Genius Is In Knowing When To Stop

Covid pandemic created a need for larger space as people confined to their homes required extra space for home office. However, post-covid, people's attitude towards life changed and the desire to lead a comfortable life in a luxury condo came up on the priority list. With the thought of 'Kal ho na ho', people started stretching beyond their limits to buy large sized luxurious apartments and villas.

The developer community seized this opportunity and one after the other we saw luxury condominiums getting launched with sizes ranging between 2500 sq ft and 6500 sq ft and price tags starting from INR 4 crore and going up to INR 10 crore and more. Developers made the deals more attractive by offering lucrative payment plans- 30: 40:30, 25:25:25:25, 20:20:20:20:20, 10 :90 and 20:80

The volume sales that you saw were not from the end-users but from the Investor community. Our channel partners showed their marketing prowess with their presentations, luring Investors to book apartments by paying 20% or 30% assuring them that they would facilitate their exit before the next instalment, making 20- 30% or even more profit on their capital investment, with a return of 100% or more.

Massive money flew into the real estate and inventory got bought as soon as it was launched. This has been going on for the last 3 years and now when the second instalment is due, most of the investors are stuck as they are not finding buyers to participate in the next cycle of investment. There is already tiredness and stress in the market and the prices are stable for the last two quarters if not reduced.

Inventory of large sized homes with luxury specifications was always low since people would diversely into different asset classes and prioritize their earnings towards not just housing but other aspirations as well. As the things stand, the requirement for luxury is not only exhausted, even the inventory is in oversold territory. This will surely cause pain in the market for all investors, builders, financial institutions, channel partners etc.

Developers should go back to the drawing board and start addressing the need of the middle-class community who need space to live near their workplace, near to their children's schools, near retail hubs, hospitals, religious places, with established social infrastructure.

Developers, you surely are in it for making money but if you go overboard then sooner or later you will set defaults as is visible in the past. Every decade, we saw good branded regional developers defaulting, leaving distress and pain for all stakeholders. So, in order to avoid this situation, the must go for right size, right price homes.

With 3-5% commission on a 10-crore home amounting to 30-50 lakh, real estate marketing surely looks like a lucrative business. But look at its fallout. Since the brokerage payout is large, realtors start competing with each other in passing on a part of this payout to customers. In the process, they are left with a brokerage of 0.25% to 1%. Further, the Annual Operating Plan (AOI) of developers is like a carrot dangling before a horse's mouth. The horse keeps running madly, hoping to catch hold of the carrot. Developers have dangled this carrot in the form of 1-2% incentive on fulfilling a targeted number of sales in a specific time period. The large brokers then pass back the total regular commission to customers to meet the targeted numbers while the smaller brokers lose their business. This is a classic case of large fish eating the smaller one. Even the big fish doesn't get enough food to keep her stomach full. 

Channel partners must analyze this and create a common ground for business for all sizes of brokers. Genius is in knowing how you are being used to kill business of your fellow brokers, and put a stop to this 'pass back' practice.

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