The year 2017 was considered a breakthrough year for the real estate industry in India. After the Demonetization trilogy, GST and RERA, the sector was desperate. However, the indomitable spirit of Indian property developers has not waned in the least. They rose to the occasion and began to repackage the product, price, and promotion of their unsold home inventory. From a sales and marketing standpoint, they tried to go above and beyond to appease the demanding customer. Some of the initiatives that got attention were upselling the product, adding the service element to the product, dovetailing technology with homes, bundled deals with home financing. Property developers also tried superlative adjectives, spiced things up with Bollywood and sports celebrities backing various residential projects. Projects were renowned for international brands and innovative launches were executed in line with global best practices. Many developers even completed the micro-level infrastructure adjoining their projects and took on the government’s role of providing external and internal work. The government continued to follow a nonchalant approach to urban planning and infrastructure which further hurt customer sentiment. Many times, a homebuyer has gotten homes but without a drivable road leading to his home. While all this was going on, the government also tried to act together, albeit in the space of the snail. The Central Government announced RERA (Real Estate Regulation Law) and the states started its implementation in the third quarter of 2017. It pushed developers to speed up the completion of projects and a certain deadline date was announced. Many residential projects were completed in this rush of time, however the speed of sales did not match the speed of completion of these projects. Eventually, the implementation of RERA failed miserably in most states and failed to meet its goal of providing homebuyer transparency. Rather it eroded the confidence and hope of home buyers in the Indian real estate sector. The home buyer therefore further delayed home buying decisions and became comfortable being a “fence keeper.” Because of this dilemma, working capital problems have reached an untenable level for most homebuilders. Many times the monthly sales still didn’t match up to meet/clear even the lenders liability. The government came out with some momentum to announce the affordable housing policy and hoped that this could turn the tables for the customer and for developers. The intention was to ensure faster delivery at a good price for the client and, in turn, achieve good working capital for the developer. Many developers have branched out into this space, and many new entrants have also emerged in this space, including some companies. However, the product suffered greatly as these new affordable homes were too small and located in remote areas. Therefore, the affordable housing policy could not sustain buyer interest, after the initial euphoria.

So after all the hoopla of innovative marketing, government compliance, and regulation over the past few years, sales fell even further. Construction cost inflation created a double whammy for the industry. Construction costs took an upward trajectory, thanks to inflation in cement and steel prices. The regulator also continued its risk weighting on real estate. Therefore, the cost of financing real estate projects, especially on the residential side, continued in the range of 15% to 24% per year. With construction costs rising, sales drying up, the cost of borrowing rising, the home developer was pushed to the limit.

While all this was going on, the old mantra of “lower prices and sell more” was reborn. Residential home prices that were chasing Manhattan prices began their homeward journey. Homebuilders who followed this mantra created great success, breaking sales records while others continued to sweat. Sales velocity became the buzzword and everything else faded into the background. Some of the homebuilders began to understand the velocity of sales equation in a more pragmatic way. Instead of increasing pipeline and increasing sales activity, the focus shifted to win rate and shortening the sales cycle. Once the focus shifted from increasing sales activity to increasing win rate, sales velocity began to increase apace. Among the various developer associations, such blockbusters were initially derided as “black swan events” and developers were negatively labeled “outliers.” There was hallway talk that such developers are killing the industry. However, the lenders welcomed this step and are now preparing to further support these developers in such difficult times. There is now a sense of appreciation being seen among many quarters for these developers and the talk of the runner died a natural death. Many other developers in the last quarter of 2018 are expected to follow suit and focus on shortening the sales cycle and therefore increasing the velocity of sales. After all, nothing succeeds like success.

This article is written to appreciate the real estate entrepreneurs who answered the call to fix their prices and achieve faster sales velocity. This article is an attempt to encourage others to follow suit as well. That there be a sustainability in the prices for the home buyer. It is an important way to achieve reasonable growth in real estate business in India. Once this is achieved, the economy will start to favor developers again and there will be happier Sundays!

As they say, a fish always rises after hitting its head on the bottom of the sea. Therefore, it is time to rise up and act appropriately according to the changing landscape.

Disclaimer: The opinions presented in the article are the personal opinions of the writer and not those of any organization/company. For any queries/comments/feedback, please write to [email protected]