W hat’s in a name? For Indian home buyers and investors today — a lot. In metros as well as tier II and tier III cities, a real estate developer’s brand name wields considerable clout. Realty players with high-recall brands have upped their game and accounted for a whopping 56% share of the total housing supply in 2018. There has been a y-o-y rise in their share since 2015, when their share of the supply stood at 41%.
How the segment operates
‘Branded’ developers are not necessarily only listed players. Those who have been operating for a decade and more, newly-formed entities of large conglomerates, and also those with sizeable areas under development either locally or Pan-India, are now recognised as branded developers.
Most of their new supply is no longer limited to the premium and luxury segments. They have spread themselves across the high-demand affordable and mid segments (comfortably priced within a budget not exceeding ₹80 lakh).
In retail, we now see several high-value designer clothing brands launching relatively more affordable apparel lines for ‘non-elite’ customers. In real estate, the middle class — that fairly wide bandwidth between the upper and working classes — is calling the shots. This is where end-user demand is thickest, investors follow end-user demand, and developers are falling in line.
Several factors are involved in the increasing prominence of branded developers:
Indian Brand Consciousness
India is among the top three most brand-conscious nations globally. No longer restricted to the super-affluent class, brands have found resonance across the Indian consumer value chain. The Indian consumer’s quest for branded products spans almost all products from fashion, gadgets, cosmetics — and now even homes.
The aspirational value attached to high-recall brands is not merely a quest for status. As with clothing and gadgets, well-known developer brands are known to deliver much more in terms of design, specifications, overall quality and after-sales service than their generic counterparts.
Homes built by such branded developers convey the assurance of having invested in the right product. Not only do they provide better durability and a superior living experience, they also yield better returns in terms of rental income as well as capital appreciation.
Prime, affordable locations
Highly-established developers are known to conduct careful research on their locations and are therefore able to pinpoint the most happening growth corridors. They know what product works best, and where it works best.
Moreover, established developers are better capitalised and have the financial capability to acquire sizeable land parcels. These are used for developing townships and gated communities in areas where smaller players have to be satisfied with smaller plots. In fact, smaller players are known to ‘follow the leader’ precisely for this reason.
Govt. policies dictate the market
DeMo, RERA and GST put a hard leash on unregulated practices and their practitioners. Small developers were particularly impacted.
Low sales, lack of capital in hand and zero weightage with private equity funds caused several smaller developers to either exit or court consolidation via mergers, acquisitions, and joint developments with larger organised players. Post DeMo, the share of new launches by non-branded players fell to 48% in 2017 from 58% in the previous year. Their share has been on a steady decline ever since.
Out of the total housing supply across the top seven cities in 2015, branded players had a 41% share while the remaining 59% homes were by unbranded developers. By the end of 2018, the overall share of large branded players rose to 56% of the total supply of approx. 1,95,300 units.
Focus on mid-income housing
Most top branded developers have moved beyond their previously unwavering focus on luxury or ultra-luxury housing and now include the affordable and mid-income segments in their housing portfolios.
The incumbent government has raised the stature of these segments from ‘down market’ to ‘respectable’ via various sops, incentives, schemes and a very clear message to the realty market.
Most large players are looking to significantly increase their overall supply in these segments and have sharply reduced their supply in the luxury and ultra-luxury segments.
Prestige Estates brought its premium housing supply down from 2.02 mn sq. ft. in Q4 2018 to 1.11 mn sq. ft. in Q4 2018. Concurrently, it launched nearly 5 mn sq. ft. space in the mid segment (<₹80 lakh budget) in Q4 2018 — as opposed to 4.27 mn sq. ft. the previous year.
Puravankara’s affordable luxury brand, Provident Housing, increased its new supply in Q4 2018 jump to 10.59 mn sq. ft. as against 6.63 mn sq. ft. a year ago. Meanwhile, its premium offerings under the Puravankara brand saw a 5% decline over the same period.
Based on its affordable supply, Bengaluru-based Sobha Ltd. saw sales increase to 2.9 mn sq. ft. in Q4 2018 against 2.61 mn sq. ft. a year ago. Their average price realisation also dropped during the same period — from ₹7,853 per sq. ft. to ₹7,592 per sq. ft.
Other leading builders to join the affordable housing fray include Embassy Group and Brigade Enterprises, among several others.
Affordable rules
The first quarter of 2019 saw housing sales increase by 58% against the corresponding period in 2018.
The highest sale rate was reported in the affordable and mid-income segments.
Unsurprisingly, branded players — having the highest share of new launches — reported a surge in their net profits in Q4 this year due to higher sale volumes and better realisation.
Brigade Enterprises sold approx. 0.96 mn sq. ft. space in Q4 FY19 (worth ₹520 crore) – a 23% increase over Q3 FY19 (when their net profit was ₹72.05 crore).
Sobha Ltd. reported 63% surge in its net profit against previous year which stood at ₹113 crore as on Q4 FY19.
Realty major DLF also saw 76% jump in its consolidated net profit to ₹436.56 crore during the same period while its sales booking more than doubled against last FY.
Puravankara Ltd. also reported 59% rise in its consolidated net profit at ₹39 crore during the same period. Its Provident Housing brand contributed 58% of sales by value in FY19.
Having tasted success with their new affordable offerings, these leading brands will now focus even more sharply on this category, and less on luxury or premium homes.
The luxury segment is now primarily end-user driven, and most real estate investors are now focusing on the segments that hold the highest profit potential.
The writer is Director & Head – Research,
Anarock Property Consultants
