Long delivery cycles in real estate typically affect the demand -supply equation in a massive way. We have detailed out the 3 ways in which this has played out in the Indian residential context.
Product conceptualization - A typical group housing project of 1 Mn sqft takes on an average 5-6 years to complete from the day the land is procured. This causes multiple issues. The vision for the development is based on current requirements of consumers. This vision gets translated into a business plan at the time of procurement of land and subsequently gets embedded in the design of the project. So, if there is a scarcity of 3BHK homes in the market today, developers immediately launch multiple projects of 3BHK apartments. Once the design and approvals are locked ( 1 year process), there is no turning back for the developer. He now has to execute on the same. However, during this period, if the trend starts shifting to 2BHK or 4 BHK units then the developer is left with inventory of the wrong kind. This has been the cause of the downfall of multiple developers in the past.
Evolving consumer tastes – While people admire heritage buildings, as they have a certain charm, when it comes to design and specifications of their own homes, the tastes evolve rapidly and what seemed trendy 3 years back seems out of fashion now. This results in consumers preferring a different kind of product over a period of time (Larger balconies, Larger Bedrooms, Study room, trendier sanitaryware, larger kitchens etc.) So the designs which are 3 years old, no longer appeal to them. They suddenly feel there is a shortage of well-designed homes! This cycle repeats on a frequent basis resulting in a pile of inventory for developers and on the other hand, consumers not finding the right homes which suit their needs today.
Impact of Covid - Covid had a massive impact on sizing and design of homes globally. There was an trend where most of the projects were having smaller and smaller sizes ( 3BHK at 1000 sqft in Bangalore where the acceptable standard was a minimum of 1600 sft!) Balconies were removed, rooms were squeezed to minimal sizes ( 10 feet x 9 feet Master bedroom sizes!). All this was done with the intent to have a lower box price, without having to really drop the per square foot price. However, Post Covid, consumers who were locked up in these homes with their families, experienced extreme discomfort and inconvenience in this ‘matchbox’ houses and were desperate to move into a larger home. Unfortunately, there was a deficit of large homes in the market. Any and every project with larger homes, which was not selling for a long time because of their larger ticket sizes, suddenly vanished from the market. Prestige Golfshire, a premium Villa development in Bangalore albeit with very slow sales prior to Covid, sold homes in excess of 300 Crores value in a span of months! The other demand which arose was for RTMI ( Ready to move in) homes. A market which was dominated by new launches and ‘early bird gets the best price’ syndrome suddenly turned on its head! As there was no supply available in most of the markets, the prices in the resale (secondary) markets shot up.
Triggered by the above factors, Developers went back to the drawing table and redesigned their new projects to cater to the need for larger homes. Unfortunately, most of them will get delivered 4 years down the line. Hopefully there is no change in the trend by the time these homes are delivered where consumers are back to looking for lower ticket sizes and new launches only!
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