad-based market when smaller developers increase market share.

From 2015 to 2019, the sales value increased by 20%, except during 2020 when the sales dropped by 31% due to the Covid 19 impact.

The share of the top 50 builders oscillated between 27% to 24% from 2015 till 2019 and then dropped to 23% during the Covid times in 2020. similarly, the top builders up to 1000 lost their market share by at least 4% since CY 2018.

Here, the top 50, 100, or 200 developers mean the aggregated revenue of the top 50, 100, or 200 developers out of the total developers in the respective years.

The growth in numbers of smaller developers was maximum except during the Pandemic.

The third perspective also stands true; the data show growth in super large and large developers.

The total number of developers has shown a growth of 48% since 2015. Smaller developers constitute approximately 80% of the total number of active developers in these cities. Interesting to see that despite higher numbers, smaller developers grew 45% since 2015.

The increase in the number of super-large and large developers during pandemic times suggests amalgamation and joint ventures. But this reflects growth on the supply side that does not infer the consolidation of demand or market.

The number of super-large and large developers has increased in CY 2020. The number of medium and small developers has decreased during CY 2020, while the total number of builders also decreased.

The question that raises confusion is that when there are amalgamations, why is the number of developers not decreasing?

The answer is that joint ventures or amalgamations are happening at the project’s level and not a developer’s level. For example, a Mumbai-based developer, Nirmal Group, who had nine marketable projects, given three of his projects for the development and sales to three different developers, namely, L& T Realty, Shapoorji Pallon Ji, and Godrej Properties.

These projects have shifted from the books of Nirmal to these three developers’ books, while all four developers existed despite the amalgamation. The Nirmal group is still managing six of its projects. Most of the amalgamations are such.

Value of sales increased for small developers

When CY 2018 and CY 2019 are compared, the reduction in the value of sales within the super large developers and increase in the value of sales in smaller developers indicates that the dominance of super large developers in the market share is getting distributed to smaller developers.

The average business done by a super large builder has seen the maximum decline of 39% during the Covid times, although the decrease of revenue of smaller developers was lowest, just 19%.

Commentary
RERA has acted as enablers and has helped the market to become broad-based. It has enabled smaller performing developers to access credit facilities from the financial institution. Our experience working with lenders also suggests similar trends. The incentives brought to boost affordable housing under PMAY have also helped smaller developers. While large developers launched mega townships, mostly far away in the peripheral locations, smaller developers offered affordable housing in interactive and end usable areas.

Their pricing, product mix, and location cater to local needs more efficiently. India’s real estate landscape has been expanding and broad-basing. The magnitude of developers is categorised based on the supply launched to date.

Conclusion
The housing production in tier 2 and tier 3 cities are growing much faster than in tier 1 cities. The smaller cities’ contribution to the Indian real estate landscape has been steadily increasing over the year.

Sales in Tier 1 cities grew 22% between 2015 to 2019; during the same period, sales in Tier 2 cities grew 73%, from 59,390 in 2015 to 76,466 units in 2020.

While Covid 19 has impacted the demand for tier 1 cities, it has benefited the smaller towns. Work from home/ hometown has triggered the phenomenon of spatial diffusion of jobs. The high cost of living, densities, and experience of remote working abilities coupled with cost benefits suggest that the jobs move to places where people live.

Tier 2 cities are slated to grow faster with the government’s boost for the manufacturing sector. The finance minister committed an infusion of Rs 1.97 lakh crore for the manufacturing industry. With the land cost and labor cost being cheaper in tier 2 cities, the manufacturing units are more likely to operate from smaller towns, driving smaller towns’ economic growth.

The economic growth in the smaller towns will further boost housing production and credit growth to the broader region of the Indian economy.

Rather than consolidation, the landscape of housing is expanding and will continue growing. Smaller developers of tier 2 and tier 3 cities will play a significant role in broadening housing and housing finance in India.

About The Author: Pankaj Kapoor is the Founder and MD – Liases Foras, a Real Estate Research Firm

Please Note: Views Expressed in this article solely belong to Pankaj Kapoor.

Also Read: NRI want to buy Real Estate for Self use or as Investment? Answer is here

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