Award winning Hollywood movie, 'Silence of the Lambs', is fresh in my mind and the mute suffering of Judie Foster’s character, made me adopt the name of the movie as part of title of my blog.
‘If you can't be anything, you can be a developer’, was the common refrain in the pre-IT revolution era. And it wasn't entirely incorrect. The economic liberalization which began in 1991 (coincidentally, the year in which Silence Of the Lamb was released), introduced a different breed of developers to the industry. The entry of dynamic individuals with aggressive plans to change the skyline in an unregulated atmosphere, was the turning point for the industry. The traditional approach gave way for modern methods of doing business. Easy access to the banking sector, enhanced development opportunities, entry of professionals etc., gave wings to the dreams of these dream merchants. Needless to say, the business flourished and became a major contributor to the economy. No wonder, real estate industry continues to single handedly support more than 275 ancillary industries. It also happens to be the second largest employment generator in the country.
Well, as they say, ‘every day is not a Sunday’. We all know that real estate business is cyclical. However, the present situation has gone beyond the cyclical nature of the industry, inflicting suffering and pain on the developers, most of which was due to circumstances beyond the reach of developers. Industry has been silently suffering, like a sacrificial lamb.
Extortionate Fees:
As the construction activities picked up, the authorities found methods to impose approval windows with varieties of levies, charges, fees and penalties, using every possible excuse at every stage of construction. More often than not, this became the deciding factor for the success or failure of the project. Worst, this aspect is so complex that it is beyond the understanding of common man. The developer has no voice and no choice in this matter at all.
Costs:
Real Estate is essentially an assembling unit than a production factory. It is created by assembling hundreds of varieties of raw materials, including land. The developer has neither control on pricing nor can influence the supply of raw materials. The skyrocketing costs of raw materials coupled with elastic supply has thrown the project calculations out of the window, forcing the developer to re-draw the strategies mid-way through the project. The unavoidable subsequent tweaking and rationalisation leaves bad taste in every stakeholder's mouth. Damned if you do. Doomed if you don't.
Legal Hassles:
As the industry went into overdrive, so did the legal obligations and complications. A fair amount of developer's time is spent on legal matters adding costs, delays and uncertainties in projects. It has become part and parcel of this complex business. Avoidable? Na!
Disruptive Incidents:
What were intended to be path breaking measures, turned out to be back breaking accidents for the real estate industry. Demonetization, GST and, to some extent, RERA have put the real estate industry on ventilator. The ripple effect of the chaos and disruptions that followed, have put the industry on the edge.
Demand:
All the above, combined, added to the cost of production. Cost of funds and non availability of funds was a 'Double Whammy'. With no one willing to share the burden of these steep hikes in costs, the developer was left with no option but to add a portion of these costs to the selling price. Market forces promptly came into play, causing a slump in demand. The developer felt like Abhimanyu of Mahabharat. He knew to enter Chakravyuh but didn't know to come out.
Supply:
As the new players, big in size and deep in pockets entered the market with bigger projects, the supply outstripped the demand. As the sales dried up, developers continued to borrow at high rates to keep the construction going. Supply continued unabated while demand dragged it's feet leaving the developer saddled with inventory that will barely cover his debts and obligations, leave alone profits. Even as the industry was about to come to terms, a death blow struck the industry, in the form of COVID, resulting in lockdown.
Candid (COVID) Reflection:
The lockdown has brought the whole country to standstill. But for real estate industry which has been silently suffering from apathy and lack of empathy, lockdown has come as not just a 'Double Whammy' but as a bolt from the blue. An industry which is directly responsible for the survival of 275 ancillary industries, an industry which is second largest employment generator in the country, an industry that contributes almost 15% to GDP, an industry that caters to one of the most basic needs of human beings, certainly needs sympathetic view and support from every stakeholder to help it come out of present crisis.
Having said that, one needs to bear this in mind. "Cure Cannot Be Worse Than The Disease."
A very good article. Most apt description of the current state of real estate business and what led to it’s down fall