Real Estate Moguls Reap Consolidation Windfall

THE ELITE GROUP of real estate promoters saw a ₹62,386 crore increase in their net worth to ₹2,59,650 crore in FY23. Mangal Prasad Lodha of Macrotech Developers, saw the highest jump of 73.9%, while DLF's chairman emeritus K.P. Singh continued to be the richest real estate baron with wealth of ₹91,461 crore, a 30% rise from 2022.

K.P. Singh helmed DLF for about five decades until his son Rajiv Singh took over as chairman in 2020. K.P. Singh was given charge of the company, founded by his father-in-law in 1946, and made it India's largest real estate developer with interests across commercial, residential and retail segments. In FY23, it posted a 107% rise in new sales bookings to ₹15,508 crore. Among the most notable projects he undertook is development of residential and commercial properties in Gurgaon. In the last 76 years, DLF has developed over 150 projects and an area of more than 340 million square feet. Its luxury residential project in Gurgaon, The Arbour, saw record 'pre-formal launch' sales of over ₹8,000 crore. Macrotech Developers, on the other hand, saw a 34% rise in pre-sales to ₹12,064 crore in FY23. The company expects pre-sales to grow 20% in FY24.

Implementation of Goods And Services Tax (GST) and Real Estate (Regulation and Development) Act (RERA) have helped the industry consolidate and grow, says Vikas Oberoi, CMD, Oberoi Realty. He foresees 12-15 developers dominating the market. "They will be either regional or multi-regional developers. I don't think pan-India is possible. We'll pick two-three geographies where we will dominate," says Oberoi, whose net worth rose 10.4% to ₹26,092.98 crore.

FY23 was good for real estate billionaires on the Fortune India Rich List with wealth of each promoter rising at least 10%. Wealth of Manoj Menda, co-founder and corporate chairman, RMZ Corp, and his brother Raj Menda, co-founder and corporate chairman, grew 14% to ₹36,992 crore. The privately-owned company leased over five million sq. ft., added 38 tenants and reported 100% occupancy across core assets at rentals 15% above market rates. "We're also taking our footprint nationwide. We began by breaking ground in three cities and have now established presence in six," Manoj Menda tells Fortune India.

Overall, commercial real estate segment is facing a lull, partly because many companies continue to work in hybrid mode, but residential segment is booming. Housing sales climbed 34% to 3,12,666 in 2022 across the top eight cities and demand has stayed strong in first half of 2023, says real estate consulting firm Knight Frank. "The industry continues to consolidate with residential developments steadily shifting into the hands of stronger developers who have been able to weather the economic storm created by the pandemic," it says in a report.

Prestige Group CMD Irfan Razack, who saw a 21% increase in wealth to ₹14,813.66 crore, says technology and government initiatives contributed to the sector's resilience during Covid-19 and after. "Developers shifted focus to virtual tours and digital sales. Government initiatives such as lowering of interest rates, reduction in stamp duties and incentives for affordable housing bolstered demand," says Razack.

Minting Billionaires

Anuj Puri, chairman of property consultant firm Anarock, says real estate is a business of resources, timing, market knowledge, patience and expertise. "Grade A developers have been garnering market share after RERA was implemented and Covid-19 reset the real estate equation. Their success will beget more success in the future," he says.

"Favourable economic trends, including urbanisation, population growth and rising incomes, have increased housing demand. Policies promoting affordable housing have also made property investment attractive. Additionally, easier access to housing loans has facilitated property ownership," says Razack. He says changing lifestyles have also spurred demand for smart homes and sustainable living spaces.

"Over the past decade, the sector has benefited from factors such as robust economic growth and lowest ever interest rates and created substantial wealth through asset development. With urbanisation on an ascent, demand for both residential and commercial spaces increased," says Menda. According to World Bank, India's urban population increased from 28% in 2002 to 36% in 2022. A report by real estate consulting firm Colliers says foreign capital flows in real estate tripled to $24 billion during 2017-2021 compared to the preceding five-year period.

Many top developers have benefitted from rapid GDP growth since economic reforms in 1991, growth of discretionary incomes and urbanisation. Take K Raheja Corp., the company behind Mindspace Business Parks REIT (market valuation of ₹18,007 crore), Shoppers Stop and Chalet Hotels (market valuation of ₹10,714.60 crore). It laid the foundation of the country's first department store, Shoppers Stop, in 1991. The chain had grown to 98 stores and 10 standalone beauty stores at the end of FY23. Chairman Chandru Raheja saw 33.6% rise in net worth to ₹24,560 crore. Oberoi Realty has developed over 43 projects in Mumbai totalling about 9.34 million sq. feet over the last four decades. The company, known for hi-end residential properties, has 32.80 million sq. feet under development. Its revenue jumped 56% to ₹4,293.2 crore in FY23.

The Future

Menda of RMZ says there are challenges in commercial real estate but the company sees them as an opportunity for innovation. The Bengaluru-headquartered firm plans to develop 350 million sq. feet by 2032 and diversify into industrial/logistics, hospitality and data centres, says Menda.

Oberoi says the industry is still in a nascent stage and developers have to keep pace with people’s aspirations and build better, faster and more cost effectively. He says shortage of labour may become a challenge in the future.

Experts see a huge opportunity for commercial real estate in smaller cities. "Commercial growth is going to come from Tier-II/III cities and move up," says Avikshit Moral, partner at Indus Law. Mumbai-headquartered retail-led mix-use developer Phoenix Mills, for example, has assets in Raipur, Agra, Luckow, Pune and Bareilly.

Meanwhile, residential segment continues to do well in 2023. According to ANAROCK Research, the first half of 2023 saw sale of 2.29 lakh units in top seven cities, more than half the total in 2022, despite rise in interest rates and housing prices. Puri expects similar growth in second half of the year. "Many factors point towards growth in residential segment in second half. Firstly, with inflation under control, Reserve Bank of India may not increase repo rates further. Secondly, there has been robust land acquisition across top seven cities, indicating strong vibrancy in the market. Many Tier-I developers have a strong pipeline of new launches in the coming quarters," he says.

That bodes well for real estate barons.