Vision of Life; by Sanjay: Future of Real Estate!

“Land monopoly is not only monopoly, but it is by far the greatest of monopolies; it is a perpetual monopoly, and it is the mother of all other forms of monopoly.”…Winston Churchill.

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”... Warren Buffet.

Well, two quotes by two great names all the time though for different reasons & different profession but one quality was same & that are, leading the path! If Churchill lead the path to glory for England in war time it Buffet who lead the path of investments & got glory for USA on trade (read business) front! Yet when its real estate look what Churchill has said long back, it seems our current ruler (read govt) has started from where Churchill has left the job undone i.e. breaking up monopoly in land means real estate! And it’s at such times when real estate’s big bosses are also nervous I think we must recall the words of Buffet & that’s why to start my sharing on real estate’s future I used both of these quotes!

Of-late many (read most) people asks me what’s going to happen with real estate & the tone is like when we inquire about some patient who is bed ridden for long & we can see he is sick but can’t find the reason as neither family persons nor the doctors are sharing the truth (read are able to) about the patient’s health & diagnosis!

I am no expert or doctor here when the patient is real estate but then I sure can identify a patient when I see one (most of us can do that actually) & here as being in the profession of real estate i.e. “the patient”, now for more than twenty five years, I can think of few things which might help us understanding the nature of the disease as then only we can think of right treatment! First & foremost rule here is, any business in this country is run by the “Mai Baap” Govt’s attitude towards the country (read voters) & real estate is also no exception to this rule! You will what’s big deal, is it not applicable to all the countries, well answer is no! In USA govt do bows in-front of some group of industries (read industrialists) & these industries do think in the best of not just their business but the country, well mostly! Same is case with any developed country rather that’s the reason those countries are developed & we are carrying the tag of under development country for decades now! For decades real estate was a milky cow & everyone has milked it, till it got dry & when I say everyone then it includes right from the builders, land-lords, suppliers, contractors, investors, professionals like charted accountants as well architects & consultants, media (news papers), banks even govt too has earned a lot from real estate; barring two segments & they are end users which we call flat buyers & the labors which were actually working on the site with their hands! If builders have earned by sale of homes then land-lords have earned by just holding the lands on which these homes were build, suppliers, manufactures have earned by huge sales of their goods, contractors have earned (though bit less than others), professionals have earned charging hefty fees to their builder clients, banks has bleed the builders(their fault actually) by charging high interest rates whereas investors made merry by selling the homes at double rate they have bought, media earned by full page advertisements of project launches & then govt wasn’t also behind, charging for every rupee in every possible way from stamp duty to income tax & has earned out of real estate a lot. In all this milking of real estate as I mentioned two segments left behind rather they too got milked & one is actual end site labor who some thirty years back used to live in tin hutments at site & continues to live so even today & second is actual flat buyer who bought all these homes with every-bodies profit loaded on it & end up paying EMI’s for the same for rest of his or her life!

Many of my friends related in anyways with real estate won’t like my above analysis but tell me in which other industry other than real estate, rate of the product increases two or three times over just one or two years time span & without adding any tangible technological or such quality value addition to that product! It was only real estate enjoying such luck because the land was & is limited, population was increasing, jobs are limited & available in some locations only & same is the story with basic infrastructure like water, roads, electricity, transportation as well schools & medical facilities. Obviously land at such locations became in demand more than the supply & then entire above chain of professions benefitted just because they were in right position at right time (actually wrong position) & milked the cow(read earned)! Indeed the millions of home buyers did get their homes in the process but look within ourselves (all those who didn’t like my logic) & ask was those homes fairly priced? And the answer you will get (if you have courage to look within) will tell the reason for patient’s i.e. real estate’s disease’s diagnosis!

The problem with real estate is the people related to real estate are not used to survive on lesser margins i.e. lesser money & neither these real estate men were used to wait for the clients! Let’s look at above chain again from today’s scenario, landlords were used to behave like owner of some rare antic piece in auction for their piece of land which with queue of bidder raising the price every day & now there are no takers for their land! Same is story for all other chain links i.e. professions as today suppliers & contractors run behind the builders for orders which has dried up & then there is threat looming that if payment doesn’t come in time then what as on one side there is no order without payment facility & on other side no post order payment assurance from the builders, so they are stuck! Professionals has been charging big fees but now there are no new project launches, even to recover earlier fees is a problem so they are in fix. Banks have stopped financing real estate but they have to pay interest on their deposits, what if there are no loan takers, so banks are in fix. NBFC’s & investors are worst hit as they are already worried about their unsecured loans to the builders as well stock of incomplete homes with no takers with the rate they have got in mind! Media has got hit worst as open any new paper & you will hardly find any builder’s advertise, so the revenues from real estate are all time low as well they have to compete digital media which is far cheap & wide reaching! Builders which like a tiger in forest are at apex of the real estate chain & just tigers are running around the forests in search of water & food are running around in search of clients & finance is a naked truth! In this entire situation just one segment is less hit, I meant comparatively & obviously that is our govt! As its increasing taxes & it gets cut from every deal related to real estate though the local body’s reduced income via development charges & premiums is a warning that govt also won’t be spared if real estate gets sick!

And now let’s see why this has happened to real estate & sole reason is everybody related to real estate must now learn to rework on their age old success formula as well reduce their greed not just a bit but a bit lot! Margins won’t be ever same again as this govt is following Mr. Churchil on land monopoly policy & will be making more & more land available to build homes which eventually will (rather has) bring loads of supply of raw material for the homes in market which will be way above than demand! Remember, what happened to every other market when competition got open, right from cell phone to cars to two wheelers to white goods, every segment was flooded by the manufacturers & rates come down of every such product. This has two way impacts, buyers got more choice & no monopoly is there in any market other than real estate. At the same time these businesses didn’t die but flourished as the makers as well all other chain members of respective business get used to work on lesser margins & earn by excelling in manufacturing! The newer markets’ has been tapped & the makers tried to reach out by themselves to the clients than waiting for the clients! Everything related with the product is done keeping the end user (read client) as center of attraction & then only the businesses have got back on normal. And the companies (even giants) which couldn’t follow the change has vanished from the market, Nokia or Aircell are best of the examples from growing field like mobile industry or service provider. And at the same time as Buffet said using these situations as boon, companies like Geo has emerged as new giants in the very same business where Nokia & Aircell got wiped out! In auto industries also we saw companies like Maharashtra Scooter which used to make famous “Priya” scooter got shut down but today Piaggio’s Vespa & Honda’s Activa scooters are selling like hot cake! The story of Royal Enfield i.e. Bullet motorcycle is even better, once ruler of the market in heavy bike segment, then got tagged as old fashioned & just when the company was on closer, it rise like phoenix & today once again has become a most sought after brand in bikes, which has a steep competition from many players!

Real estate makers should (read must) learn from stories like Reliance Geo or Royal Enfield as they used their respective difficult market conditions in their favor & this needs market study, a keen eye on what’s trending in the mind of govt & forthcoming policies as well giving the clients what they want in their budget & yet make some money! And for that real estate bosses needs to focus on data & lots of it regarding client’s needs across the country. As unlike any other product real estate is very local thing & depends on numbers of local issues like infrastructure, education, jobs & even culture of the place & that’s why I will restrict my sharing to Pune though it is applicable to any city with minor modifications! A city like Pune has all the above growth related factors right in place, one just needs to come up with right home, that’s the challenge real estate is facing! And when we say right home it must not be from our side only as for a builder a right home is the one which sales fast & doubles the money invested! A right home is from the sight of the buyer who is real user of the home today & not some investor whose target is sale it off for money! And when you start looking towards the home from the angle of buyer then you see what’s the difference in past & today as here you have to judge buying capacity of the end user, his needs, his other expenses like kid’s school fees, car’s EMI & week end spending as well some savings. Keeping all these intact he has to buy a home & pay EMI for the same, is what we need to understand.

At the same time the builders need to make their pressure groups for the govt who is still unaffected from the downfall of real estate & busy in increasing every possible tax as well premiums on it. And in return on the front of infrastructure we are zero even in Smart City like ours is a fact. Just one Metro is not going to change life of millions, indeed its one of the aspect but still water, drainage, good roads, education, medical facility, power & many such things are not evenly distributed in the city making the end buyer spend much more other than EMI of home loan, making him restrain from buying homes in such locations! And do mind to create pressure group for govt first the real estate must earn respect in the eyes of its own clients i.e. masses as its this respect of masses is real strength for any industry while dealing with wrong doings of govt!

As for the buyer (and govt) all I will say, just making homes cheaper should not be the target but to make the homes affordable to both sides is what must be the target while making real estate policies! Do mind, greed isn’t monopoly of builders as even the clients becomes greedy when they see a dying builder (read desperate for money) & they try to make him bleed as much they can by negotiating, is also a fact & many of us has witnessed it! Not always a cheaper home is the best, as ask thousands of people leaving in illegal homes & consequences of their decision to opt for cheaper home! Actually its failure of the govt in first place that they have made a system which can’t produce a legal home which is affordable to the buyer as well to the manufacturer & outcome is illegal homes increasing numbers everyday! Still time has not run out totally, form a body which will have enough wise people from the industry on it & make a policy as millions of people still needs a home of their own & thousands of people are ready to build these homes, all we need is a system (read policy) which will make this happen! Till then real estate guys, focus on making a home which the client is looking for & parallel, keep the fight on with govt to provide infrastructure necessary to sale these homes! At the same time don’t run behind every land deal like its last piece of earth as that only will make land-lords realize no more monopoly. At the same time give the customer value for his money which includes transparent & fair service also & yes innovate as that’s the key & then sure the future is not that bad but silver if not golden! A home is first of the basic needs of any specie & not just humans, so the home makers won’t ever starve is a fact; just know the art of building in bit better way, is the gist!

Sanjay Deshpande

Sanjeevani Dev.

Please view my sharing about real estate in Pune at U-Tube link below..

https://youtu.be/g3lx1Nq7pBs

Please do visit my blogs to know about our philosophy at Sanjeevani ! (Click the links below)

http://visonoflife.blogspot.com/2018/08/pune-city-no-1.html