India’s real estate sector is poised to occupy the Goldilocks’ zone in coming years, as supply and demand rise commensurately. Yet, the market is not performing as well as industry trends suggest due to a mismatch of buyers and sellers. We first turn our sights to India’s real estate outlook prior to discussing the problems faced by both market players.
India’s Real Estate Industry Outlook
Real estate is among the largest contributor to India’s GDP with a projected 16% CAGR from 2015 to 2028. The country’s low urbanization means its urban housing demand is underserved. Its mortgage to GDP ratio is 10%, well under the average 50-60% globally. This results in its mortgage disbursement to have large upside potential at a 19% CAGR by 2022. These figures translate to USD1.5 billion transaction fee and USD500 million mortgage facilitation fee opportunities. (See Figure 1)
What Drives the Future of India’s Housing Estate?
Residential real estate has many drivers. A noteworthy driver which triggered the overall growth is the Central Government’s initiative – Housing for All by 2022. To address the shortfall in housing supply, the Indian government now grants developers 100% tax immunity and join the global REIT markets to provide an opportunity for retail investors for easy entry and exit investment avenues to India’s real estate sector
Technology is a Key Driver
Topping the aforementioned factors in driving India’s residential real estate is technology. Technology is unequivocally the foremost driver as evidenced by the fivefold increase in capital raised in real estate tech start-ups from 2013-2018. The integration of technology has achieved many ends. Intelligent search platforms refine searches by adding filters to show changes in property prices, forecast price and rent fluctuations across varying time horizon, based on comparative analysis from inputted criteria.
Problems Faced by Buyers
Buyers face information asymmetry in the real estate market. At the rudimentary level, publicly available information like property price located in a new neighborhood often exhibit some level of inconsistency. For instance, newspapers may provide an ideal price range but with a large fluctuation due to volatility in market sentiments. They are required to regularly conduct searches from multiple sources to minimize imperfect information. This is time consuming. At the most sophisticated level, future information that have wide-ranging effects on the economic value and thus purchase decision, are seldom made available. These are restricted to law makers and bureaucrats, who established an insider information advantage.
Problems Faced by Sellers
A Closer Look at Company REALTY
A leader in India’s real estate sector is REALTY. They utilize property technology (“proptech”) through their mortgage marketplace, thereby addressing problems faced by both buyers and sellers, reducing demand and supply disequilibrium.
Notably, REALTY’s proprietary enterprise resource planning (“ERP”) tools aid in automating internal processes to create an integrated ecosystem. This may seem important for sellers at first glance, but it also affords buyers with a more seamless research experience. Another testament to REALTY’s successful business model is the scale they managed to achieve. With an extensive distribution reach that spans over 15 India and 10 International cities, take rates are bound to be above both domestic and global averages. While this may only be one metric, it is a good indicator of their profitability.
REALTY’s roadmap extends to FY2023. Moving forward, they plan to use scientific and systemized approaches to improve efficiencies, engage in large scale acquisition of brokers to boost aggregate demand, and control supply through upstream tech integration with developers and banks. The objective is to register a GTV of $5.4 billion and approximately 8-10% market share, representing a fivefold increase from current values.
To glean insights from a detailed deck, click here to learn more about Company REALTY.
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