One simple point - India does not have a demand problem. Ever. In anything. Our overflowing population means that we are always in need of more and more stuff - be it houses or food or cars or underwear!! So, people creating an investment thesis on aggregate demand on anything is missing the point.
I have made this mistake in the past. India is a hugely power deficient country. So, power discoms and power producers ought to do well always. Practically, never really happens. Same story in nearly all real asset or infra related businesses.
So, assuming that demand will always be there, let’s look at some of the critical supply factors for real estate:
- Cost of land and building materials
- FSR in large cities and towns
- Credit cost for home builders
Currently, credit is practically drained out of the system from small and mid-sized builders. The biggest source of credit to them where players like Indiabulls, DHFL and other such NBFCs who have now severely cut back and practically stopped lending. So, the next step is a massive consolidation in the industry, which seems to be already underway.
There is huge inventory pileup across all major cities which the builders are sitting on and unable to sell. Those would need to get sold first, probably even at a discount to prevailing market rates.
Supply of real estate in suburbs will likely go up as demand from semi-permanent WFH category starts looking for larger homes at a lower cost point.
In summary, the situation is going to be interesting and I personally feel that the real estate sector, though, may see some near term pain can actually be a very good performer over the next 10 years.
Note to self - The real estate theme can be played through the real estate players or through the ancillaries like Kajaria, Cera, HSIL, Somany, Asian Paints, Berger, Pidilite, Century and Greenply etc.