Customer behaviour has changed in the last few years and a developer’s biggest challenge today is to regain that lost faith and win the confidence of homebuyers
“The big difference between then and now is that today it is a buyers’ sentiment issue,” says Ashwinder Raj Singh, chief executive of residential services at JLL. “Developers have more access to different sources of capital now, but customers just don’t want to buy.” Singh says customer behaviour has changed in the last few years and a developer’s biggest challenge today is to regain that lost faith and win the confidence of buyers. But the loss of faith isn’t an overnight phenomenon. It has taken place over a period of time. Developers in the past have launched massive townships and projects by the dozen, and often times used customer advances to buy land or launch other projects, delaying construction by months and even years. The major fault with Dellhi NCR is that besides speculation, the basic financial and execution discipline required by a developer is absent here. The only trigger that will get the market back on its feet is execution and delivery. Debt levels have peaked at many realty firms, including Jaypee Greens, which is rumoured to be filing bankruptcy, Unitech and DLF Ltd, India’s largest developer by market value, forcing them to sell non-core assets, exit businesses and strike joint venture deals with other developers to bring down capital expenditure on projects. Still, repayment of debt hasn’t been easy as cash flows from project sales have remained under strain and developers have been forced to borrow more, in some cases, to repay earlier loans.There's a long list with the Noida Authority of defaulter developers who owe money in crores and since they can't pay, they don't get completion certificates. Hence thousands of houses on the verge of completion can't be delivered. “Most customers who bought at pre-launch stage feel betrayed that developers didn’t bother to complete those projects on time,” says Singh. A JLL report, however, says there is set to be sweeping changes in the way developers conduct their business, particularly looking at the innovative practices and agility of certain new breed of developers. At the CII Annual Real Estate Conclave 2015 held recently in Mumbai, Conclave knowledge partner JLL India unveiled its report ‘Indian Real Estate: Headed For A Tectonic Shift?’ which examines the process of evolution that Indian real estate has undergone over the past decade. It says corporate real estate teams will have to become more adept and skilful in order to make the most of the upcoming transition, and bring to light a rewarding portfolio for their companies. “As the Indian market matures and adopts trends and practices of more advanced nations in the West and Asia Pacific, everyone in the sector will face major change,” JLL argues. There is a lot of truth in the report because at a time when most developers are struggling to sell residences, there are few examples like Mumbai’s Lodha Developers clocking record residential sales of Rs 7,800 crore in the year ended March 31. Also, Bengaluru’s Prestige Estates Projects Ltd generated about Rs 5,030 crore of sales. And the world’s been watching the action. After Shapoorji Pallonji attracted one of the largest foreign direct investments in India's affordable housing segment, Goldman Sachs picked up a minority stake in Piramal Realty by investing Rs 900 crore to help the company buy properties in and around Mumbai. Last month, the Mumbai-based real estate arm of the Piramal Group raised Rs 1,800 crore from private equity firm Warburg Pincus. “This (sales) was a result of our strategy to focus on high-quality housing and office space across segments,” said a Lodha official. “Since 2010 or 2011, there has been a significant demand for quality. Developers who display credibility and the ability to deliver quality are sought after. They are not facing as much the problem of unsold inventory.” No wonder Lodha’s Thane project Codename Big Bang received over 2,500 applications in the nine-day IPO-style pre-launch, a new innovation in selling real estate. With a robust waitlist of nearly 500 applicants already, this is shaping up to be one of the biggest and most unique real estate offerings for the year. The project used a distinctive sales model where applications were invited from prospective customers stating their preference of configuration, floor band and ticket sizes. Mumbai-based Piramal Realty is also planning to launch a buyback guarantee offer called Piramal Assurance in its projects, beginning with the Thane one, where it will offer to buy back any residential unit from a customer at a 5% discount to the market value until possession should a buyer not be satisfied. “For most customers, buying a home is their single largest and most important investment. Our assurance will reduce the financial risk of purchase and provide peace of mind for customers, who will know that their investment is safe and liquid. This also will set high performance expectations for our team and will compel us to keep our customers happy and at the centre of our business,” said Anand Piramal, Executive Director.
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