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Millenials changing real estate consumption pattern in India: Prashant Thakur, Anarock Research
The Economic Times  |  July 24, 2019

ET Now

Consumption of residential real estate would see a distinct change, with players coming in buying bulk inventory and putting it in a co-living model. That way, the yields are also on the higher side. This shift is happening as we speak, says Prashant Thakur, Director & head of research, Anarock Research. Excerpts from an interview with ETNOW.


You claim that only 29% of the total housing supply qualifies under the affordability norms. Please highlight the findings of your report.


In the first half of 2019, there were close to 1,40,000 launches but when we filter it down in terms of government definition of affordable housing which is 60 square meter and Rs 45 lakh of ticket size, then the number comes drastically down. It is close to 29%, which is 39,000 and some odd figure. The government has been fluid in defining affordable housing. First the sizes were put at 60 to 90 square meter and the pricing bracket came in Rs 45 lakh.


If we talk about the launches that were happening earlier, a good amount of projects in the price bracket of Rs 80 lakh and below were in the range of 40%, but if you put this Rs 45 lakh cap, the number comes down drastically. In my opinion, we need to consider city specific dynamics. For example, Rs 45 lakh in Mumbai would be a very low ticket size. It might work in cities like Kolkata or outskirts of Bangalore and Hyderabad, but it does not work out for cities like Mumbai.


In my opinion, the size of 60 square meter which translates into 850 square feet works out quite well but the ticket size needs to be increased to the tune of something between Rs 65 to 70 lakh. That would really help the purpose with which the government is pushing this affordable housing agenda.


The sector is in the grip of a serious slowdown. What is the solution?


There are a couple of things that we need to keep in mind first of all India has a national demand of housing. At one point of time, we are talking about two crores of housing shortage in urban areas. On the other hand, we are talking about 6,50,000 unsold inventory. So somewhere demand is there but historically we had pushed wrong products in the market. Either the sizes were too big or these projects were more suited towards investors.


Now with the slowdown coming in and speculators abandoning the market, the genuine homebuyers are a bit confused because what they see is a huge pile of unsold inventory. Construction is not moving up and the prices are also not going up anywhere. In order to restart the cycle, the government needs to ensure that the stalled projects or let us say the delayed projects which are stuck for quite a long time. This is casting a negative sentiment in the market and needs to restart.


So the government must give some kind of a refinance window to those NBFCs or financial institutions so that the projects which are at the last stage of construction gets completed and people start to get possession of their house.


In my opinion, that would create a positive sentiment in the market because this is a typical buyers’ market, but having said that, nobody wants to take that execution risk. We all know that RERA is in place but since it does not have enforcing power, the ground results are not that much favourable.


People are still facing the severe issues of delay and developers not honouring their commitments. Even if the RERA has passed a judgement to refund the amount, the buyers are still waiting for it. In my opinion, a strong intervention in terms of ensuring that these delayed and stalled projects get completed would give a kick start to the sector.


If I drive on the streets of Mumbai, I see construction activity everywhere. If I go to any major metro, there are new projects coming up. On one side we are talking about glut, more inventory and then it foxes me when I see that the builders in Mumbai, Delhi and Bangalore are adding more capacity. What is going on?


If we look at the number of launches, at a peak, in the top seven cities in India we were launching close to 5,20,000 units per year. We are down to 1,90,000 this year. There is a huge cut down in the number of launches that we were doing and I would disagree. We are 60-65% down from the peak launch period and the launches right now is more focussed on affordable category.


But again having said that, demands have been very slow in spite of the affordable push and noise that we have been seeing. Infrastructure is not coping up with the affordable projects that are coming up. If a developer has to launch a project which is defined at Rs 45 lakh by the government, he needs to be going to the extreme outskirts of the cities.


Is there a change in the way how Indians would be buying and consuming houses? The Uber economy has changed the way how an urban millennial would be travelling. I mean their decision to not buy a car is something which is very normal. Are we reaching that very big dramatic change in society at least at the millennial level? The ideas used to be you get married and you buy a house. It is security. I do not think that holds true now. Is this part of a large change in pattern and would this have a very long-term impact on housing in India?


In fact, we are actually seeing this trend playing out in the broader market. For example, the mobility of the workforce has gone five times from 10 years back. Nobody wants to take a long-term commitment, especially the millennials. So the renting economy is gaining traction and that is the reason you would see the co-living model or co-working model evolving in India at a major space.


The residential real estate demand would be there but the consumption pattern would change. You would see lot many players coming in the rental space and now we have the government laying down the foundation for the rental policy at national level. So, consumption of residential real estate would see a distinct change, not necessarily just from owning point of view but players coming in buying bulk inventory and putting it in a co-living model. That way, the yields are also on the higher side. This shift is happening as we speak.


The real estate sector is in a downturn but the good real estate stocks are at an all-time high with a few exceptions. Three to five years from now, what will happen to the real estate sector? Will there be just 5, 10, 15, 25 builders?


Yes if we talk about the current development, we are seeing a phase where massive consolidation is happening. In our opinion, out of 10 developers, 7 would have disappeared already.


You are seeing a phase of consolidation where the big will get bigger and people would want to avoid execution. They would stick to bigger names. You would see a few national level players dominating the scene and you would see the kind of appreciation that you are seeing in the stock prices, the kind of inventory they are selling would be on the rise in the coming years.