Maturing of Indian real estate market

Dr Kunal Banerji

For the past five years or so the real estate industry, especially in North India, has been on a roller-coaster ride. Sundry businessmen and traders became overnight developers. Small time investors became big time brokers.

Borrowing money from banks, relatives and friends in order to book plots and apartments at special pre-launch prices and then selling them off at margins of 50-70% within months, sometime weeks!  A pretty penny was earned by many.

Brokers who were comfortable with two-wheelers suddenly felt nothing short of a Honda City would do.  Developers, spurred on with this tide of collecting the booking amounts for all their projects went into overdue expansions - a frenzy of land bank acquisitions funded by 'pre-booking fees', generous bank loans, PE funds and JVs.

The problem was that the dog was chasing its own tail.  When it came to the bite (end-users), the pain was acute.  Home buyers could not absorb the spiraling rates.  The short-term investors were caught out.  Stumped at the wickets. 

They had over extended and could not pay back.  The developers who had borrowed heavily renegaded on their bank loans.  The banks were caught napping too, so the RBI put strictures on them as well.

The result was catastrophic!  Buyers and short-term investors disappeared, especially for the expensive apartments and large-sized plots.  The line of brokers with cheques in hand trickled down to zero.  The fall out was inevitable.

Rationalization of prices. A flurry of activity in the 'affordable' housing segment.  Developers had to rethink their strategies and offer apartments for Rs 9 - 15 lakh.  Concepts such as 'Studio Apartments' etc. are now coming into vogue.  The NCR is picking up and areas like 'Kundli' are becoming ideal places for investment.  Ideal for the long-term investors (2-3 years).

The silver lining in this scenario is the advent of professionalism and maturing of the market.  Sensible, well thought-out investments into builders' with a 'brand', and with 'value' additions is the new mantra.  More end-user friendly developments, that too at reasonable prices.  This time the growth will be more inclusive.  More customer friendly. More mature.  We are learning and growing up.  The future looks bright.