Business opportunity is about a delicate balance between risk and reward. One such sector that exemplifies the journey and composition of the players is the real estate sector in India. Traditionally the sector was dominated by privately owned firms, building to maximize profits in an ecosystem with the varied regulations and sectoral voids, which acted as barriers to new entrants. This structure aided in increasing profits and slowing down the institutionalization of the sector. However, over the last 5 years or so the landscape has started to change for the good. This progression is yielding positive results; be it institutionalizing the players, new players, new selling approaches, new rules & regulations etc. and it is ultimately increasing competition and benefiting the consumer.
Existing players and new entrants: If today the realty sector is witnessing the entry of corporate biggies such as Tata, Godrej, Mahindra, Bharti etc, it is because the risk and reward equation is continually being reset. That said the credit also goes to the roller coaster journey of a lot of traditional developers, who have progressed and tackled the challenges from which the whole sector has emerged.
One cannot overlook their contribution and positive role. Some real estate developers, who are at the receiving end today, were small entrepreneurs with dreams to excel in a relatively new sector. Lack of formal education and training in real estate in the country didn?t give the sector enough pool of talent. The lack of uniformity, regulation and unsupportive measures from the respective state governments didn?t make it any easier. For instance, lack of single window clearance and constant increase of tax burden never stabilized this business field.
Now when the sector shows signs of transparency, accountability and regulatory control, the existing corporate groups and the new entrants have enhanced their presence in real estate. Out of all the corporate houses which have entered the realty sector, barring a very few, most of them have brought professionalism and corporate commitment in the sector. The success of realty arms of corporate groups can be assessed from the fact that when the sector is reeling under severe recession, these companies are financially stable ? their projects boast of reasonable demand and they are coming up with new projects as well.
New sales approach: A case in point is Tata Housing?s ?Social Sell? with Facebook in October last year. The company launched its premium holiday home project in Goa, through a first-of-its-kind initiative, which presented prospective buyers the opportunity to register themselves through Facebook and seek their unique invite code. According to industry sources this resulted in sales of over 250 apartments on the first day. In addition to using social media for sales, firms are selling directly through their websites, market places like Snapdeal and others.
New regulation and Trust: Now when the government has enacted a much-needed regulatory mechanism, Real Estate (Development and Regulation) Act (RERA) 2016, the real estate industry should attract more players over time, as the policy and regulation framework evolves it will continue to bring clarity and reduce the barriers to entry. One of the provisions of RERA which has given a huge relief to homebuyers is ?the rate of interest chargeable from the allottee by the promoter, in case of default, shall be equal to the rate of interest which the promoter shall be liable to pay the allottee, in case of default.? This provision will stop the developers from charging interest at the rate of 18% to 24% in case of default from the allottee while paying only Rs.5 per sq ft in case of their own default.
A well-known realtor in his recently-released book writes that big corporate houses entered into real estate when they realized that the conventional builders, some of them were fly by night operators, have lost trust of investors and homebuyers and there is need for good and committed players in the market. Well certainly the credibility of the seller is supreme in building trust and growth.
As the risk and reward equation of the sector adjusts to the structural changes, more corporate groups will enter this sector and not only restore investors? confidence but also help the sector in getting industry status.