Sep 2021 , by , in Realty+ Connect

Amit Goenka, Managing Director & CEO at Nisus Finance (NiFCO) shares his opinion on the present shifts seen in the Indian real estate investments.

COVID-19 has pulled up the fortunes of the large corporate developers with the listed players witnessing an average 30%-50% rise in market capitalization over the past twelve months. Residential segment is considered to be a stable asset class and a preferred investment option especially in a volatile market scenario. FPIs continue to repose faith in this segment.

There is still some uncertainty in the commercial and retail segment which is driving investors to the demand rich residential segment including stressed assets. Alternate Investment Funds (AIFs) investments in distressed assets bring the expectation of high returns as distressed assets can be acquired at a discount without constraints of NPAs and extensive regulation applicable to traditional lenders.

The affordable housing comprising homes under Rs. 45 lakhs & 60 sqm & 90 sqm in metro and non-metro respectively has limited private investor takers due to the challenges of margins and the buyer’s inability in securing home loans. Private capital tends to back affordable housing defined by relative ticket sizes for each city for the MIG segment. Funds and NBFCs also partner in projects which have over 20% development margins and attract credible buyers with incomes ranging above Rs. 15 lacs.

Investors are focusing on portfolio deals with large developers across multiple cities and assets, showing a partnership approach fortunes of the real estate industry have seen buoyancy. The sale velocity, collections and margins for top players have increased substantially which cannot be said for the small and mid-developers.

Critical Issues Impacting Realty Sector 

  1. Capital flows from banks and NBFCs have come to a trickle and largely diverted to the branded developers. Alternate funds and private equity are also being reserved for the select few.
  2. End customers that form over 90% of the housing consumers are gravitating towards large branded developers or late-stage inventory, hence sales for the smaller players has become difficult.
  3. The input costs of most projects have jumped by nearly 8-12%, causing difficulties for the marginal players in garnering resources for accelerated completion and their profits getting squeezed.
  4. The second wave did not offer much relief from central or state bodies, creating financial, regulatory and legal challenges for many developers.
  5. Smaller players are forced to rapidly sell and exit even at deep discounts in favour of big boys, leaving little room for ambitious small scale developers.
  6. Retail, commercial and hospitality developers and operators continue to have a subdued environment which is denting nearly 15% of the vale of the RE sector pie.

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