PropChill: Indian Real Estate Sector should Seize the E-Comme...

Read how the Real Estate sector in India needs to realign itself to the changing socio-economic environment which is getting digitised at a very fast pace. It needs to exploit the e-commerce boom to be able to survive.

Indian Real Estate Sector should Seize the E-Commerce Bull by Its Horns

E-Commerce has been affecting the lives of people and society in general for the past few years now. With the rapid growth in technology there has been a sudden upsurge in e-Commerce “Anything anytime anywhere” sounds perfect for the recent development in the sector. Brands like Amazon and Flipkart have started to broaden their horizon, trying to reach each and every product, from grocery to even property. The growth in the e-Commerce market has been due to many reasons-the ease of business, time saving, requires no planning, 24x7 service; you can get instant comparisons between various options, etc.

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The e-commerce industry has grown from $325 billion to $780 billion in the last 5 years in the US and is predicted to grow to $1200 billion by 2018 (a growth of 35%). If we look at the Indian figures it has grown to $520 billion by 2013 and is predicted to go upto $950 billion by 2018, this indicates a growth of 45% which is higher than the predicted growth in USA. It can be fairly concluded from the foregoing that India has caught up with US in no time, as far as the e-commerce industry is concerned, as compared to any other sector.

Except for the manufacturing sector e-commerce is directly or indirectly impacting almost all sectors and Real estate in India is no exception. The real estate sector in India can broadly be divided into the categories of residential, industrial, services, retail and institutional. As far as real estate in india is concerned the subcategory which has been impacted or is going to experience a negative impact is the retail sector and this can be ascertained through the percentage decrease of footfall in shopping malls in major metropolitans, over the last year and the coming years. There was a time when malls were the main attraction, when buying stuff used to be a family event, but since the introduction of e-Commerce shopping malls have just turned into a weekend getaway. Retail shopping has now tuned from the physical to digital space.

As the retail segment of the property in India will experience a negative growth rate, there is a requirement for the real estate sector to realign itself to the changing requirements. Unfortunately, realignments are not easy in real estate due to the long time periods associated with the planning and implementation cycles, add to it the red tape-ism  in India which further augments the miseries of this sector.

Real Estate Industry in India needs to Cease the E-Commerce Opportunity

 The e-commerce boom presents a humongous opportunity to the real estate sector in India. All major e-commerce brands are setting up business in India not only because of the untapped consumer base which is predicted to go upto 100 million by 2016, but also due the availability of cheap labour, skill sets in IT and predicted infrastructure.

If the e-commerce industry is looking to expand its consumer base in India by 65 %  (from 35 to 100 million by 2016), it entails that it has to not only target the ClassA and B cities but also Class C cities and semi-urban areas. In order to do so, it cannot afford to have a long ‘teeth to tail ratio’ as far as logistics are concerned. As an example, if let’s say a e-commerce company is looking at targeting Bhiwadi, it cannot be doing so by having an office and warehouse in Gurgaon, it will need to setup an establishment next to the city. The table below shows the planned growth of warehouse space in India and visibly substantiates the above point.

This presents unparalleled prospects for the real estate sector in India, the sector not only needs to realign its business within the segments i.e. from retail to office space and warehouse requirements, but also needs to shift focus from Class A cities to Class B and C cites. The business models also need to be given a rethought by the real estate sector in India, it cannot afford to follow a 40% and above return model, as has been the practise with Class A cities and needs to drastically tone in it down.

The real estate sector in India would need to understand the changing dynamics of business and realign itself with the growing digital space; it needs to be a step ahead in order to be able to deliver on quantum as well as quality. Indian Real Estate sector needs to learn from china- For example, if it is forecast that the e-commerce footprint will expand to 100 class C cities in India in the next 2 to 3 years, the real estate sector should have identified and acquired land packets in the cities which have or are planned to have, a better infrastructure in terms of connectivity, electricity/water, skill availability and ease of business.

The real estate sector in India needs to realise that if business is getting decentralised through e-commerce, the requirements of residential property are also going to transform in the coming years. The definition of urbanisation and the population shift towards bigger cities is going to undergo a transformation and therefore the housing requirement within smaller cities/towns is going to increase. Like other industries real estate in India will finally become an ‘end users  market’ from an ‘investors domain’; the quantum would increase, however the margins would decrease.

The e-commerce industry is not only presenting a huge opportunity but a challenge to the real estate sector in India. Only time will tell whether the real estate sector in India would be able to exploit this challenge, by realigning its business strategy alongwith time-bound and reasonable  delivery models or not.