The real estate industry in India has been suffering from a slow market but the tables are turning at a slow rate in favor of the companies. The leading brands have figured out that the recovery cannot be done hastily and in the old way. They will have to adopt a new strategic approach to prepare a recovery platform. The regulated path from this condition will take a little more time to recover but eventually, the market will become more favorable for the developers as well as the investors.

This year will be a remarkable year as 2018 has shown a good recovery for the majority of the brands. The major players like Sobha Group, Prestige Estates, Brigade Enterprise, etc. The previous year dampened the sale of residential properties in the major cities. The commercial properties enjoyed a flat demand like the previous years. The level of the inventory items once again suffered a low.

The biggest hit this industry is suffering is the financial crunch of non-banking financial corporations. As real estate companies do not get a proper financial backup from the banking institutions, they largely depended on the support from NBFCs. The market share of NBFCs in the realty development segment is currently facing a hit. This demand has risen from 24% in 2014 to 53% in 2018. It is easily understandable that the industry mostly depends on this option. The liquidity crunch in this investment segment is affecting the growth of the Indian real estate industry.

RERA Implementation Scenario

After the Real Estate Regulatory Authority Act has been implemented, the developers are unable to extract fresh equity from the sales of new properties. The rate is not impressive and enough to sustain the current market demands. The housing finance companies and banks are unable to lend money to the developers for land purchase and construction. This is why the industry solely depends on the flow of fund from private equity companies and NBFC loans.

The unstable condition of the market is not stopping the funding from flowing into the industry. An impressive compound annual growth rate of 14% has been recorded from the banks and NBFCs in a cumulative way during the time span of 2014 to 2018. The funding from NBFCs increased to 45.3% after RERA Act has been implemented by the government. On the other hand, the fund from real estate investment trusts (REIT) and private equity firms shows less traction recently.

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Stronghold condition of big players

The funding crunch has been affecting the market in a different way. Some of the mid-sized players in the market were unable to return the money borrowed from NBFCs. It means that the defaulter list mainly consists of the mid-sized players and currently pushing the ball on the court of bigger players. The NBFCs will now concentrate on the larger players and will continue to serve as a funding source even more. In this aspect, the big realty players will enjoy a huge increase in the funding share by 75%. This share was just 30% a few years back. The real estate sector might get pushed towards more consolidation by boosting the big realty brands even more. As per the reports, the NBFCs have stepped back regarding loan disbursals. This decision has affected the real estate market as the mid and small sized players are not being able to enjoy the privileges. The bigger players will enjoy more attention from the NBFCs due to the above mentioned decision. The bigger players will be less vulnerable in this case due to their momentum in the market.

The completed and under construction properties from the bigger brands will not be under pressure. Only the small developers and their under-construction projects will be under the financial crunch due to the lack of improper liquidation of inventory. The only way these small developers can escalate the sales is via price cutting so as to stop the cancellation of booked properties. In fact, the real estate companies are citing trustworthy hints regarding acquisition of stressed assets in the current market. It will be a great opportunity for the home seekers to find stressed assets at a lower price for an excellent investment plan. Once the market has picked its pace, these assets will give the best return on investment in the future.