In India’s highly dynamic market environment, change and innovation have become essential for the survival of any business. The housing sector, which was in the previous years defined by a remarkable lack of change, has been no exception.
The winds of change are causing certain aspects of the residential property industry that previously seemed ‘cast in concrete’ to give way. Let us examine five factors that stand out in this respect.
Across most Indian cities, the financial “sweet spot” for homebuyers is seen to be in the range of Rs 50-70 lakhs. In hyper-expensive Mumbai, ticket sizes of around Rs 1 crore are popular with buyers because of the higher wealth creation and therefore purchasing power there. However, as of the third quarter of the year 2016, there has
been a rise in apartments priced under Rs 1 crore each in Mumbai as well.
The proportion of increase in residential units launched in Mumbai in the under Rs 1 crore ticket size went up to more than that of the overall rise in unit launches. Mumbai serves as a good example to illustrate the rising affordability trend because it is the toughest market in India, and yet could see more launches in this segment.
Other cities will, therefore, fare even better than Mumbai in terms of decreasing housing ticket sizes.
To keep the price tags of their offerings attractive, developers have been reducing the average carpet area of apartments across cities. For example, the average apartment sizes in Mumbai and Bengaluru have, in recent years, shrunk by 12% and 30%, respectively.
When it comes to the most preferred configurations, 1 BHK flats remain the most popular in Mumbai, while 2 BHKs rule in most other cities such as Delhi-NCR, Bengaluru, Pune and Hyderabad. Of course, affordability is the main reason for the popularity of smaller flats in Mumbai. Most of these smaller configurations are priced around Rs 1 crore each, which is considered “affordable” by Mumbai standards.
Moreover, selling these units later on is easier than selling bigger configurations as there are always more people looking to buy 1 BHK flats in Mumbai than there are units available. In other cities, the same logic applies to the 2 BHK configuration. As real estate in most cities is cheaper than Mumbai’s, homebuyers can afford to and do buy bigger configurations.
MORE DEVELOPERS ENTERING AFFORDABLE SEGMENT
The Modi Government’s focus on affordable housing has helped in making this segment more palatable to developers. The erstwhile aversion to being tagged as ‘low-income housing builder’ has waned, and even larger players are openly entering this market segment. There is now considerable political and social goodwill attached to such a move, apart from its undoubted business sense. Players like Mahindra Lifespace, Tata Housing, the Shapoorji Pallonji Group, Assetz Property Group and Puravankara Projects. are all enthusiastic about entering or expanding their affordable housing portfolios this year.
Some more like the Emgee Group plan to enter this segment and invest Rs 1,600 crore over the next five years. Private equity players are willing to partner with developers operating in this space and fund such projects. Nisus Finance Services, Brick Eagle Capital, Avenue Venture Partners Real Estate, Carlyle, Essel Finance Advisors and Managers LLP, Provident Housing and International Finance Corp are some PE firms helping developers with their affordable housing projects across the country.
India’s chronic dearth of affordable projects is nothing short of legendary. However, with slowing sales in the luxury and premium categories, affordable housing is now the one segment which shows any kind of real promise to open up revenue for developers. After the recent demonetization move, land prices will plummet – more so in the Tier-II and III cities and the fringe areas of metros. This, too, will aid the cause of making homes more affordable in India. While developers are already constructing smaller-sized units on the outskirts of cities, the Government must step in by improving the connectivity of these outskirts to respective city centres.
BASIC AMENITIES ON THE RISE
Homebuyers expect decent amenities in their housing projects, regardless of whether they are townships or standalone buildings. While townships offer many amenities, sufficient parking, small gardens and play areas, good security and power backup are now increasingly being seen even in standalone residential buildings. Buyers are no longer willing to settle for amenities-starved projects and expect the basic facilities even if their purchasing power is on the lower side. With more and more developers of modest-sized residential projects heeding this demand, the rest have been left with no choice but to follow suit.
INCREASING SPENDS ON DIGITAL MARKETING
Dissatisfied homebuyers have been using social media effectively to demand redressal of their grievances. Developers have realized the power of social media in brand image management, and many have started responding to buyers’ posts or queries in real time. At the same time, they have realized the potential of targeting possible buyers with advertisements while they are online. In fact, most developers have begun to realize that investing in digital marketing is necessary in a market environment where more and more buyers review all their options online before actually doing site visits at shortlisted projects and making their final decisions.
– Anuj Puri
(The author is the Chairman and Country Head of JLL India, a global real estate services firm.)