Everyone knows the superstars of Mumbai real estate. One of my constant endeavours, however, has been to discover the hidden gems or rising stars of Mumbai real estate. They are not easy to find. For starters, most of these developers operate conservatively on a limited scale. They primarily operate in a narrow micro-market. Their marketing spends are minimal. The marketing content they create and highlight is often not disruptive enough to get noticed. Most of them do not do products that dazzle. My own experience of visiting projects by this category of developers has been largely uninspiring.
Last week I had the opportunity to interact with a variety of developers at a conclave organized by the Brihanmumbai Developers Association. The association comprises small and mid-size developers primarily focused on the western suburbs of Mumbai. The findings were in sync with the interaction I have had with smaller developers across Mumbai. Below are the broad findings:
1. The underdogs are back: The first thing that struck me as I moved around the exhibition were the number of developers that even someone like me had never heard of. But it is the second part that is worth exploring deeper. Many of these developers had a bouquet of 3-5 projects that are set to be launched after leveraging on the FSI (floor-space index) discount provided by the Maharashtra government last year. So if 2020/21 was the year of 'consolidation' in Mumbai real estate, 2022/23 will be the year of 'de-consolidation' as smaller developers rebound with a ferocity that seemed unimaginable until recently.
2. Emphasis on planning: It is the ultimate truth in the real estate business. Spend more time at the pre-construction stage so that you can save more time at all the remaining stages. Historically this is the phase that has been undervalued by developers across the board. This time I got the sense that a reasonable number of developers have prepared adequately - from the target audience to the product utilization.
3. Rational expectations on pricing: The pricing expectations from a majority of developers appear to be based realistically - transacted pricing, not the quoted pricing. Personally, I am delighted to see this attribute because I have often felt that developers get delusional on pricing far too soon in an emerging upcycle, and that in itself later kills the potential of an upcycle. This time - I am sensing that developers recognize the difference between narrative and reality.
4. Delivery: Stalled projects are the epitome of Indian real estate. That has hurt the smaller and unbranded developers disproportionately as home buyers understandably look for a safe haven in their housing decisions. Given this background as well as regulatory scrutiny, there is now pervasive recognition that - whatever the odds - projects need to be delivered.
5. Focus on social media and brand building: Everyone knows that unbranded developers envy the branded developers. Branded developers have it easier in a variety of ways - from acquiring talent and boosting sales to even getting a premium from the home buyer. After the fire-fighting for survival, there is now recognition that a serious player who is looking at the long-term, needs to invest in cultivation of a brand.
What are the risks?
1. Posturing: While the claims are encouraging, the tests of the claims are only in their implementation. Hence many of these reported attributes can turn out to be wild exaggerations 12-24 months from today.
2. Environment: Things can turn adverse if we see a rapid increase in interest rates. A series of increases in interest rates can set in motion a chain of events that can hurt demand as well as raise the cost of supply. I am not sure if the smaller crop of developers involved in numerous projects is in a position to handle that. On the other hand, I am noticing two large wily developers anticipate this upcoming environment and therefore go on an overdrive to acquire sales.
3. Price-war: The battle in terms of prices is inevitable. Too many projects by too many developers at a lucrative cost structure are coming up. The supply may be staggered but in a fragmented industry where past wounds may still be fresh, there will be enough temptation to swallow aggressive deals quickly to avoid a bitter pill in future.
Overall, however, I am optimistic seeing the behavioural change. If many of the smaller developers don't forget the lessons of the tough times, better times are here to come. And the return of the underdog is not far away.
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