The Tortoise vs the Hare: What India can learn from the Real Estate collapse in China
Introduction
A country’s real estate business is regarded as a litmus test for its economic and social health. Current growth rates in the Indian real estate market are very high, and the market is expected to hit $1 trillion by 2030. Stable economies, happy customers, a successful business plan, and user-friendly laws have converged together to fuel this unprecedented momentum.
Within such a dynamic realm, meaningful growth depends on articulating strategies that actually deliver. In such a context, it is very much pertinent for us to deep- dive into a more comparative dissection of our space viz-a-viz China. This becomes even more critical, after the recent default of some of its main players like Evergrande Group, Country Garden, amongst many others. Such an enlightening journey, reveals to us the complex and multifaceted story of China’s own experience within this space, marked as it is by impressive achievements and daunting challenges. As we dive in, our analysis hopefully will enable us to decode our way through China’s tangled real estate sector and gain key lessons that will help us to truly establish a proactive culture of sustainable growth and financial governance.
Consider the following scenario: “you own several homes, but none of them have actual people living there, despite the fact that they have been sold.”
Wouldn’t it be a nightmare for the real estate market? Well, that is exactly what happened in China. And I believe that since India has now surpassed China in population count, it is only fair to learn from their mistakes and practices and ensure that there is no repeat of the same.
In this context, it is also important to understand that growth in the space, must be pivoted around the overall percepts of sustainability, transparency, accountability and quality. With regards to that, I am happy to express, that policymakers have already taken certain pragmatic actions towards creating a coherent and responsive regulatory framework, for the entire space, through laws like RERA, that seek to curb down on any undue irregularities, from land acquisition to building plans. But having said that, a more in-depth analysis of what’s happening in our northern neighbor, would help us to identify key symptoms that we can smartly avoid.
Lessons from China:
As India stands at the cusp of a truly transformative growth paradigm, as far as real estate is concerned, it is imperative for us to imbibe in some key learnings from the happenings in China. In this regard, it is very important to understand at the very outset, that the political economics, underpinning what’s actually transpiring in the middle kingdom, is very different as compared to India. Still there are key commonalities that we can all certainly ascribe to.
- Balancing Supply and Demand:
An oversupply of unsold homes, particularly in smaller towns, is limiting China’s real estate market. The lesson, particularly relevant in regions of varying demand, is clear: the path to sustainable real estate growth lies in achieving equilibrium between expansion and economic stability. It would be pertinent here to note that stakeholders have already realised this aspect and brought in new regulations like DGR, amongst others, that look at each individual project from a more holistic and sustainable perspective. In this regard, the mandate here is not just about achieving that perfect balance but seamlessly integrating relevant practices and methodologies like energy-efficient construction, water-conscious systems, and the use of environmentally responsible materials, amongst others. The role played by the recent amendment to the EPA Act that includes GHGs as air pollutants also can’t be ignored here, especially in terms of defining measurable benchmarks.
- Costly Expansion:
Both India and China have historically embraced expansion with an eye on immediate gains, disregarding long-term economic repercussions. This approach has led to significant job losses, and systemic overheating. India, however, has smartly opted for a course correction by instituting the Real Estate Regulatory Authority (RERA), which promotes fiscal discipline and pragmatic business practices. Also, in this context, it is pertinent to note the policy contribution made by the former RBI Governor Shri Y.V. Reddy with regards to ensuring that the Indian financial ecosystem never embraces a bubble mentality with respect to the real estate sector by framing guidelines that ban the disbursement of credit for raw land acquisition. This single move, on its own, has helped create an environment where overall land economics remains immune to the challenges of over-speculation.
Transparency and Accountability:
A casual overview of the Indian real estate landscape would tell us, that governance ranked very low, with regards to priorities and a lot of it has to do with a mindset, that is cautious and prefers to operate within a mode of self-deniability. Irrespective of their origin or circumstance, real estate stakeholders have often been reticent to acknowledge their failings. Whether due to financial stress, an inability to repay lenders, or customer frustrations over protracted project delays, denial has been a prevailing theme here. India’s sustainable growth journey necessitates a more open and accountable ecosystem where issues are acknowledged, discussed and addressed promptly. Embracing transparency and accountability for actions sets the stage for ethical, eco-conscious, and sustainable business landscape.
- Prioritizing Customer Satisfaction:
The Consumer Satisfaction Score (C-SAT) hasn’t been consistently embraced by the real estate markets of both China and India. A pivotal lesson from China’s experience is that, as property prices stabilize and the real estate sector matures, customer satisfaction emerges as a critical driver of business success. Understanding and measuring customer satisfaction therefore becomes imperative for the industry’s long-term health and growth, therefore it must be given the importance it deserves. After all, Sustainable and smart growth extends beyond environmental concerns to creating living spaces that actually create value for all.
- Increasing Formalization:
The disjointed nature of the real estate space in China and over-monopolization resulting in several ghost towns are tendencies that have been well noticed by India Inc. as a whole. Which is why, with regards to us, the real estate sector is increasingly adopting a pathway towards proactive formalization as strongly leveraged conglomerates like Reliance, L&T, DLF, JSW, M+M and Adani venture into this space. What makes these tendencies really worth cherishing is the fact that when a big player enters this space, like Tata, they do so on the back of a strong blueprint that takes cognizance of all the key variables, leading to growth that is transformative yet truly resilient and sustainable.
The Future of Indian Real Estate: Will the lessons pay off?
There is an unfathomable amount of untapped potential in the Indian real estate sector and its accelerated embrace of a sustainable and pragmatic way forward is contributing to the overall stabilization of the space, globally, besides realizing key gains in terms of mitigating climate change. The very fact that India’s market has not yet reached the tip-off point means, that it has the space needed for as many recalibrations as needed, an advantage that China probably no longer has.
In the end, the biggest thing to learn, from what’s truly happening in China is simply this; be fast but don’t crash mindlessly.
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