Yesterday, I happened to bump into a builder. He is small time builder, basically taking up redevelopment of old buildings. He has three projects which are under construction. He has various liabilities, the first and foremost being paying a monthly outgo of Rs.50-60,000 to his 20 to 30-odd ‘tenants’ who have vacated the old buildings. Then there is ongoing expense of construction at all the projects.

H said he was very happy in the month of October’16 as he had managed to sell 12 of his proposed new apartments; he said demand had come back after almost a year and he said he actually had a very happy Diwali. All payments, obviously all of which have a “black” component and a cheque, were to come by first week of November, which got delayed. And then 8th November happened. He said overnight he was devastated. People who had cash were chasing him to accept money, some even willing to pay 10-15% extra so that he accepts the old notes. He said, he just did not know what to do with the cash if he accepted and thus refused all.

Three years on, his plight has worsened. He has managed to deliver one project, the second is 70% ready and the third is waiting for various clearances from the authorities after which the plinths will start. Progress on the project and payment to the tenants happens whenever there is a sale. And that does not happen much. He says it is a bit better than last year but not where it should be.

This is the condition of one small time builder; can you imagine how many such builders would have just gone phutt in these two years?

Giving statistical muscle to this is data from real estate consultancy Anarock. It has put out a report saying that builders across India are sitting on unsold inventory of 6.65 lakh units across India but the unsold inventory is slowly but surely coming down. Not because people are buying, only because new inventory is not getting added. The report said that Unsold residential inventory overhang in top-7 cities is reduced to 30 months as on Q3 2019 against 37 months in the corresponding period of 2018. The IT capital Bengaluru has the lowest unsold inventory overhang at about 15 months, while NCR has the highest at 44 months as on Q3 2019. Unsold inventory overhang in Chennai is 31 months, MMR 34 months and Kolkata 38 months.

This has come down drastically – in Q3FY17, the unsold inventory overhang in NCR was at 59, it was at 58 months in Q3FY18 and is now at 44. There were 7.44 lakh units at the end of the third quarter of 2017, which reduced to 6.87 in Q3FY18 and now at 6.65 lakh – the gap between FY18 and FY19 did not go down much. Maximum unsold units are in Mumbai at 2.21 lakh units, followed by NCR at 1.78 lakh units and Pune at 92,560 units.

So the plight of the builders is better than what it was in 2017 but still they are not yet out of the woods. What is also happening is that small builders are all but a disappearing elk. And like the airlines an telecom sector, there is a massive consolidation happening and looks like at the end of this, only the bigwig builders like Godrej, Oberoi, Lodha, will exist and rule the markets, India Ratings has said that the market share of the top 10 listed developers rose from 11% in 2018 to 15% in first half of 2019. The total number of developers has fallen by 46% between 2012 and 2018 while number of firms seeking insolvency more than doubling over the last one year.

The question is we need to ponder is whether such consolidation is good for the sector? When the suppliers number goes down , they tend to dictate the terms, almost like a cartel. Thus let’s hope this is a correction and once the market bounces back by next fiscal, maybe we will see the return of the small builders too.

Oh, for those wondering whether demonetization cleared the “cash” component in realty, the answer is a BIG NO! People have new notes, that too in crores to once again make payment in black. So how can we say that demonetization has worked as the “black” component continues to remain? We just have to console ourselves that at least some people might have mended their ways if not the entire country.