To all the real estate cynics out there, this is what I have to say.
You know precisely the point when discourse on any topic becomes lopsided. The “intellectuals” dominate the airwaves, even as they become increasingly unhinged from everyday life.
For a long time, this has been the case with the commentary regarding real estate, and recent calls forecasting further gloominess is at odds with what we are witnessing on the ground.
As it happens, there has been plenty to be concerned about, from the sluggish growth rates to the continued decline in prices (despite the measurement problem that now is glaring enough for all to see), to the pace of reforms and incentives and its impact on demand.
However, it would be churlish to not ask the obvious questions at this stage: given the avalanche of supply — Why is it that developers, both private sector and government sponsored, continue to launch projects at a dizzying pace?
More to the point, why is it that these developers keep returning to the market? Despite sinister and conspiratorial utterances, the fact that buyers are to be found is the only reason why this market continues to function … and function well. There seems to be an unpardonable assumption baked into the argument that these developments are somehow not thought through, or worse, will not come to fruition given past experience.
This is simply not the case, and the question of sources and interpretations naturally arise here. At the end of 2018, the supply pipeline was 186,000 units, which was roughly the same number at the end of 2007. Since then, an astonishing 310,000 units have been delivered; more crucially, the population has nearly doubled.
Prices remain higher all the while despite all this (by circa 30 per cent), and any amateur statistician would tell you that if anything, this suggests scope for the supply pipeline to increase, even though there maybe some debate as to what this pipeline should comprise.
This whole dialogue has come at a slightly inopportune time for you, as we see sentiments starting to come alive after a subdued couple of years. With IMF forecasts for a revival of economic growth, and a raft of policy initiatives underway, the overhang repeatedly referred to will dissipate far quicker than what the consensus has it to be.
These are early days, but recent launches have met with an enthusiastic response by investors, suggesting demand is not only present, but appears to be accelerating. In the housing market, supply clears through price and time, which is not the case in the standard competitive model, implying that liquidity characteristics are paramount (for which payment plans provide somewhat of a response).
There is no doubt that liquidity has come under pressure over the last market cycle. You can see that these liquidity constraints have not hindered project development.
For smaller developers, there has been consolidation, and all the while, market forces have conspired to offer greater choice and affordability to the populace. Developer margins may have contracted, but in so doing, have reverted to global norms, suggesting that it remains a worthwhile endeavour for capital allocation. And hence the number of projects.
The greater breadth of choice is the response to criticism that the market was top heavy. That was part of the original criticism, so it is puzzling that the new found balance in the market has not been something analysts have not chosen to highlight.
This asymmetric discourse, in the final sense, has been the source of the greatest annoyance. Iit need not be the case that we agree most of the time, but to disregard the purity of the research endeavour is unsettling.
Markets go through cycles of variable length; its stakeholders seem to have a better grasp of that dynamic than its observers, which is why the demand curve (with the aid of government incentives) continues to defy naysayers.
I can scarcely bear to read the drivel and bad faith that is now embedded in much of the analyst — I still choose to regard that term as a badge of honour — community. To be sceptical is a prerequisite for the discovery of truth in any field.
To peddle cynicism is entirely different, a selling of snake oil that demeans the narrative. It will always remain a sorrow for me that there is no real interest shown in such distinctions.
Sameer Lakhani is Managing Director of Global Capital Partners.
