Demonetisation impact: Consolidation in realty sector to gain momentum

By 2021, larger players will consolidate further, number of smaller ones will reduce: JLL India

The real estate sector is likely to witness further consolidation as property sales and demand have been affected after demonetisation, according to realty consultant JLL India.

By 2021, the consultant expects that larger players would consolidate their positions even further while the number of smaller players would reduce considerably.

"The government's demonetisation move is bound to lead to further consolidation in the overcrowded Indian real estate industry," JLL India Managing Director - Capital Markets Shobhit Agarwal said in a report.

The demonetisation move has started affecting demand for developers who preferred unaccounted money, he said.

"Debt-laden developers, who have been gearing up for bigger cash crunch with the implementation of Real Estate (Regulation and Development) Bill or RERA, now have demonetisation to add to their woes," Agarwal said.

In the longer term, he said the demonetisation move and the RERA would indeed transform the overall image of the Indian real estate sector.

"In the interim, however, the overcrowded Indian real estate industry is set to see consolidation activity pick up pace," Agarwal said.

The three ways through which consolidation would be seen are: "Developers/landowners finding development/ marketing partners in large, reputable developers though the joint development or joint venture or development management model. "Smaller developers being absorbed by larger developers; Cash- starved developers monetising their land bank by selling it to cash-rich / opportunistic developers".

The consultant cited various examples of consolidation in recent time such as Noida-based Lotus Greens tying up with both Tata Housing and Godrej Properties as well as Ace group partnering Godrej Properties for township project in Greater Noida.

"While the consolidation is undeniable, the pace of it will depend on the quantum of equity infusion by the larger PE investors and the strategy adopted by foreign developers who may enter," JLL said.