The days of real estate developers building high-end luxury homes country-wide are numbered as the more ‘nimble’ developers have assessed genuine demand and have been able to shift to other opportunities like affordable housing.
Speaking at the inauguration of FICCI International Real Estate Summit 2008, Deepak Parekh, Chairman, HDFC, said that for real estate developers, ``identifying genuine demand is critical and one should not be swayed by the herd mentality.”
According to the Ernst &Young (E&Y)-FICCI report, ‘Indian Real Estate — shifting gears,’ which was released at the summit, the concept of affordable housing has gained momentum for most players to capitalise on a volume-driven business and cater to the pent-up demand and ready market. Innovative marketing strategies, smaller-sized units and new technologies that aim at reducing construction costs are being featured as part of the low-cost housing development strategy.
In view of the high rate of vacancy (20 per cent) across 40 million sq. ft. of operational malls in the top eight cities of India, abandoned mall plans are scrambling to be converted into office space, while certain cities are already seeing an oversupply of commercial space, especially in the light of the slowdown in the IT and BPO sectors.
The HDFC Chairman said developers need to realise that their absurdly high margins cannot sustain.
Developers also need to guard against the dangers of excessive borrowing, Mr. Parekh said.
For the future, there will be the need to create innovative financial instruments that could support financially distressed developers to tide over the crisis. For capital raising, while the IPO market may take time to recover, there is sufficient interest from foreign investors to participate in the Indian real estate market through the private equity and FDI route, he said.
On a positive note, Mr. Parekh said that in the first quarter (April-June 2008) about 20 per cent of the FDI inflows were in housing and real estate. The long-term prospects of the commercial real estate market continued to remain positive owing to the growing opportunities in sectors such as healthcare, hospitality, logistics and education. The residential housing market would also continue to show robust growth given the strong demand, favourable demographics, increasing urbanisation and rising disposable incomes.
