India real estate JFM 2013 progress report. Compiled by the stupid people at Pillars Consultancy!

We tell you what we saw in JFM 2013. 

The first three months of the calendar year 2013 has just gone by. We worked in various cities of India on different assignments and this is what we have to report about the India real estate scene.

Residential: The customer sentiment towards new purchases and investments is still very low. The small positive push that the budget brought in is not helping much. One major reason for that is the fact that there is not much construction happening in the INR 20 to 40 lac homes category. That segment, where the demand is robust remains overlooked. There could be that critical factor of increasing input costs for the developer, making this segment nonviable. 

We reckon this trend will continue for a while. Homes in the price range of INR 25 to 50 lacs will continue to sell at a reasonably fast pace. Luxury homes in the upper echelons of the price range will move very slowly, if at all. Prices are stable though and only builders whose cash flows have been pushed to the wall are resorting to lower priced investment deals with known investors.

We also foresee a lot of new project launches in the budget category. Upper end residential projects that have been mindlessly planned and are under construction right now face chances of delay. Very high chances.


A large project we were keenly following as a pointer, suddenly announced a buy flat- get ac - win car scheme, which has shaken up our faith a little. The signs of revival if any, being plastered all over the wall is probably a superficial paint job. Delhi NCR brokers are also up s*** creek, but off late they have been handed over some paddles. Stock is starting to move. By June or July, we expect the residential scene to be slightly better. That's it.

Retail: Last month, we published a story that gives you an idea about where retailers are putting their money these days. We also spoke of the ghost demand for retail space in India. The scene has not changed much. Across tier 2 and tier 3 cities, established national retailers are struggling with their expansion plans for these reasons;

# Non availability of proper real estate. And we are not talking of the 12 malls that are announced in that city!
# Local systems and trends of real estate leasing, which are confusing and painful to resolve.
# Lack of financial understanding and hygiene of local franchisees
# Retailers not refreshing shop stocks as they should, resulting in poor sales and thus, poor returns for the real estate owner. Dissatisfaction at both ends are growing. Too bad.
# Complete lack of dependable demography and target audience data leading to bad decisions
# Business Development divisions of many retailers, being headed by people who do not understand real estate. Across real estate companies, new manpower is becoming a major cause for worry. There is something 'just not so right' about the youngsters.
# Complete mismatch between retailer and real estate landlord rent expectations. And a complete absence of an education mechanism to teach the ignorant Tier 3 city builder what is right and sustainable.
# Too many small, unplanned projects are making the entry of large format retailers impossible. The real estate just does not exist. And new land cannot be created. So its a Houston give me confirmation Roger situation.

What we think? We think that the retail leasing and expansion scenario is going to be grim. If a brand new store is opening somewhere, chances are, someplace else, another low performing store is being shut down. And for retail to be back on its booming expansion plan, retailers need to look within. The answers are there. But such solutions take time to come and take even more time to be perfected. In one word, don't expect miracles.

Stupid Example: LV opened a flagship store in a DLF Mall at 500 bucks a Square Feet rent per month. They launched with huge fanfare and recorded earth shattering per Sq ft sales. Please go back to sleep. We will rattle your cage when the economy really turns around. That is a promise. Please don't carry that report around the country citing how retail is expected to grow and turn your house into Fort Knox. Thanks.

F&B: Local food chains dominate this area in India. And they will continue to do so till eternity. KFC, the world's leading fried chicken seller will give you rice meals, chana burgers, potato krisper, yes, potato krisper, a darn veg zinger, corn on the cob and hold your breath, cold coffee! Maybe they will slowly make that shift to masala dosa and upma as well. That is the kind of customization you are looking at, if you want to survive the Indian food market. Starbucks, please note this. If you ever open a cafe in Ranchi, you will be serving kesar chai and masala chai. No two ways about it.

# The taxes, levies and duties vary from state to state for eateries and bars. Restaurant owners get rogered when they look at crazy tax hikes and new policies rolled out by the state governments. Such policy changes could be whimsical and absolutely baseless.
# The across states structures are so varied and tastes so different that a runaway success like the Vada Pav in Mumbai will have no takers in Kolkata. Things like that.
# Restaurant owners are also baffled when it comes to what rent should be paid? Projections these days are often not being met in terms of the guy paying at the table. Revenue sharing figures are absurd and there is a valley between what can be paid and what is expected as rent.

We do not see this picture changing anytime soon, no matter which fiscal policy or index is applied by the government. People like to eat what they like to eat. So please don't bank on an F&B chain to take up your premium real estate and pay you big bucks. They are clueless and struggling. You will also do the same, dear landlord.

Commercial/ Office: Let us face this head on. If you think your city (of course the newspaper this morning said that Infosys, Wipro and TCS are all scouting for space very close to where you live) is going to become the next Bangalore, you are bulls***ing yourself to the dark side of the moon.
You see, IT companies in India offer their products and services to corporations and industries in the developed nations. Those corporations and developed nations are going through hard financial times and Infosys would really not need 100 Acre campuses in every other city in India each year. Unless they were secretly building a massive land bank and planning to become real estate developers in the long run themselves.

You could see the number of emails from the job portals increasing and wonder, okay, so things are turning around now. In reality, most companies are tired of their under performing manpower and want a change. So fresh new hiring will happen. But it will not really change anything. Commercial space sales will happen, as people continue to believe in the investment potential of office spaces, especially the small sized units. Large office space transactions, purely based on expansion will be extremely slow. We do not expect this scene to change for another couple of years.

Sorry, there are no graphs and interviews. We saw some amazing graphs when Subhiksha, Lilliput and Sahara were making their presentations. And heck, they had some serious consultants running those numbers! We apologise if you got here, expecting to take away stuff to look cool in the boardroom, as you roll out the expansion plan for the new financial year. You would look and be way cooler, if you take time and listen to your franchisee, employee, consultant and mother. That would be the right thing to do!

We will keep you updated, as time goes. If you have something specific in mind, or would like us to help you plan and execute something as a team, feel free to write to Pillars Support.

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