Bain: real estate demand in India to grow by 9% per year

24 May 2016

Supply and demand in India’s residential property market have, in recent years, been diverging. Major cities in India have considerable overhang as prices remain high while demand is low. The coming years are projected to see more favourable conditions for developers, as economic growth picks up and cultural changes towards urbanisation and nuclear families pushes up demand for space.

In a report by Bain & Company, titled 'Residential real estate in India: A new paradigm for success’, the management consultants explore the dynamics of the Indian property market. The study looks at a range of factors affecting the market today, as well as projects changes in key dynamics for the coming five years.

Indian property supply and demand conditions

Real estate developers in India have, in recent years, been met with considerable market headwinds. As it stands, many of the country’s largest cities have seen housing supply far outstrip demand. Developers have been stubborn in not significantly reducing the price of units, instead entering a ‘wait and see’ holding pattern, while buyers are waiting for more favourable macro-economic conditions before making their often largest life purchase. 

As a result, absorption rates have stagnated, causing high levels of overhang across all major cities, particularly Gurgaon and Mumbai. The country's largest cities have seen considerable overhang increases over the past two years to average more than 30 months – with one city reaching close to 60 months.

Economic growth India

One of the macro-economic factors affecting the sector is the recent dip in the Indian economy. GDP growth rates dropped off from around 10% at the start of 2011 to between 5% and 8%. Industrial production rates too saw slowdowns since 2012, while the market capitalisation of listed companies has remained relatively flat. There is some good news regarding the longer term projection of India’s major economic indicators, with GDP growth and industrial production growth edging up again in the mid-term.

Indian residential real estate market

The current glut in demand is expected to see considerable change in the coming years as more and more Indian families seek out urban centres, and family dynamics change toward a more nuclear family type – requiring more space per person. The retail industry is also continuing to boom as the middle class grows.

In 2015, the real estate demand in India amounted to 880 million square meters, with the largest proportion of this (85%) going to retail. By 2020, this is projected to grow to 1.35 billion square meters, although the mix of demand will change slightly. Residential real estate will continue to see strong growth at around 9% CAGR, commercial will see 7% to 8% growth rates, while retail will see the fastest paced growth at 25%.

Economic indicators in India

According to the Bain analysis, of the near-term development within the real estate market, a number of factors are likely to see overhang time come down, as the supply and demand pictures converge.

One such factor is that the Reserve Bank of India (RBI) is seeking to initiate a virtuous cycle of consumption and growth, interest rates have been falling while inflation has stabilised. Consumer confidence has also seen some gain since a considerable dip at the end of 2013. As consumers become more confident, they may decide to step into the housing market.

Further boosts to the sector are contained in the Real Estate (Regulation and Development) Bill, which is set to improve the transparency, customer-centricity and process adherence of developers – reducing costs for consumers while reducing burdens for developers. "There are the signs of light at the end of the tunnel," says Gopal Sarma, the head of Bain India's Real Estate and Infrastructure Practice and lead author of the report. "While quoted property prices have yet to correct for supply overhang, both upfront and discreet discounts have increased, and so have innovative pricing schemes such as possession-linked payment plans and subvention schemes."


Ensuring data quality imperative for smart asset management

25 March 2019

By implementing innovative Asset Performance Management systems, utilities firms can maximise their utilisation of assets and minimise maintenance costs across their portfolio. However, according to Louis Morgan of Smart Grid Forums, without securing quality management systems for the data which smart grids rely upon, companies risk missing out on the benefits of asset performance grids.

Smart asset management presents a major opportunity to professionals across the business spectrum. In this context, a new event hosted in London is looking to help smart-grid asset management professionals meet the needs of a changing energy industry with digital asset management. The first annual Grid Asset Management event is due to take place between the 14-16th of May 2019 at the Millennium Hotel in Knightsbridge, London.

The conference will bring together leaders and experts from across Europe, in order to benchmark their digitalisation roadmaps. In a piece posted on the Smart Grid Forums website ahead of the event, Louis Morgan, a Conference Producer at Smart Grid Forums, has outlined the importance of investing in innovative asset performance technology for utilities firms, which can help ensure long-term stability for assets management in the utility sector in the face of increased complexity  .

Ensuring data quality imperative for smart asset management

Traditionally, the decision to invest in a given asset was made on the basis of an expert’s judgement of the risks posed by its failure, having typically been assessed via a risk matrix or a similar qualitative method. After that, a decision would be taken as to whether it should be replaced. However, according to Morgan, as the pace of change and complexity increases, these methods can no longer provide the required level of certainty. Uncertainty about changes to consumption patterns and load profiles brought on by the energy transition produces a vast number of possible scenarios that investment planners must consider.

As a result, Morgan explained, “utilities are seeking to support their investment decisions with quantitative risk management methods, centralising expertise from across their operations into a consistent, numerical framework that accurately captures the risk posed by all kinds of asset failure to all stakeholders.”

Companies are doing this by turning to ‘smart grid’ utility management, or systems which work to invest in the maintenance and replacement of millions of assets spread across thousands of kilometres of network. However, this is by no means a silver bullet, and in the age of the smart grid, planning ahead is more complex than ever. To ensure the long-term stability of their grids, then, utilities must deploy standardised investment decision-making practises supported by advanced modelling capabilities.

Morgan elaborated that the best way of facing this problem is through the combination of condition, utilisation, reliability and demand data. In that case, risks can be quantified in financial terms and investment budgets can target the assets posing the highest total risk, thus deferring investment in lower risk assets and optimizing the long-term budget. However, decisions informed by these risk models “will only be as good as the data and the assumptions that support them”, meaning utilities must therefore find ways to improve the volume, variety, veracity and velocity of the data they employ in their investment planning models.

“This means digitalizing asset operations, rolling out sensors and implementing systems that integrate data from a range of internal and external sources in real-time,” Morgan expanded. “Utilities must also scour their business for expertise about different assets to ensure that their risk management frameworks accurately capture the true risks posed by asset failures.”

This is in keeping with a trend which goes well beyond utilities. Business leaders of all shapes and sizes are currently having to address how they manage data quality – as poor information being input into any automated system can essentially negate the efficiencies such systems bring to the table. To this end, robust data governance is critical.

Concluding his article, Morgan said, “It is clear that there is a great deal of opportunity for utilities to obtain significant business benefits from improving their investment planning capabilities. More accurate risk management, supported by a reliable data-driven method, will deliver better financial outcomes from investment activity... But to achieve these capabilities, a lot of work must be put in to establish the systems, processes and frameworks which underlie them. Utilities must also make difficult choices about how they quantify risk and the appropriate range of data to feed into their investment planning models.”

This topic will be tackled in-depth at this year’s Grid Asset Management 2019, a conference, exhibition and networking forum aimed solely at smart grid asset management professionals.