Spoke to a Real estate broker today who has a fairly decent size op in Mumbai.
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Unbelievable demand in the residential real estate space.
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Grade A developers only. That’s where most people are looking to buy from. Marquee developer projects are getting sold out in few months.
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This time around a lot of the new demand is from salaried folks especially in IT or even otherwise. This was not the case before.
The low interest rates are the sweet spot nobody wants to miss. ( PS - These are floating rates, not fixed in case you’re planning).
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One to 2.5 crores is the sweet spot in the MMR region.
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Banks are refusing to fund Tier 2 builders. Nobody wants to work with them after the last cycle in which many defaulted and exited the system.
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Mumbai based/ focused developers to benefit in a big way in this upcycle as ~ 20% - 25% of India’s unsold inventory is in Mumbai.
The biggest cost in a RE project is land and not the construction cost.
Grade A developers who had acquired land especially in 2018 - 19 will benefit in a big way.
However there are 2 Big differences in this new cycle which makes things more Interesting.
The last two cycles in Real Estate were - 1994 - 1999 and 2004 - 2009
Both cycles had one Common Point -
Both started and rose sharply because of External Investments.
India allowed NRIs to invest in India RE ~ 1994 and a lot of PE money came into real estate post 2004.
What this sudden gush of money caused is a very sharp increase in supply and land prices which were not sustainable.
Things became so crazy that at the peak of the last cycle - Land prices went up 5 times in 2007 alone.
What Makes this cycle much more Stable is ;
A - RERA has killed the cycle of unethical builders taking money for one project, diverting it into other deals and not delivering either on time. This has led to a lot of consolidation and only Grade A Developers can do multiple projects and gain Market share.
B - This time around the capital coming is smart capital - Domestic Real estate funds, much more Internal accruals from Grade A Developers rather than debt.
Both these points - Limited number of developers and Smart capital ( Low debt levels) make the current cycle much more sustainable.
From a markers standpoint, this is definitely a cycle one shouldn’t miss.
PS: Please do due diligence!