The activist home buyer will upgrade Mumbai real estate

Real estate

Last week, I visited a friend in the upscale suburb of Bandra in Mumbai. The friend had paid Rs 7 crore for his apartment in a newly-constructed building.

He showed me around his lavish and spacious house while pointing to the outdoor amenities. I conveyed my congratulations and then looked closer. Perhaps my expression betrayed my thinking, because my friend instantly dialled down the enthusiasm and said, “Construction quality is bad. Big leakages. But building complete kar diya (but the builder completed the building).”

It’s a telling statement. In the commercial capital of India, where property prices are among the highest in the world, even a premium homebuyer has extraordinarily low expectations. But it’s a logical, even though depressing, approach. And that building is arguably the most representative case. That’s because to its left and right lay stalled projects by reputed builders which had left buyers in distress. Ergo, better a poorly constructed project than a stalled one.

In essence, that’s the story of Indian real estate. Demand has rarely been a constraint. Supply is, however, a big one, with estimates suggesting that Rs 4.5 lakh crore worth of housing projects are stalled. That’s the reason why constructed projects trade at a substantial premium to their inherent worth.
But how should buyers handle such situations? Should they be thankful that their builder at least delivered the apartment, or should they demand that the builder make good the flaws? It’s a tricky position to be in.

The traditional way is to grudgingly accept that a quality product is an unreasonable expectation in a market like Mumbai. It works because the buyer knows the value of his apartment will appreciate. Moreover, there was little option but to take what one gets as the ecosystem was brazenly anti-buyer.

Mercifully, that seems to have seen some change. Transactions are no longer as one-sided as they used to be. Despite the attempts of the builder community to frustrate the regulatory process, the system has more teeth today than ever before. Moreover, Indian real estate is moving towards branded builders, who are sensitive to criticism and brand dilution.

The improved regulations and the internet have given rise to the activist home buyer. Despite its small size, it’s a rapidly growing segment as sections of India’s middle-class and upper middle-class are getting more demanding with new platforms at their disposal.

Ironically, the assertiveness is higher against developers who have delivered the apartment compared to builders with stalled projects. That’s because the downside for a buyer is limited once a project is completed. In the case of a stalled project, builders and lenders often manipulate buyers into believing that any action will harm the buyer the most. The builder has greater power against the buyer in the under-construction stage than after completion.

Personally, I am delighted to see the rise of the activist home buyer. The housing industry has been the slowest in improving its ways. But today, the market and the internet can help hasten that change. Demanding buyers who are deemed a nuisance by builders will lead this change.

These are buyers who often purchase from credible builders after paying a premium. The developers that serve this segment well will be able to sustain the premium, thereby incentivising others to follow suit.

The change won’t happen quickly, but I suspect three milestones are attainable:

1) 2030: 80 percent of builders ensure delivery.

2) 2035: 80 percent of builders ensure timely delivery

3) 2040: 80 percent of builders ensure timely and quality delivery.

It may sound optimistic, but it can be done. And if it does get done, the activist home buyer will be the one to thank for it.