Real Estate Revival – What The Developers Can Do

Let’s first see why Real Estate can bounce back again, let’s begin by looking at alternate investment avenues available:

a.     Equity Markets: though the Markets have rallied since hitting lows in March 2020, but the rally is not broad based with only few sensex stocks leading the charge. Lot of companies have declared losses in their recent Q1 results in Metals, Aviation, Hospitality, Telecom, Cement, Capital goods sectors etc. At current levels it seems overpriced.

b.    Debt Market: The Debt yields are at historic lows, with inflation inching up, debt market may no longer be attractive to retail investors. It has partly to do with recent defaults by companies otherwise enjoying good credit ratings.

c.     Bit-coin/ Digital Currency/ Block chain: Most investors have burnt their hands, add to that legality issues.

d.    Art Market: Not broad based, sizeable investment needed for artworks of marquee names, issue of counterfeits - Lost favour with investors.

e.     Gold & Precious Metals: Sky high and perhaps plateaued already. Investment at current levels unlikely to offer good returns.

f.      Bank Deposits: Term deposit interest rates range from 5% to 5.5%, with additional 0.5% for Senior Citizens, real retail inflation rate is actually more especially for food & fuel; so effectively money in FDs may actually depreciate.

g.    Real Estate: Already at a discounted level, thanks to RERA- deliveries almost guaranteed in new projects, with depreciated Rupee attractive to NRIs/OCIs. Will not offer heady returns of the past but can still offer decent returns. Lesser tax liability, Income Tax is on 70% of rental income. Hosts of benefits for long term capital gains. Smaller amounts can also be invested thru REIT.

But a lot needs to be done by Real Estate Players themselves, let’s see what...

1.    Clean up Legacy Issues with the Customers/ Investors: With RERA implemented since July 2017, it’s only a matter of time that Customer confidence will get restored once the bulk of initial lot of RERA Registered Projects get delivered by end 2021. Poor investor sentiment & Sales proceeds diversion will be a thing of the past. That is however easier said than done. For that to happen, Developers will have to make conscious efforts to settle pending customer issues & litigation, and deliver the pre-Rera stuck projects, in the intervening period. With advent of technology and Social Media, customers will be ever more organised and influential to pursue their legitimate issues. Developers who fail to respond will face sales challenges and their survival could be at stake. Government has made it easier for Customers to get redressal, a case in point being recent amendment to Consumer Protection Act.  Government on its part is doing a lot to get stalled projects moving. The 25,000 Crores Stress Fund for stuck projects, has already approved 8767 crores for 81 projects, as per media reports in July 2020, and will help complete 60,000 residential units. Developers should make full use of this life line extended by Modi Govt. Centre has also taken over management of Unitech, in a move to provide relief to thousands of home buyers. Judiciary is also proactive to provide relief to home buyers of Amrapali & Jaypee groups.

2.    Avoid Mis-Selling : let me share an interesting anecdote from my DLF days around 2008, while handing over DLF Exclusive Floors (G+2 floors) in DLF Phase V, Gurgaon, a family who owned all 3 floors on a plot, claimed that they were told at the time of booking, that being owner of all 3 floors, they could use the terrace for get-togethers etc, whereas the terrace was In-accessible (it was accessible from 2nd floor level only thru a rung ladder for maintenance personnel), also terrace had low height parapet. Whether or not Sales staff did tell that, or if the allottee himself presumed it, is beside the point now, but the point I am making is, poor product knowledge of sales staff is more often than not, the primary reason for mis-selling. These days significant portion of front line real estate sales staff is from BFSI & Luxury Automotive industry background. They are smartly turned out, with impeccable communication skills, & with their own HNI customer database to boot. Mis-selling in Private Banks especially with respect to Credit Card, Insurance & Mutual Fund products, is fairly widespread, so it is important to train Bank Staff on an ongoing basis for their new role. In most set-ups the design deptt. shares the entire set of marketing collaterals (Sale Plans, Renderings/ Elevations, Walkthrough, Scale Model, Stock statement, Sales Specifications etc) with Sales, and thereafter it is left to the individual initiative of Sales staff to get more product information from Design/ Projects, but it was only in M3M that the product explanation exercise to Sales was institutionalised, product/ project updates being given to Sales at regular intervals in interactive formal sessions. That takes care of unintentional mis-selling due to poor product knowledge, but what about intentional mis-selling to meet targets, Developers would do well to keep a tab on that.

3.    NAREDCO, CREDAI as Regulators: NAREDCO & CREDAI can evolve from mere Industry Lobby groups to Non-Statutory Self Regulators for Real Estate Industry, akin to Editors Guild or Press Council of India (though PCI is a statutory body). They can evolve and implement a Model Code of Conduct for its member developers, rate them, all in public domain on their Websites, take up customer issues with its member developers and offer mediation/ settlement mechanism. This will go a long way in helping rebuild customer & investor trust. This will also add weight age to the voices of these bodies as they then will not be merely representing the interests of developer community alone.

4.    J.D. Power Ratings equivalent for Real Estate Projects: Most of us know about J.D. Power ratings for automobiles, widely respected and followed by Automobile customers. Real Estate customers need to have similar impartial, objective ratings for real estate products on offer, to help them make an informed buying decision. Thus Real Estate needs to have its own equivalent of J.D. Power ratings for Real Estate Projects and NAREDCO, CREDAI can facilitate this. Ratings could be based on an objective matrix of verifiable parameters for quality and dependability.  

5.    Provide 360 degrees Wholesome Customer Experience : Developers who are customer centric and provide good sales experience, with transparent documentation, deliver products consistent or above segment quality norms and ensure quality service and maintenance post handing over, will have an edge. ATS, Ashiana & DLF are really the gold standard in north India for this but newbie’s M3M, Godrej and Shobha are catching up fast. Even Vatika, Bestech do a good job of these. Their properties are going to provide consistent user experience, and will hold their rental/ resale values overtime.

Though above is not all that the Developers can and ought to do, but any more and it will exhaust the attention span of my collegues and readers, so more to follow ..... Cheers