Many Indian developers who were reeling under severe cash flow issues jumped onto the affordable housing bandwagon to meet the supply in the only real estate sector where demand was still visible. Samir Jasuja, founder and chief executive of PropEquity, a real estate data and analytics provider, talks on realty trends.
What is the status of the affordable housing in India?
We consider a house in the affordable range when it is priced between Rs 5-30 lakh, depending on the location. We did a study on the sector and once we were completing the study, we realised that absorption levels have started to come down, there was a huge oversupply.
This year, around 450 new projects have been launched in the affordable housing sector from 200 big and small developers. In India, we have this herd mentality, so everyone who had an opportunity has jumped into the bandwagon.
So are we again looking at a property bubble?
A bubble is of two types. One is where sales completely stop, like in the luxury segment. But in the affordable segment, execution is going to be a big challenge. Developers have not achieved these massive volumes in the past and have no expertise to deliver it, so execution is going to be a challenge, and they do not deliver, then you can call it a bubble.
What will happen if developers start diverting funds of one project to another one?
If they do divert funds, then naturally that project would not be completed… we have to wait and see how this pans out.
Are we seeing speculative investors coming into the market once again?
It is a combination of genuine buyers and speculative investors, there has been genuine cash flow. When a project is sold in two days, its typically higher investors and lower-end users, so the ratio is around 60:40. Some investors buying is good for a project at a good location, as they can get buyers for it comfortably. But on the other hand, if the project valuation tanks, then investors would start defaulting on installments.
How is the situation in the metros?
The tier 1 cities are doing very well as the projects were offered at discounts of 15-25%. Sizes have come down, which has reduced ticket sizes as well. It will be a challenge for developers to actually execute these projects and raise funds for them in other locations.
Do you think 25% margin on affordable housing is sustainable for developers?
I do not think that all developers are working on 25% margin and lets say even 25% gross margin would lead to 5% net margin and with commodity prices rising, it can become very difficult for them.
Can we expect developers to reach 2007 peaks?
No, I do not think that will happen any time soon. May be developers would achieve similar sales, but profitability cannot be matched. You have already seen profitability has come down by 90% on quarter-on-quarter basis for developers, and its still falling.
What is your view on the regulator bill? Many large developers have opposed it citing too much accountability?
I think it will take a lot of time to get implemented. Personally, I believe the bill is excellent in its current form. I know the bill is pro-customer and against developer, so that is why developers are concerned about regulations, especially related to the escrow account.
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