Opinion And Analysis

How will India’s demonetisation affect its secondary property market?

By Sabine Brix 0 Comments NEWS, Opinion And Analysis
demonetisation

Ganesh Vasudevan says demonetisation has deeply affected India's property market.

Property portals may have to adjust the way they operate to cope with the effects that India’s demonetisation has had on the industry, says IndiaProperty.com CEO Ganesh Vasudevan.

For many in India, the Prime Minister’s announcement last November that the rupee 500 and 1000 notes were deemed invalid overnight sent panic across the country.

Ganesh Vasudevan – who is speaking at PPW’s forthcoming Bangkok conference - says the sole intent behind the country’s demonetisation was to address India’s black economy, which is largely cash-oriented. A move the government took to stamp out the  "financing of terrorism through the proceeds of fake Indian currency notes and use of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contraband into India".

Vasudevan says demonetisation will predominantly affect the secondary property market, which is dependent on high-cash transactions.

“The secondary market has gone into a tizzy because the cash in those transactions has been sucked out. There’s no incentive for anyone who is holding a property and wants to sell it for a significant cash component - a lot of agents are struggling to continue to do business and builders are continuing to postpone their marketing spend decisions,” he says.

“The primary metric drivers for an online portal like ours has had the brakes put on- on one hand, builders have postponed launches of projects and have put their current marketing spends on pause until the dust settles and on the other, buyers are waiting and watching hoping that prices will drop by another 25 to 30 per cent."

Long term effects

“Demonetisation in the long term is extremely helpful for the industry to be a lot more transparent, a lot more regulated and a lot more reliable,” Vasudevan says. “In India the biggest pain point for buyers is that it’s a very opaque industry, there are multiple stakeholders involved and there are no common framework of rules and regulations to regulate the industry.

“Last year the government approved the regulatory framework to be implemented in this current financial year – this framework will help with the demonetisation and it will benefit the industry in the long run, which will be the next two or three years.”

But what happens in the meantime?

Ganesh Vasudevan

Ganesh Vasudevan

Short term effects

In the lead-up to the regulations, the industry will experience hardships, Vasudevan says.

“The demonetisation will trigger consolidation amongst builders themselves, the not so strong ones. The-not-so-clean builders will either exit the business or sell their projects to larger builders . There are over 35000 developers in the top 15 markets in the country; most of them are small players and the ones with high financial leverage will be under pressure to quickly raise capital or sell out.

"There is a large impetus being given by the Government to promote affordable housing projects and this is a new opportunity area that will emerge as many builders are likely to focus on this segment. Intermediaries like agents and brokers will also be under pressure and the smaller-mom and pop operators are likely to exit the business given the regulatory requirements that will come into force this year.

How are portals coping with this change in the economic landscape?

Mergers

Well the short answer is, some of them aren’t. Vasudevan says a number of the top players have gone out of business while others have consolidated to stay in the game.

“We had almost eight players in the industry and now three of those are already out of business either by consolidation or because they’ve shut down,” Vasudevan notes.

What’s left over is a diminished but interesting competitive mix of players in the country’s online property brokerage market.

“Housing.com has merged with PropTiger and Commonfloor has merged with Quikr, while IndiaHomes has shut down and Makaan is out of business,” he explains. “It’s just Magic Bricks, India Property, PropTiger and 99 Acres that remain.

Full stack business models

Vasudevan says there’s now pressure on builders to maximise their margins. He says that a business model comprised of just advertising and lead generation isn’t enough to turn a profit anymore. He suggests that property portals who adopt a model that focuses on end to end customer service will win out in the long run.

“Having a full stack presence, which is managing the marketing and sales elements of the entire property purchase value chain, will become very important,” he explains.

“Builders are likely to push more for performance-based campaigns which means they’ll want to pay less for leads up-front but more for successful transactions,” he says.

“So the imperative would be to quickly see how to build full stack capabilities and to build additional revenue streams around the property portal’s touch point.

Allied products

For portals to continue to monetise, Vasudevan says a shift in thinking is imperative.

"Digital marketing and franschising developments will be the way for the future as well as the building of allied products and services around the property buying touchpoint,” he explains.

“An example is that offline and digitally enabled events are gaining more prominence. For example, builders are becoming more comfortable doing face to face interactions with prospective buyers at property trade fares.

"Financial products like home loans and home insurance along with interior décor are allied products which hold promise to scale around the home purchase decision stage for the buyer.

"Deep technology integration with principals is the key to scale these models,” Vasudevan concludes.

Register to hear Ganesh Vasudevan along with other industry experts speak at PPW's Bangkok Conference.

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