Jitu Virwani, CMD of the Embassy Group, is a firm believer that the top developers are conscious of the advantages of adopting professional practices. In an exclusive interview with Housing News, Virwani points out that the real estate market is not homogeneous and hence, consumer confidence will vary with segment and geography.
Q: What has been a bigger challenge for the real estate sector – market dynamics or the poor consumer confidence?
A: The Indian real estate market is not a single homogenous entity. There are seven major metro markets, each behaving differently, with different supply and demand dynamics. There are many different verticals within real estate – residential, commercial, retail, hospitality – and within those, there are segments focused on different customer bases. With so many permutations, there is no ‘one size fits all’ answer. The urban southern markets, in the office space sector, have witnessed consecutive years of positive sentiment, take-up and consequently, rental growth.
Q: Why do property seekers remain skeptical about developers’ professionalism?
A: The Indian real estate market has gone through a significant change over the last decade. Some of the largest developers have corporatised their business, strengthened corporate governance, identified lower cost of capital financing, increased customer focus and applied higher levels of transparency. Continued focus on international best practices, technical advances particularly in the field of environmental and energy-efficient design, improvements in construction management practices and people management, are some of the changes that have had a positive impact on consumer confidence. Well-informed consumers continue to trust Grade A developers across cities. Today, consumers’ confidence rests mainly on the credibility of developers, established over a period of time.
Q: Isn’t the poor consumer confidence affecting market transactions?
A: Just as sentiment is linked to the industry vertical and we have seen positive sentiments in the commercial office markets, sentiment is also specific to geographies. The extent of oversupply in the residential market in the NCR, is not mirrored in the major south Indian cities, in which Embassy operates. Hence, sales volumes recovered to pre-demonetisation levels, by mid-2017. With the regulations and corporate governance that is being followed by most Grade A developers in south India, the old practices of small-scale real estate developers are receding. Focus on quality, timely delivery and transparency, are among the best practices that are gaining ground in the sector.
Q: How do you cope with the changes in market dynamics?
A: Management of changes, implementation of compliance, governance frameworks, attracting and retaining appropriate talent, are all critical aspects of building a professional real estate organisation. Many developers have progressively started implementing these initiatives and this also gets boosted, with the participation of globally-significant equity partners, who bring best practices and more efficient capital frameworks.
Q: Will the recent policy changes like GST and RERA, instill confidence in consumers?
A: The Real Estate (Regulation and Development) Act (RERA) aims to protect the interest of consumers, promote fair play in real estate transactions and encourage timely execution of projects. Its proper implementation will ensure accountability of all stakeholders, reduce delays in project completion and boost customer satisfaction. RERA will also establish a mechanism for speedy redressal of disputes. This may result in renewed interest from buyers. It will certainly reduce the number of developers in the market. Properly funded and organised developers, will deliver according to the regulations. Property prices will firm up, quality will increase and institutional funds will gravitate towards the well-established, trusted and proven developers. The unified tax regime of GST, will revive both, buyer and investor interest, by bringing in more transparency.
Q: Will new financial instruments like REITs, help revive the consumer sentiment, despite moderate expected returns on investment?
A: The advent of Real Estate Investment Trusts (REITs), will be a watershed for all forms of real estate in urban India. A publicly-listed REIT is an entity, which distributes 90 per cent of its income in the form of regular dividends to investors. It has strict limitations on any development – 80 per cent of its value must be in completed and income producing assets, such as leased offices. The units in the trust are freely tradable, in a similar manner to units in mutual funds and so, the investment is liquid for the investor and also provides liquidity for the original property developer/owner.
REITs have been in existence across the world for many decades and are a proven investment medium. This, in combination with international perceptions of India’s strong macro-economic status, makes future REIT listings attractive to international investment capital. We are also seeing strong domestic interest in future listings. The potential for new REITs in India runs into billions of dollars and this liquidity into the real estate market, has the potential to kick-start stalled projects, generate new growth and jobs, while also encouraging transparency and compliance.
Q: How has demonetisation affected consumers and the sector?
A: It is now nearly a year, since the demonetisation move and its effects have now been absorbed and the market has moved on. Sales are back to pre-demonetisation levels, since April 2017 and Bengaluru has an added advantage as it is an end-user-driven market. Established players in the real estate industry were already moving towards increased transparency and governance. Demonetisation and several other steps taken by the government, will further improve transparency and increase investors’ confidence in the real estate market in the long run.
Q: What have been the learnings, from the last five years of market uncertainties?
A: The learning is that the Indian market is resilient, it recovers quickly and a consistent upward trajectory will be the trend for the next few years.
Q: Have developers learnt lessons, vis-à-vis relationship management with the consumers?
A: No business will thrive, without an appropriate balance in the relationship between the buyer and the seller across all parameters – price, product, timeliness, quality, etc. The top real estate players have known this for many years and work to make long-term customer relationships the core of their overall strategy.
Q: What is your market differentiator?
A: Embassy Office Parks also runs the ‘Energize’ programme. This is an outreach programme, aimed to engage the 2,05,000+ park users throughout the year. The range of events include sports, cultural, CSR and lifestyle. The initiatives under the Energize programme, help in engaging the workforce and providing a fun work environment, leading to better productivity, lower levels of attrition and a strengthened sense of community, within the business parks.
Q: How do private equities (PEs) and other organised segments of investors, view Indian real estate?
A: The various reforms and sector-strengthening measures, have been welcomed by international PE funds and PE investments have been steadily increasing. The institutional private equity capital committed to Indian real estate in 2016, was close to USD 7.2 billion, indicating strong confidence from global players. FDI inflows into the construction development sector, are expected to increase in the medium term, with the government’s easing of FDI policy, increasing focus on affordable housing, implementation of the RERA, smart cities plan and the introduction of REITs.
(The writer is CEO, Track2Realty)