A protracted slowdown may spur consolidation in realty

The prolonged slowdown in the real estate sector may spur a wave of consolidation, as many developers could find it difficult to cope with the pandemic-led crisis.

Larger and so-called branded developers have clearly benefited despite the crisis as buyers slowly returned after the lockdown was lifted, leading to a spike in home sales since August.

Rajeev Talwar, chief executive of DLF Ltd and chairman of industry body Naredco, said the current crisis is unprecedented.

“Many developers were not accountable or transparent in the past, and the compliance level had to be upgraded in recent years. It’s time to step up because demand for homes, particularly affordable ones, will return stronger,” he said.

“Consumers will only buy in projects and from developers where they are comfortable. The industry is headed towards development companies, who know who to build quality projects at reasonable prices and have delivery expertise. Consolidation will happen because projects where developers don’t have that credibility can’t do pre-sales and will not be able to raise money,” said Abhishek Lodha, managing director and CEO, Lodha Group. “We are happy to step into projects that are stuck and are happy to partner with other developers and landowners and banks, and lenders and it will be an important part of our growth story.”

Lodha said the company’s market share in Mumbai Metropolitan Region (MMR), which was 10-11% a few years back, is now at 15-18%.

Vivek Singhal, CEO of M3M Group, said there will be more consolidation because there is demand for the brand and credibility today.

“There are so many projects up for sale today, and we are seeing opportunities in buying land or incomplete projects at a big discount because of the distress,” he added.

Not just residential, the co-working sector has also been through a tough year and operators who have been able to raise capital and deliver quality assets are the ones who will survive.

“Raising $100 million from our parent WeWork gave us a war chest to sustain through this period, for instance. For smaller operators, it’s a challenging time, and many of them will have to shut shop. Operators who survive this crisis will benefit hugely because there will be a co-working boom that will happen when offices open up,” said Karan Virwani, CEO, WeWorkIndia.

Unlike the residential sector, the commercial office sector has already undergone significant consolidation in recent years, and continues to attract global investor interest.

Juggy Marwaha, CEO, Prestige Office Ventures said there are huge opportunities in the commercial office sector and space for more players to come in. Despite the temporary disruption in the leasing space, Marwaha said the office growth story is intact.

“We may see new entrants in office development or even institution-backed international developers coming in because there is ample scope for the sector to grow,” he added. Bengaluru-based Prestige, for instance, is looking to enter Mumbai in a big way with office developments.