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Real Estate: Demand and Supply Mismatch Solutions and the Way Forward

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Real Estate: Demand and Supply Mismatch Solutions and the Way Forward
Anoj Tevatia - 18 April 2019

The commotion surrounding the real estate recession, that has afflicted India for roughly a decade now can be elucidated through the simple demand and supply model of economics. Any market condition is assessed by demand—it governs the supply or any business environment for that matter.

Today’s real estate scenario perceives the housing segment as a high-profit commodity, and considering the unprecedented demographic shifts across various cities, the corresponding urban demand for housing has risen manifold. It is presumed that this situation has fuelled the housing crisis, with the phrase ‘real estate recession’ now being peppered casually in daily parlance, and across various media platforms. Interestingly, there is a significant amount of unoccupied, unsold inventory. This discrepancy is not hard to decipher.

A fair share of the population resides in rental accommodations lacking basic facilities. If we analyse the pyramid of demand in terms of apartment prices, the price range of Rs. 20 lakhs and below attracts a huge volume of demand. Scaling this pyramid, one finds that the population which can afford housing in the bracket of Rs. 20-30 lakh numbers in the millions. This population begins to see a steady decline after crossing the Rs. 50 lakh plus threshold. As one reaches the apex, one sees that only a tiny proportion of homeowners can afford homes exceeding Rs. 5 crore and above in price.

It is not hard to reckon that demand is prevalent at the lower levels of this socio-economic pyramid, that is, at lower sales prices, indicating that supply needs to be commensurate with the type of demand.

Supply gains maximum momentum when it targets the middle volumes, the Rs. 75 lakh-1.5cr bracket. This phenomenon is on the rise due to two primary factors:

1. Increasing aspirational value of mid-segment group buyer with high purchasing power and lack of product knowledge.

2. Lack of value-engineering in the construction with main focus lying on quick construction for quick profits.

These factors play out conspicuously at the top and bottom of the pyramid. High-income groups are involved in the purchase of premium, boutique homes, plush apartments, penthouses, and luxury villas, and tend to be pedantic about the architectural quality, standards of construction and durability of their homes. There are a number of construction firms that have established a foothold in this realm, nevertheless, this is a relatively niche segment.

On the other hand, for homes priced below Rs. 35 lakh, the dynamics change completely, with value engineering and ingenuity discouraging the construction of affordable homes.

At this point it is crucial to understand the dynamics of cost and quality balance and getting the maximum efficiency out of design, materials, procurement, and construction management.

All in all, the solution lies in the hands of efficient professionals and organizations, who possess the requisite skill, training, and most importantly the will to lead the way. Experience is key, and it is challenging to work with this housing segment, but the volume of demand that nation struggles to fulfil lies here. This pressing condition defines the current residential market in most urban areas of India, including Gurugram, Noida, Pune, Mumbai, Bengaluru, and Hyderabad.

Real estate draws people from all walks of life, such as industrialists, landowners, brokers and exporters, and businessmen as this sector is one of the most globally recognised sectors with robust demand as our economy is growing, attractive opportunities and policy support by the government of India (ref. ‘Housing for all by 2022’ and RERA act 2016, making the sector more transparent)

Due to inadequate experience of the market demand the process of selling essentially starts with just the land acquisition followed by building of houses that lack value engineering, design or any aesthetic appeal. The property is then sold, luring residents through brochures, walkthroughs, and other schemes. Because of which the supply in the mid-segment becomes surplus, and essentially redundant despite the glaring, incessant demand from the lower segment. This mismatch is what we know of today as real estate recession — the perpetual imbalance between demand and supply.

This unused inventory continues to await occupants, whereas they subsist on limited means in rental accomodations. To bridge this gap, affordable housing needs widespread popularity and acceptance. For the sector, affordable housing should become the selling point. As much as it is a business deal for us, for homeowners, the prospect of buying a home, inhabiting and owning it is an accomplishment that penetrates through every stratum of the society. This dream is worthy of greater respect.

Parameters of quality, efficiency, engineering, and cost-cutting warrant greater attention. In a nutshell, thoughtful design, informed decision-making, strategizing and a professionally managed venture are what is expected of stakeholders. If we genuinely learn to master ourselves, collaboration with several industrial houses can lead to optimal research and development. The future of Indian real estate housing will herald the age of a new narrative, based on sensitivity and socio-economic equity.

The author is the Founder Partner, Design Forum International

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