Our editorial team tries to decode the alphabets of India’s most controversial business in real estate. Everyone in the sector may be aware of the alphabetic practices, their fortunes vary depending on which side of the given alphabets they stand. And hence, familiarity with the given A 2 Z is often the difference between a skilled real estate practitioner and a novice.
A: A should ideally stand for “Affordable” housing in India but the real estate sector has made a mockery of this concept. A has two connotations in the real estate-“Action” and “Auction”. While the developers were bullish on both getting land in auction and executing with action, the same action, or rather the lack of it proved to be their nemesis affecting their fortunes during the slowdown. It should be rather called focus on more Auction left the Action unattended and hence a logjam. Only “A for Action” can help the Indian real estate from facing another not-so-desirable Action by the government in the year ahead. Auction or Acquisition of land is any way getting costlier in the year ahead.
B: B is a much dreaded word for real estate market at the moment. It stands for lot many implications than a mere statement. “Bills”, “Balance Sheets”, “Banks” and “Bankruptcy”—all are hovering at the real estate companies in one form or the other. Pick any of the Bill, and bet no developer will appear comfortable. After all, in their quest for a B—“Branching Out” they have over leveraged the Balance Sheets with Banks reluctant to finance and hence Bankruptcy looms large. Of course, while the sector is face-to-face with all undesirable B, the much sought after B is not around—“Buyer”. In the sector another set of Bs—“Brokers”, western goliaths are gradually easing out home grown dravids.
C: C should ideally stand for “Cabinet” & “Contract” for the sector. Fresh “Contracts” seem to be a far cry; “Cabinet” is also giving nightmares to the sector while sitting over some of the crucial real estate bills. But wait…Double C is what is more dreadful for the sector at the moment. The real estate is more concerned about “CCI” due to their key demand driver C—“Consumers” approaching the Competition Commission of India and with complaints against 200 developers, CCI may be in the news more than the realty companies in the year ahead. And, of course, C for “Consultants” are finding it hard to reinvent business methodology to remain relevant in the sector.
D: While one D has deserted the sector—“Deal”, the other D—“Distress Sale” is threatening many mid-size developers. Deal is something that is not happening in the sector at any level. There is neither buyer-seller Deal happening, nor are investors coming forward for any Deal. Distress Sale may be a rarity as of now, but many fear it to be a reality. “Land Deals” are, of course, few and far between.
E: One E definitely brings smile on the faces of Indian realtors—“Expressways”. Not only does it provide some of the companies much needed contracts, Expressways are turning the land into Gold in and around. The other E though is a pain in the neck—“Environment Clearance” that often threatens to stall their existing projects as well.
F: F does not follow any other alphabet in the business of real estate. Rather everything follows F and that seems to be all elusive in the year ahead. F is Fuel for any business but when it comes to real estate F for “Funds” stands as the lifeline. Instead of any new life line to the sector expected in the year ahead, worry is that most of the Funds are completing their tenure and may not re-invest in the sector after not-so-expected ROI. Buyers, however, have learnt to keep away from what is scary F for them—“Fly-by-Night” Operators.
G: G is for “Government” & “Grouse”. The Government wants to tame the sector and hence resistance. One proposes and the other disposes has been the checkmate of real estate in the year 2012, and one expects some more Governance & resultant developers’ Grouse in the year ahead. While some of the endeavours of the Government are in the right direction, developers’ fear others are borne out of populist perception without understanding the needs of the sector.
H: Taught in schools that H stands for “Honesty” is even more relevant for the Indian real estate where the absence of regulatory regime and transparency meant taking the buyers for a ride too long. However, sector is fast learning by trial and error that Honesty pays more than over promising. Developers with corporate credentials or sound track record of promised & timely delivery have been rewarded by the buyers in 2012 and trend will only gain momentum in the year ahead.
I: The core of every developers’ wish list with I-“Industry Status” is something that has not really been addressed yet. And hence I stands for “Investment” and despite of sulking buyers, property still remains as the first choice of investment for the Indians and that is enough to bring smile back on the faces of the developers. Insurance, foreign institutional investors, foreign direct investments, external commercial borrowings, private equities, pension funds, provident funds, tax-saving bonds, small savings, black money bonds, round-tripping bonds—given the choice everything is welcome for the sector as an investment instrument. Moreover, another I is increasingly being eyed by many developers to overcome the slowdown—Infra. Many realty companies are floating their infrastructure verticals to bag the massive investments in infrastructure.
J: J is back with a bang in the Indian real estate. J for “Joint Venture”, also referred as Asset Light Model by the developers is emerging as the business model of the year ahead where instead of buying the land, cash starved developer ties-up with the land owner. Of course, this J comes with a rider—the developer has to have a sound track record of project execution and timely delivery.
K: K is for “King”. Leading companies in other sectors may boast of as the kings of the industry, not in the business of real estate. While in automobile a Rahul Bajaj or in telecom a Sunil Bharti Mittal may be the king of the industry for policy advocacy and media interface, in real estate leading players maintain a safe distance while outlook of many at the forefront is not national. There is another set of Ks in their own right—it is the second generation developers who are driving the company with King size royalty, even though balance sheet of some of them may look like paupers.
L: L, like the F, is the basic necessity of realty business and is increasingly getting scarce. L stands for “Land”—something that was till recently referred as Land Bank but over reliance to bank it with pipeline visibility turned it to be Land Liability for many. Another L that has put the breath of the sector on hold is “Land Acquisition Bill”, or, more correctly, the Right to Fair Compensation, Resettlement, Rehabilitation and Transparency in Land Acquisition. Around 66 per cent or 80 per cent or 90 per cent farmers have to say yes, so that the policy ambiguity comes to an end post-Noida Extension fiasco.
M: Who says M only stands for “Money”? M for the real estate has many connotations—understanding the “Minister” and “Government Machinery” and then evolving a “Mantra” for survival. Who knows it better than the Kolkata-based developers where change of government suddenly changed the survival mantra of the developers? No wonder, many a successful developers in one given state (with cooperating minister and government machinery) find it tough to operate in other state. As a mantra of survival realty has already played with the fire to learn 2Ms of existence—real estate is a “Micro Market” driven business.
N: N comes in the business of real estate with two more alphabets O and C. Together “NOC” is something that every developer loves to hate. Demanding for clear approvals, what they get in exchange is NOC that is subject to be withdrawn. This often also brings a problematic set of repercussions with the N—“Non-Bailable Warrants”. Of course, in the year ahead another N in company of other alphabets may add to their woes—“NPAs” (Non-performing assets), as banks don’t seem to be interested in restructuring the loans any further and look with suspicion to the sector.
O: Home buyers would like to wish O is for “Open Space” in housing projects. However, for the real estate O is a strategy to cut cost on the “Operations” and “Outsource” the construction and other logistics. In terms of projects, O for “Office Space” is set to see new O as “Occupier”. Service sector is said to emerge biggest occupier of office space than IT.
P: P is no more synonymous with “Projects” and “Planning” in the real estate. It has more to do with “Patience” now. With land cost set to go up post-Land Acquisition Bill, while the developers with deep pockets are comfortable holding the inventory, patience is the only solace to those who are wondering where have all the buyers gone in a country where housing shortage is phenomenal. Of course, both set of developers are clueless as to where has “PE” (Private Equity) gone that was so bullish on the sector till only recently.
Q: Q is for the “Queries”. Real estate marketing departments are being Questioned repeatedly by the management and they are waiting for the Queries of the buyers. Media, of course, is a headache, and necessary evil, to many real estate companies who are suddenly being Questioned for very many unwanted issues.
R: R in real estate is something which has brought the sector and the government on a warpath. While the Government wants an R-“Regulator” to monitor the sector, developers’ wishful R—“Reforms” want no regulator but self-regulatory regime with industry status. In this clash two other Rs are now set at cross purposes—Developers’ R—“Reputation” and Buyers’ R—“Response”.
S: S for “Sale” is not happening in the sector and hence so much at “Stake”. May be it was developers’ mistake of going overboard for double S—“Super Segment” of housing that created a huge demand & supply mismatch and hence Sale became Scary for many projects.
T: One T has gradually made inroads into the sector while the other T is wondering as to when will it get a patient hearing. While Technology has increasingly being adopted by many developers for project execution, operations and sale, T for Transparency is at the bottom of wish list pyramid. Of course, only Transparency being witnessed in the sector’s outlook during the year 2012 has been an open blame game where developers blame the government and government returns the favour.
U: U is for “User Experience” and sooner the real estate understands better it is for the business. In quest of U—“Urban Development”, the sector often forgets the User Experience. Real estate players, however, seem to be more focussed with the U of power corridor—“Urban Ministry”. While policy advocacy for the sector remains desirable, home buyers User Experience is what eventually is going to give the sector a facelift on road to industry status.
V: V is the magic wand but regretfully missing in the sector. V for “Vision” is much needed after quest for pipeline visibility has backfired. V also stands for “Viability” of the project and many developers are clueless today as to what should be done to turn their unviable project as instantly viable.
W: W is for “Wow” factor, a term so repeatedly over-used that it has lost its meaning in the Indian real estate. Even affordable housing claims to be a Wow element, Gucci style. Ask any journalist who receives regular press releases from the sector and he will tell you how blindly he chucks out adjectives like—Wow Factor, India’s Leading Developer, State of the Art, Strategically Located etc from every developers’ press release without even reading it. No one is sure even among the buyers as to Wow stands for what as a house of one’s own itself is a Wow factor for many of them.
X: X is something that keeps the marketing team busy as every buyer asks for an X-tra. Discounts, freebies, foreign tours are alright in the brochure but what will I get as an X-tra. Developers obviously have their own wish list of X-tra with the prescribed norms, FAR and FSI.
Y: Y has various connotations but most notably at this moment it stands for “Year Ahead”. With so many regulatory bills pending and funds and opportunity cost squeezing, developers are keeping their fingers crossed with the Year 2013.
Z: Z is a dicey alphabet and for the real estate sector “Zero” seem to be coming alone for quite some time. The sector, however, hopes to add many Zero (after another figure, of course) to its kitty after another year of Zero gains comes to an end.