The changing face of real estate: Shouvik Sarkar, Agency 2017



With project launches sizeably diminishing on account of more stringent RERA guidelines (as startlingly high as 43%, as per a leading publication column corroborates against available data) – it’s a veritable developer face-off. And the following are a few observations across what’s really had my attention at the real estate holocaust that’s on with residual inventory across projects, developers, micro-markets and cities.

Grade A alone will dominate:

The MMR region, including Thane, Navi Mumbai and Raigad has an unsold inventory summary of approx. 0.86 lakh units; Delhi-NCR (Delhi, Gurgaon, Ghaziabad, Faridabad, Noida and Greater Noida) has 1.5 lac unsold units; Bangalore, about 70,000 units. Sure, launches have dropped sizeably, but we still see some – the inescapable, unavoidable exercise of dutifully absorbing funds from the market, which increasingly demonstrates willingness to pay top money for a Grade A developer and his product, not quite so for a lesser Grade B one.

Shouvik Sarkar, founder of Agency 2017
Shouvik Sarkar

What gives, in scenario like this? Grade B, B-, C would increasingly collaborate with the big ones (as evident through a few notable JVs) OR outsource sales and marketing efforts to the big marketing organisations in town at a reasonable proportion of net revenues OR, plain sink, but not before a colossal price drop. Question is what got them there? It’s the lard of inept planning and execution, gross under-collections year upon year and yet staying vested in a sector which apparently is presumed to generate ~11% of the country’s GDP by 2020. It’s the alarming outcome of the plethora of half-baked entries in a sector which gets a bad rap for exactly so – unfinished business.

MMR alone accounts for close to INR 85,000 cr. of residential, commercial, retail and warehousing sales year on year and it’s one endless Midas’ pot. But is it, really? Whatever happened to the (>FD + 2%) returns year on year that the 2011-2015 period apparently witnessed? Doubling, trebling one’s assets and flipping properties/assets – the banana republic that has now made ghost cities of Noida, in some cases, Gurgaon – without an iota of pricing control wielded by the developer. But unfortunately, the secondary sale market dictating developer fates. If any large truth has pervaded across the golden years (2012 – 2016) it is that product quality, delivery timelines and a robust Marketing and Sales system have defined market share, at least in Mumbai. One of the largest players in Mumbai today commands ~10% of market share year-on-year and it is the strength of product and a colossal distribution system that helps stack those numbers in place.

On an aside, a developer in the western suburbs, without a shred of data at his disposal, had the mammoth brainwave of asking for an estimate towards a sell-out. Without data. Nimbly navigating the discussion towards specifically that (data), I failed to avoid the one repeated query: “How soon could I sell out?” I wager he’ll be selling (or NOT) for the next 5 years over a 1-year delivery commitment horizon. Moral of the tirade: As a consumer, the clear and safe bet is to invest in a Grade A developer. As a developer, you better have the bare fundamentals of product, market sizing, distribution and cash flows in place.

Residential units getting smaller:

Read a recent article, with more than a modest degree of alarm on the diminishing sizes of houses – 1 RK at 196 sq. ft., close to Ghatkopar, Mumbai, at approximately Rs 35 lacs. I have seen Hongkong and its subhuman living conditions that characterise one of the fabled finance capitals of the world, but this is really no master-stroke, it’s servicing the abysmal inability of a hard-working couple to fund themselves a half-decent address at a location that doesn’t club interminable train/road journeys. Begs the question, what’ll happen to the demographics of a ghetto? The well-heeled rubbing their dainty retail-coiffured shoulders with the well-steeled nerves of a compact home owner, seeing eye to eye on the largesse and the inequity of this great city? Interesting! Last I knew a standard decent 2 bed at ~630-700 sq. ft. carpet upto Vikhroli/Kanjurmarg precincts in Mumbai made some iota of sense. Or for that matter, a 1 BHK, around 400 sq. ft. carpet. And quite frankly, the new DP promising additional FSI does nothing for new home aspirants – or the larger issue it aims to address. Redevelopment FSI up to 3.5, BKC and Dharavi up at 4. Land parcels, which, with any hope in Mumbai, will take half a decade to come to liveable standards. Wonder where this trend is moving – what with student housing, commercial supply and smaller residential units playing heavy on the supply side. To my mind, for as long as there is no clear answering out on ‘right-priced, right-sized’ units for a belly of the gentry (read ‘salaried professionals) these sub-200 sq ft carpet area matchboxes will have a market – not by popular choice but by circumstance. And that’s a sorry eventuality for a city like Mumbai.

The changing face of commercial real estate:

With bulk of the unsold residential units largely appealing to end-users, the other revenue augmentation modules appealing to investors seem to be now hinging on warehousing and modular/pre-rented commercial spaces in various sizes. Of these, WeWork has certainly gotten my ears perked up and with its $ 4 bn funding from the Japanese giant, SoftBank Group and $ 20 bn valuation. Adding 500,000 to 1,000,000 sq ft of new space every month, small wonder then that they have offices (bought out bare shell premises and interiors done in-house and THEN rented) already in BKC, Vikhroli and Goregaon. Charges are modular as per seating (private office, fixed desk, rotating desk – but one has to really look at the common spaces, the fit-outs, factor in the freebies and the fact that the place is bustling with entrepreneurs – and WeWork is certainly a model worth considering for businesses whose growth is dynamic and to an extent, needs nimble space solutions across short periods of time. Using machine learning, WeWork is defining optimal space usage, predicting times for which meeting rooms may be engaged, or the common spaces occupancy – thus deriving more efficient and optimal layouts. Using an app (?) Meetup, Wework connects people with similar interests, with over 120000 people already connected and attending networking events. Biggies such as Amazon, Facebook, Samsung, Microsoft, Airbnb and HSBC count as We Work’s clients. Separately, the co-working space is also getting inundated with the likes of Regus, 91 Springboard, Awfis and this to me, is a sensible add-on to the burgeoning world of aspiring enterpreneurs.

Certainly, a large detractor from outright commercial purchase, but as long as there are mature, long-term large players willing to stay vested in a location for a while, I believe sale versus the above model can happily co-exist.

Next up, will try and identify digital innovations in this space, plus how that’s really supplementing- rather than usurping the human element as one might think, on first glance.

[This is an authored article by Shouvik Sarkar. Shouvik Sarkar is the founder of Agency 2017. All views, opinions and expressions are personal and limited to the author. Mr. Sarkar can be reached on]