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Number of developers shrink by over 50% in top 9 Indian cities: Report

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Consolidation in the real estate industry, has resulted in a 50% reduction in the number of developers operating in the market in 2017-18, as compared to 2011-12, says a report by PropEquity
In the top 9 cities in India, there has been a massive developer consolidation, with over 50% of the total developers that existed in 2011-12 leaving the market by 2017-18, according to PropEquity Research.

Consolidation of developers in Gurugram, Noida and Chennai, has been to the tune of 70%, respectively, since 2011 to date. A considerable reduction in the total number of developers by more than 65%, was also witnessed in Kolkata and Bengaluru in the last six years, respectively.

The total number of projects launched across the cities also declined substantially, during the same time period, the report added. As a result of this consolidation, the project share of the top 10 developers, has increased across the cities during 2011 to 2018. The total number of projects launched by the top 10 developers in Gurugram and Noida, today stands at 55% and 78%, respectively, while in 2011 it was 28% and 52%, respectively. This clearly indicates that Noida and Gurugram have witnessed an increase of 27%, in number of projects being launched by the top 10 developers since 2011.

The numbers indicate that top developers have replaced smaller players in the market. “Consumers are now looking for developers who have excellent track records, in terms of quality and execution. This will further refine the developer market, based on their sustainability in terms of deliveries and fair practices,” said Samir Jasuja, founder and managing director at PropEquity.

Reasons for the reduction in the number of developers

Financial distress of small developers, lack of execution capability, oversupply of inventory, GST, demonetisation, building excessive land banks, lack of understanding of demand and supply dynamics, unjustified price appreciation and the lack of social and physical infrastructure in emerging markets, are all distress-creating factors but when they occur together, it is a recipe for the perfect storm. Interestingly, this storm started building up, way back in 2010. Maximum launches in India were witnessed during 2010 to 2013, leading to a situation of high supply and consequent absorption being largely led by investors, the report said. This illusion of demand led to more launches and a huge demand-supply mismatch, especially in tier-1 cities and specifically, in the NCR. Most of the unorganised developers have failed to deliver, due to lack of inherent financial stability and the consequent liquidity crunch. These small-scale developers did not have the financial strength, to adapt to the new system and practices.

Consolidation to benefit organised developers

“Today the effect of this perfect storm, has led to consolidation of developers across India. Unorganised players have been unable to cope with mounting market issues each year, with the final impact coming from RERA, which insists on regulatory compliances,” Jasuja added. As a result, only credible developers who can deliver effectively on the regulatory requirements, have emerged as the true beneficiaries. Most of the small-scale developers have either exited the market or joined hands with larger developers. This, in turn, benefits the buyers immensely as now, they are assured of a quality product within stipulated timelines, making their purchase decision a risk-averse one.

Implementation of the RERA after the initial turbulence, is also leading to a transformation of the industry for the better. The regulatory and tax reforms are providing power to the real estate sector and are instrumental in reviving buyer confidence and driving momentum into the residential real estate market. While these reforms caused a slowdown in the market over the short term, the scenario is improving with time. The year 2018 witnessed a positive trend in the market and this trend is likely to continue in the forthcoming years.

Source : https://housing.com/news/number-of-developers-shrink-by-over-50-in-top-9-indian-cities-report/

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