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Are the big builders and brand names easing out the small and mid-size developers?
I think both big brands and small and mid-size developers will co-exist. In many ways both serve different markets. The small builder is more local and serves a niche market. If small builders own land in the right areas they will definitely do well, as their projects will be in areas where there is a demand by the end users. In many cases small builders cater more to end-users than to investors.
Will small and mid-size developers find it difficult to survive in this credit crunch?
Yes, this may happen, especially, if the land-acquisition cost is high. Lot of small builders have been approaching big-size developers the liquidity has become tight and the cost of construction has increased by 30-35%. With the demand slackening, these small developers and their relatively tiny projects have to approach bigger players for survival. Having said that, all developers who are not heavily leveraged will survive. This offsets many risks and increases the ability of realty players to survive the slump.
Do you think, consolidation in the sector is the next wave of change or will it remain fragmented and scattered for now?
I don’t think any fundamental change will happen to the real estate sector due to this slow down per se. Though (in time) we see some movement towards a more regulated real estate sector - some changes (of course for the better) are required. These include uniform rates (based on carpet area), standardization of hidden/other charges, rating of developers, licensing/regulation of broking, et al.
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Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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