Virus impact: Super large developers see average business dip by 39%; smaller developers took 19% hit in revenue

Sales in Tier 1 cities grew 22% between 2015 to 2019; during the same period, sales in Tier 2 cities grew 73%, from 59,390 in 2015 to 76,466 units in 2020, a report by Liases Foras said

Vandana Ramnani

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Rather that consolidating, the realty landscape is broad basing. The share of top 50 builders dropped to 23% during the COVID-19 pandemic and so did their average business which declined by 39% compared to smaller developers who saw a decline in revenue by just 19%, a new report has said.

Data shows a steady increase in developers' number from 7,876 developers in 2015, growing over 50% to 12,249 by 2019. The number of builders has been increasing every year, except during CY 2020, which has reduced the number of developers with active supply mainly because of the COVID-19 impact. Instead of consolidation, the trend suggests that the real estate market has been broad basing all these years, says a report by Liases Foras.

The total sales value increased, but the share of top builders fell. The value of the stock sold also shows similar trends. From 2015 to 2019, the sales value increased by 20%, except during 2020 when the sales dropped by 31% due to the COVID-19 impact, says the report titled The Myth About Consolidation in Real Estate.

The value of sales also increased for small developers. When CY 2018 and CY 2019 are compared, the reduction in the value of sales within the super large developers and increase in the value of sales in smaller developers indicates that the dominance of super large developers in the market share is getting distributed to smaller developers, the analysis said.

The average business done by a super large builder has seen the maximum decline of 39% during the COVID-19 times, although the decrease of revenue of smaller developers was lowest, just 19%, it said.

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With regard to the average business done by builders, the super large developers which have projects over 12 lakh sq ft reported business worth Rs 241.9 crore in CY 2019 and Rs 147.5 crore in CY2020 which was a 39% decline. Large developers with projects of size 6-12 lakh sq ft saw business worth Rs 50.4 crore in CY2019 and Rs 32.1 crore which was a decline of 36%.

As for smaller developers with projects of size less than 2.4 lakh sq ft, business declined from Rs 6.7 crore in CY2019 to Rs 5.4 crore in CY 2020 which was a decline of 19%, the analysis said.

Sales in Tier 1 cities grew 22% between 2015 to 2019; during the same period, sales in Tier 2 cities grew 73%, from 59,390 in 2015 to 76,466 units in 2020, the report noted.

While COVID-19 has impacted the demand for tier 1 cities, it has benefited the smaller towns. Work from home/ hometown has triggered the phenomenon of spatial diffusion of jobs. The high cost of living, densities, and experience of remote working abilities coupled with cost benefits suggest that the jobs move to places where people live. Tier 2 cities are slated to grow faster with the government's boost for the manufacturing sector.

The share of the top 50 builders oscillated between 27% to 24% from 2015 till 2019 and then dropped to 23% during the COVID-19 times in 2020. Similarly, the top builders up to 1000 lost their market share by at least 4% since CY 2018, the report said.

The growth in numbers of smaller developers was maximum except during the pandemic. The total number of developers has shown a growth of 48% since 2015. Smaller developers constitute approximately 80% of the total number of active developers in these cities. Interesting to see that despite higher numbers, smaller developers grew 45% since 2015, the report said.

The report also says that the joint ventures or amalgamations are happening at the project’s level and not a developer’s level.

For example, a Mumbai-based developer, Nirmal Group, who had nine marketable projects, given three of his projects for the development and sales to three different developers, namely, L& T Realty, Shapoorji PallonJi, and Godrej Properties. These projects have shifted from the books of Nirmal to these three developers’ books, while all four developers existed despite the amalgamation. The Nirmal group is still managing six of its projects. Most of the amalgamations are such.

It points out that RERA has acted as an enabler and helped the market to become broad-based. It has enabled smaller performing developers to access credit facilities from the financial institution.

The incentives brought to boost affordable housing under PMAY have also helped smaller developers. While large developers launched mega townships, mostly far away in the peripheral locations, smaller developers offered affordable housing in interactive and end usable areas. Their pricing, product mix, and location cater to local needs more efficiently, the report said.