The waiver of stamp duty by the government to mitigate the woes of the real estate sector might have somewhat helped the industry but it has somehow also given a sense of boost to the weaker players in the ruthless market. Competition works as a “cleansing” tool, which rids itself of the weaker younglings, but with government’s support that cleansing might somewhat have stopped. Since 2016, several weaker and poorer hands have left the business but there are more than enough players who are exploring newer opportunities.
The aforementioned circumstances show an uncontested option, that has never been viewed closely enough over the last few years – Consolidation in the Real Estate sector. The premise in favor of consolidation states that competition, profitability levels amidst greater regulatory scrutiny and higher capital requirement weeds out the weaker players in the market, thus, riding the sector of its unproductive thorns.
Due to the consolidation mechanism, only key and serious players survive in the business and hence efficiency of the system is maintained. However, pandemic which had exacerbated the woes of the builders, was mitigated by the government policies which consequently has led the consolidation story of Mumbai real estate to hit a roadblock.
Can major consolidation be an exaggeration?
The data released by Liases Foras emphatically shows that the market share of the top 50 players in the real estate has declined over the last three years. From commanding a significant 54% market share in the financial year 2019, it has now fallen to 49%. Meanwhile, on the other hand, the number of developers has risen from 2,598 to 2,728.
It would be a gross misjudgment to state that the consolidation within the industry is not wholly an exaggeration. But it is to be noted that forecasts on its scale and pace are wildly exaggerated. There could be various key reasons for this. First and foremost is the nature of the market. Real estate in India is dominated by the markets in Delhi, NCR and Mumbai. NCR and Mumbai Metropolitan Region (MMR) contributes 60% to the Indian real estate. Within MMR, the most expensive and affluent market is Mumbai.
Given its poshness and lavish lifestyle, demand for it is immensely high. But it is to be noted that due to the land constraints, it is primarily a redevelopment-led market. Thus, society redevelopment has small plot sizes which larger developers are likely to shun. While on the other hand slum rehabilitation redevelopment is too messy for key players to be enthusiastic over. Thus, it may come as a surprise to no one that over the last five years, the market share of the largest developer in Mumbai has ranged between a meagre 3% – 5%.
Additionally, as it is known that many ‘branded developers’ are primarily ‘famous surnames’ who offer a product of posh, similar quality to Tier 2 and Tier 3 builders, but it is usually done at a premium pricing. The only edge that these ‘branded developers’ hold over non branded ones is that they provide near-certainty of at least delivering a project in the future which cannot be ensured by a non- branded developer. But as more projects by lesser-known developers start getting delivered on account of greater regulatory scrutiny and compliance, it would be right to state that the ‘edge’ of larger players will diminish in value.
It certainly may not be good news for Mumbai’s listed developers who are banking on big market share gains. But it certainly is good news for home-buyers and developers who will start getting a set of worthy choices to pick from.