Wednesday, December 19, 2018

Hope With Challenges; Real Estate's New Year!







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“Hope smiles from the threshold of the year to come, whispering, 'It will be happier.”... Alfred Lord Tennyson.

Alfred Tennyson, 1st Baron Tennyson FRS was a British poet. He was the Poet Laureate of Great Britain and Ireland during much of Queen Victoria's reign and remains one of the most popular British poets. Actually no need to tell about Tenniyson as he is one of the best poets of our time & what most real estate here (read in Pune) needs now is hope in the form of above words from Tennyson! Keeping all due respect for “Achhe Din”, the coming year also will be State as well Central elections. One thing the present govt has done (read Modi Sarkar) & that is the real estate rates definitely has come down not just stable than when it came in ruling nearly four & half years back. But what it’s done to real estate as industry is something I will like to draw your attention. Here typical Puneakrs’ will say what they has to do with what happened to real estate which mostly means builders as it’s the end result which is important & prices of homes (read flats) has come down is a fact! Isn’t it “Achhe Din” for the flat buyers which till last few years has been witnessed only the rising graph of home prices which always seems to be going out of budget? Indeed yes, the home prices are very much down but are they still in budget of the home buyers (read common man) is another aspect of real estate & then reduced prices of real estate can be looked in two different angles, actually it’s like weight loss, confused with my analogy?  Well, we all know excess weight (human body) is bad for health & all the Doctors advise to reduce the weight & it should be as per BMI i.e. Body Mass index (ratio of height vs. weight). But the weight loss must be by proper diet & exercise as weight loss can cause by chronic disease like Diabetes also. Will we be calling such weight loss good or sign of healthy life style, off-course not! With due respect to all, same is the scene of reduced home prices in real estate, it’s no more market correction its sickness sign actually!

Agreed there again may be sarcastic comments, for so many years real estate (read builders) has enjoyed rate hikes in property rates & perks along with it, at that time you didn’t said it’s not healthy! I am not justifying it & that was wrong too but one wrong action never makes another wrong action right; same is with present rate decrease in real estate. As  on one side rates of lands, rates of cement/steel/ sand type basic construction materials, rates of diesel, even govt is not behind in lynching real estate (sorry but that’s only word come to my mind) byway of taxes like GST, Income Tax policies, Stamp duty , Premiums charged by local authorities (read PMC/PCMC/PMRDA) are ever increasing. Then we can’t neglect the labor costs which includes right from construction labors daily wages to every support staff from marketing to accountant to site engineers. I started my career as site engineer with salary of Rs 750 p/m & I was first class degree holder engineer of Pune versity; try any fresher engg or any graduate today & see what he demands as salary at start then you will realize these over heads!  Real estate was never a blue eyed baby for the bankers (not investors), so the interest as well repayment terms were harsh & now they are more than harsh, adding burden of finance cost on end product. Real estate was always dearest to the investors but their love didn’t come cheap, ask any builder the terms of private financers & he will tell you it would have been better had he been investor in real estate than being a builder. And just like the rats run away from the sinking ship, investors left real estate in last few years, though not all could save their lives, but that’s different story! So the investor money is gone too from real estate which in a way is boon as gone along with is heavy interest rate burden but then from where to buy land & fund  the construction of the project? Here many will say, what happened to pre launches, soft launches, and early bookings & getting money from the clients only for the construction? Well, that’s the hitch, gone are all those dream-land things as thanks to govt’s policies like RERA & no GST for ready homes, there are no buyers (read unless the project is really at prime location, which is rare now) for homes in booking or making also; so the developer has only two options either buy the land from his pocket & build the project also from own funds or launch the project & hope he gets clients in ongoing construction ,so as the construction costs gets funded from it!

Here is where one more cost head gets added in construction (read making cost) of the project & that is marketing cost i.e. advertising costs. Of-late mood of market is such that the biggest challenge (read fear) in the minds of the builders is how to reach out the right client for the homes they are making! When I say right client it means to make real estate (read builder) identify the customer for the product it has made (homes) & reach to him or her & convince the client to buy it. As with changing market scene, no more a home is the first priority of the common middle class which was earlier the main buyer of these homes. Investors may be there but as I always say, no movie gets hit on black marketers but only on real viewers. On same lines whatever homes the investor may book yet it needs a real home buyer to buy & reside in those homes & it was going on because the home was first priority of most Indians which isn’t any more, at least for now! Just in last decade if you would have asked any middle age couple what’s first thing they would like to do (read buy or spend or save for) & answer of eighty percent couples would have been to buy a home! No more it’s the situation as just the way earlier a home buying priority would have make car buying or cell phone, take a back seat, now it’s time of home, for many couples. Three main reasons are there; first is changed age group of home buyers (read home seekers) as this is late twenties or early thirty, age group who believes living life for today & not future! They prefer to pay EMI’s for their luxury car or gadgets than spending on home EMI. Then second thing is they have other important priorities such as education costs of their kids & they want to save for this cause. And lastly they are ok with rental homes where rent is way less than EMI & is not binding burden as they can change the home if something happens on job front i.e. lesser package, no problem settle for some cheaper rent home!This twentish/thirtish genre is no more senti for owning a home or has false pride or security concepts about the home, which earlier genre has i.e. those who are around fifty plus by age now! And exactly this is the biggest challenge real estate (read builders) is facing how to convince these young home seekers to buy their homes! And then this genre is very smart, good with figures & they don’t believe (read blindly) on advertising! This genre wants a home with all luxurious amenities, quality construction, and needs possession in time, at good location & in their budget! And they asks lots of questions (awkward ones mostly) & Goggles’ a lot before concluding to any decision, especially when it’s a deal as costly as a home! And this brings the costliest factor of real estate for which it wasn’t ready at all & that is marketing cost.And this is with total uncertainty as when you give some 400 rupees to your supplier then you are sure you will get a bag of 50 kg cement against it, that’s fine but if you spend even ten lac rupees for some advertising campaign of a project, you are not sure about how many flat bookings you can get through it, now what you do?

And all these expenses are finally loaded on home price only but have some one thought that then how the home prices are still coming down, when every other commodity related to home building is going up! Well that’s why I am calling it as unhealthy reduction in prices of real estate because this is not logically right! Indeed it may on face looks good for the end user but what about the entire industry which supports millions of personals in hundreds of forms like suppliers, contractors, agents & even the govt which gets huge revenue from real estate dealings in every way! And on other side with changing trends on political fronts the only agenda which every Political Party seems to have for winning elections is reservation in jobs & education as well loan wavers for farmers as well other segments but real estate! I am not against reservation or loan waver from farmers (I can’t dare, I have to live in this country) but I was reading in news paper that the new govt in Madhya Pradesh has announced loan waver for farmers which will add burden of nearly 64,000 crores of rupees on its balance sheet! Well going with this no wonder if our State govt also comes up with same scheme & then where the money for building infra for real estate is going to come & needless to say this deficit will be covered by adding more burden on the cow with milk i.e. real estate & other business (read industries), in a way making the homes more costlier! And still if some builder is decreasing rates of homes in his project then do mind it’s not because he has huge profits but it’s just to survive he is lowering rates & what after all such in making or ready homes are finished, what about new projects? I think it’s not the real estate people who should be worried but the “Mai baap” govt which should be worried as we are heading towards the end like the story in Isap Niti (folk tales) where the hen which was giving one golden egg ever day was killed by the greedy owner for more eggs at a time eventually ending the golden eggs!

The silver lining is speaking about Pune, there are jobs available so the huge migration is there & even if this population is ready to live in rental homes for that someone has to buy those homes in first place to give them on rent! It said somebody’s loss is somebody’s gain; trading on these lines while most of rural Maharashtra is worrying for many problems, unemployment is major of them; fortunately Pune is riding on IT as well Auto Industry, Service Industry & education Industry (many won’t like last term but that’s fact) & many such trades creating thousands of job in Pune region. Obviously all these people needs some shelter on their heads & that’s what real estate has to do! One more aspect real estate must understand, you can build buildings with money but you can’t build image or character with just money but the way you spend that money; I think that much wisdom real estate (read builders) must have learn by now!

So, while welcoming New Year all that needed for real estate is, positive approach backed up with professional back up & yes a bit less greed regarding profit margins! As gone are the days of doubling the investment that too on others money; here onwards surely this industry is going to survive, but like any other industry i.e. on lesser margins! And yes a clear understanding of their clients thought process as  like shown in one mobile company advertise, “no more ullu banaying” attitude! Study the market needs, control over heads, give quality & timely possession,, keep the home prices which will make buyer feel comfortable, make the buyer understand priority of home buying & yes for that stay connected to your customers by every possible means! The company which will follow this basics of the business which real estate has forgotten, will not only survive but will make some money also along; well, what are the “Achhe Din” than this!

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Sanjay Deshpande 
Sanjeevani Dev.

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