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    Real Estate: Correct time to innovate

    Synopsis

    All we have to do is to amplify weak signals, see a pattern of opportunity & have the courage to pursue them.

    It is quite clear now that after a fairly long bull run, the Indian real estate sector has begun to show signs of slowing down to a more realistic equilibrium rate of growth. In fact, the present changes that Indian economy and real estate sector is going through can also been seen as the test of the resilience of the economy and our real estate sector.

    In fact, real estate sector is a vital driver of growth of our economy. It is the 2nd largest employer; it provides employment to the real masses and unskilled workers besides skilled workers, with a vast majority of them below poverty line. The sector supports multiple industries, ranging from steel, cement, paint, sanitary ware, light fixtures, glass, aluminum etc. The sector also contributes towards urban development by undertaking public private partnerships including slum rehabs and is a significant contributor to government revenue.

    The present scenario of the Indian real estate sector reminds me of the challenging times that the sector faced in the mid nineties. But when we compare both the scenarios, there is a fundamental difference. Much of the demand in the early 90s was created by speculative property investors expecting their assets to appreciate in value ��� an ���irrational exuberance��� over the short term, without there being a sufficiently wide and deep class of actual buyers of property.

    But this time around, the demand was driven by the booming economy. In the last five years, India has grown at a compound annual rate of 8.9%. The high rate of growth dramatically improved the income level of urban Indians and the middle class today has significantly greater buying power than a decade ago. The overall economic development in India has stimulated demand for more and better housing, increase in office space, development of modern retail formats, demand for more hotel rooms and the need for improved forms of entertainment.

    But unfortunately, few months ago the collapse of international financial giants due to subprime crisis & its subsequent impact on the world economy including India has. temporarily put brakes on the growth trajectory of the Indian real estate sector. The reason I say temporarily is because there is no denying the fact that if the economy has to maintain its growth momentum, the real estate sector can not be held back for long. Even the government seems to have realized this and has started giving it the much desired stimulus by lowering interest rates on housing loans and announcing whole lot of other measures to revive the demand for housing in the country. The country still has a housing shortage of 23 million units.

    Unitech treated every cyclical downturn in its over three decade history as an opportunity to increase its market share and emerge stronger. Key to managing the downturns lay in its ability to quickly adapt to the changing environment. This entailed launching new products suited to the market and having a strong direct sales focus.

    I personally see a new opportunity for Unitech and the sector in the current challenges also. All we have to do is to amplify weak signals, see a pattern of opportunity and have the courage to pursue them. These opportunities could be in the form of innovative formats, new geographies, innovative business strategies, customer centric approach and improved delivery mechanisms.

    Given the huge housing shortage in the country, there is an immense opportunity for developments in affordable and mass housing segment. Though demand for hi-end & luxury apartments has stagnated, but there is a huge demand supply gap in the affordable housing sector. The government's recent measures are also an indication to the sector that they should start focusing on affordable housing or take initiatives to make houses affordable for masses. With interest rates coming down on small loans and steel, cement prices going down it is now possible for developers like us to launch affordable housing projects. It will also guarantee assured sales and upfront cash flows in these challenging times of slowdown.

    We at Unitech also have put in place a new business strategy whereby going ahead the company is now going to be focusing on affordable housing sector. The huge land bank across cities, bought at historical prices further strengthens our position for introducing housing at affordable prices. Presently affordable housing constitutes around 20% in our total residential business, but in next few years this share is likely to go up to 70%.

    Whilst gloom seems to be the overriding signal coming out of the world markets, it is exactly such times which should prompt us to look at the new opportunities that are emerging and develop these themes with courage into a new world order. The present phase of consolidation which is being faced by India can in fact create new opportunities and which if identified would take the real estate sector to a higher next level. This was the overriding principle of our growth in the last two decades and we still continue to believe in the same philosophy. I am confident that this downturn too will result in a stronger Unitech.

    In conclusion, now is the time that stakeholders in Indian real estate sector should put their minds together in order to understand the opportunities that are emerging despite global challenges. If we are successful in doing so, I am sure that a few years from now, many of us would agree that this phase of change and introspection was useful in its own way, and was one which allowed us to put in place the prerequisites for ensuring sustained long term growth and maturity of the real estate sector in India.

    (The writer is Chairman, Unitech)
    The Economic Times

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