Thread by @jeevanpatwa

#RealEstate – story of structural reforms. Brand, Balance sheet, Execution and access to low cost funds will drive the value

Last 8-10 years, real estate sector faced multiple challenges with huge inventory build-up, demand slow down, liquidity crunch, drying source of funds..

Sector has given very lackluster performance for these years, but dynamics are now changing with reforms done by the government like GST and RERA. Demonetisation was actually negative for the sector in the short run but for long term, it proved to be a boon.

These structural reforms cleanup the sector with 70% competition gone, market share shifted from unorganized to organized players.

Brand, Balance sheet, Execution and access to low cost funds will drive the value in the sector henceforth.

Customer preference has shifted from

owning under construction flats to near completion or ready possession flats. This shift caused small players without strong balance sheet to go out of market. Demonetisation and GST brought more transparency in the sector. RERA ensured builder complete the project on time

which means focus turned on execution more than just launching the project. That means only the developers with strong balance sheet can launch more projects.

Since last 8 qtrs, number of launches is less than sales. This resulted in dip in unsold inventory and is currently

trading at 2 year low. Secondly interest rates are lowest ever since 2000 which will further boost the demand.

Valuation will now start shifting from asset based (P/B) to earnings based (P/E) as more and more developers signing DM and JDA and starts monetizing land bank…