The common narrative of most of the talk shows, media articles, and investor presentations suggests consolidation in the real estate market. The general perception is that demonetization and introduction of RERA and GST compliances have made real estate a business of deep pockets, with smaller developers having been or being acquired by large developers resulting in massive consolidation in the market. However data from Liases Foras shows a completely different story.
This piece analyses the consolidation theory from three angles.
- Is the real estate market witnessing a reduction in the number of developers?
- Is the contribution of revenue and sales skewed towards the top 50, 100, 200 developers?
- Are supply-side consolidation, joint ventures, and takeovers increasing the supply magnitude of large developers, and has this resulted in an increase in their revenue?
Methods
Since most of the above-mentioned interventions were introduced post-2015 (demonetisation in 2016, RERA and GST came into force in 2017), we decided to look at data trends from 2015 from the perspective of the above three questions.
Liases Foras has been tracking the real estate market across 60 cities in India, monitoring active projects’ performance in primary marketable supply. As of December 2020, there were 11,620 developers with 17,022 active projects. The definition of marketable supply is that the developers should have unsold inventory for those projects, and he is offering them for sale in the market. Thus this consists of only primary supply and does not include resales or proposed supply.
Data shows a steady increase in the number of developers from 7,876 developers in 2015, growing over 50% to 12,249 by 2019. The number of builders has been increasing every year, except during CY 2020, which has reduced numbers of developers with active supply largely on account of the Covid-19 impact. Instead of consolidation, the trend suggests that the real estate market has been broad basing all these years.
Total sales value increased, but share of top builders fell
The value of the stock sold also shows similar trends. The annual value of sales contributed by all the builders show an upward trend. In contrast, the percentage share of top builders witnessed a decrease, especially from CY 2018, which shows a broad-based market when smaller developers increase market share.
From 2015 to 2019, the sales value increased by 20%, with an exception in 2020 when the sales dropped by 31% due to the Covid-19 impact. The share of the top 50 builders oscillated between 27% to 24% from 2015 till 2019 and then dropped to 23% during Covid-19 in 2020. Similarly, as Table 1 shows, the top 1000 builders lost at least 4% of their market share since CY 2018. Here, the top 50, 100, or 200 developers means the aggregated revenue of the top 50, 100, or 200 developers out of the total numbers of developers in the respective years.
| Top Builders | CY 2015 | CY 2016 | CY 2017 | CY 2018 | CY 2019 | CY 2020 |
| Top 50 | 27% | 25% | 24% | 27% | 26% | 23% |
| Top 100 | 36% | 34% | 33% | 36% | 34% | 30% |
| Top 200 | 47% | 44% | 43% | 45% | 43% | 40% |
| Top 500 | 63% | 59% | 58% | 59% | 56% | 54% |
| Top 1000 | 76% | 72% | 70% | 70% | 67% | 66% |
The growth in numbers of smaller developers was maximum except during the pandemic
The total number of developers has shown a growth of 48% since 2015. As the figure below shows, smaller developers constitute approximately 80% of the total number of active developers in these cities. It is interesting to see that despite higher numbers, smaller developers grew 45% since 2015.
The increase in the number of the super-large and large developer during pandemic times suggests amalgamation and joint ventures. But this is the reflection of growth on the supply side that does not infer the consolidation of demand or market. The number of super-large and large developers has increased in CY 2020. The number of medium and small developers has decreased during CY 2020, while the total number of builders also decreased.
The question that then arises is when there are amalgamations, why is the number of developers not decreasing? The answer is that joint ventures or amalgamations are happening at the project level and not developer level. For example, a Mumbai-based developer, Nirmal Group, who had nine marketable projects, has given three of his projects for the development and sales to three different developers, namely, L& T Realty, Shapoorji Pallonji, and Godrej Properties. These projects have shifted from the books of Nirmal to these three developers’ books, while all four developers existed despite the amalgamation. The Nirmal group is still managing six of its projects. Most of the amalgamations are such.
Value of sales increased for small developers
When CY 2018 and CY 2019 are compared, the reduction in the value of sales within the super large developers and increase in the value of smaller developers’ value indicates that the dominance of super large developers in the market share is distributed to smaller developers. Table 2 below shows that the average business done by a super large builder has seen the maximum decline during Covid-19 times, although the decline of revenue of smaller developers was lowest. These categories are explained in Table 3.
| Magnitude | CY 2019 | CY 2020 | % Change |
| Super Large Developer | 241.7 | 147.5 | -39% |
| Large Developer | 50.4 | 32.1 | -36% |
| Medium Developer | 27.7 | 19.4 | -30% |
| Small Developer | 6.7 | 5.4 | -19% |
| All Builders | 20.3 | 14.8 | -27% |
RERA has acted as an enabler and helped the market to become broad-based. It has enabled smaller performing developers to access credit facilities from the financial institution. Our experience working with lenders also suggests similar trends. The incentives brought to boost affordable housing under PMAY have also helped smaller developers. While large developers launched mega townships, mostly far away in the peripheral locations, smaller developers offered affordable housing in much interactive and end-usable locations. Their pricing, product mix, and location cater to local needs more efficiently.
| Magnitude | Total supply till date |
| Super Large Developer | More than 12 Lakhs Sq.Ft. |
| Large Developer | 6 Lakhs to 12 Lakhs Sq.Ft. |
| Medium Developer | 2.4 Lakhs to 6 Lakhs Sq.Ft. |
| Small Developer | Less than 2.4 Lakhs Sq.Ft. |
Conclusion
Housing production in tier 2 and tier 3 cities are growing much faster than in tier 1 cities. As the figure below shows, smaller cities' contribution to the Indian real estate landscape has been steadily increasing over the year. Sales in Tier 1 cities grew 22% between 2015 to 2019; during the same period, sales in Tier 2 cities grew 73%, from 59,390 in 2015 to 76,466 units in 2020. While Covid-19 has impacted the demand for tier 1 cities, it has benefited the smaller towns. Work from home/hometown has triggered the phenomenon of spatial diffusion of jobs. The high cost of living, densities, and experience of remote working abilities coupled with cost benefits suggest that the jobs will move to places where people live.
Tier 2 cities are slated to grow faster with the government's boost for the manufacturing sector. The Finance Minister in the 2021 Budget committed an infusion of Rs 1.97 lakh crore for the manufacturing industry. With land and labour costs being cheaper in tier 2 cities, manufacturing units are more likely to operate from these cities thus driving their economic growth. This in turn will further boost housing production and credit growth to the broader region of the Indian economy.
Rather than consolidation, the landscape of housing is expanding and will continue growing. Smaller developers of tier 2 and tier 3 cities will play a significant role in broadening housing and housing finance in India.