The industry today is heading towards a reasonably evident conclusion of consolidation.
Is Consolidation the Way Ahead for the Languishing Realty Sector?
Over the past few years, the general trend for the real estate industry was to do horizontal development which made buying home expensive. However, since there was a demand and supply gap, the units built were getting sold very fast. With the advent of multi-storied buildings and townships in early 2000, real estate players were able to bridge the demand and supply gap.
According to Arya Sumant, Managing Director, Eden Realty Group, this provided very good returns on investment in land and the fast selling of flats further providing the desired cash flow for construction. “This led us to believe in this model of housing and egged us to construct more such housing even if it was at the expense of much higher investment on land by way of borrowing at higher interest rate with too much reliance on fast selling of units,” he admitted.
The real estate sector was probably biting more than what it could chew. Most of the players were building for Upper MIG and HIG segment ignoring the lower and lower-medium income groups, where there was still a huge gap in the supply. As a result, there was oversupply of Upper-MIG and HIG flats. With changing market conditions, demonetisation and introduction of GST, the sale of Upper-MIG and HIG took a dip.