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What to look for in a Real Estate Developer?
India's RE market is expected to grow from $180B in 2020 to $1T by 2030. Many Leaders will emerge π‘
Hit the 'retweet' & help us educate more investors
A thread π§΅π
India's RE market is expected to grow from $180B in 2020 to $1T by 2030. Many Leaders will emerge π‘
Hit the 'retweet' & help us educate more investors
A thread π§΅π
1/ Where are they present? Geographically diversified players will always get a premium.
Entering a new market in Real estate is equivalent to entering a new business:
- Managing a change in terrain realities
- Creating new teams to address local growth
Entering a new market in Real estate is equivalent to entering a new business:
- Managing a change in terrain realities
- Creating new teams to address local growth
2/
- Understanding consumer needs
- Creating municipal relationships from scratch
- Getting the 'blessings' from the local stakeholders
βThe greatest cities will emerge strongerβ ~ Bruce Flatt (Brookfield AMC)
The same is observed in Mumbai & Bangalore as the pandemic recedes.
- Understanding consumer needs
- Creating municipal relationships from scratch
- Getting the 'blessings' from the local stakeholders
βThe greatest cities will emerge strongerβ ~ Bruce Flatt (Brookfield AMC)
The same is observed in Mumbai & Bangalore as the pandemic recedes.
3/ Brand Value: Ears on the ground.
- Can they attract a premium in their respective markets & product lines?
- In the past, have they been delivering homes on time?
- Are people willing to buy their under-construction properties?
- Political affiliations of the promoters?
- Can they attract a premium in their respective markets & product lines?
- In the past, have they been delivering homes on time?
- Are people willing to buy their under-construction properties?
- Political affiliations of the promoters?
4/ Consolidation is a megatrend
In FY17: Listed Real Estate players & leading unlisted players had 17% of market share (by sales)
This has moved to 40% in FY21 & exp. to shoot up much faster after COVID.
The same % in China is at 75%
In FY17: Listed Real Estate players & leading unlisted players had 17% of market share (by sales)
This has moved to 40% in FY21 & exp. to shoot up much faster after COVID.
The same % in China is at 75%
5/
Debt to total assets for the larger players is 30% compared to 60% for the small & mid-sized developers.
Huge Cost of debt (15-16%), Lack of refinancing ability & No cash cows (Grade A Commercial RE)
is killing the small players.
Debt to total assets for the larger players is 30% compared to 60% for the small & mid-sized developers.
Huge Cost of debt (15-16%), Lack of refinancing ability & No cash cows (Grade A Commercial RE)
is killing the small players.
6/ Can they raise money?
Itβs a highly capital-intensive sector & much of the investments are front-ended.
The perception of bankers (interest rate) & Investors (valuations) towards a company reveals a lot.
A sharp focus on how the balance sheet evolves should be a focus area.
Itβs a highly capital-intensive sector & much of the investments are front-ended.
The perception of bankers (interest rate) & Investors (valuations) towards a company reveals a lot.
A sharp focus on how the balance sheet evolves should be a focus area.
7/ Portfolio under construction
How much of the portfolio is under construction
What part of is it residential & commercial?
What are the projected realizations?
How much of the portfolio is under construction
What part of is it residential & commercial?
What are the projected realizations?
8/
Diversified across markets?
% of the under-construction projects sold already? (check for unbilled rev)
Inventory levels? (Lower the better)
Finally, the cash flows that are projected to come into the business (given in the investor presentations of the companies)
Diversified across markets?
% of the under-construction projects sold already? (check for unbilled rev)
Inventory levels? (Lower the better)
Finally, the cash flows that are projected to come into the business (given in the investor presentations of the companies)
9/ Percentage of the revenue coming from the commercial RE
Given itβs a grade-A Commercial RE with minimal vacancies, it will provide a good "annuity income" & thus a hedge against the wilder (think cyclical) residential RE business.
Avoid Heavily leveraged companies.
Given itβs a grade-A Commercial RE with minimal vacancies, it will provide a good "annuity income" & thus a hedge against the wilder (think cyclical) residential RE business.
Avoid Heavily leveraged companies.
10/
Tip: Go with a basket approach (3+ companies) rather than a single company; as multiple externalities influence this business.
Additionally, this sector demands a high margin of safety due to its checkered history.
Other options to play the RE sector π
End of Thread.
Tip: Go with a basket approach (3+ companies) rather than a single company; as multiple externalities influence this business.
Additionally, this sector demands a high margin of safety due to its checkered history.
Other options to play the RE sector π
End of Thread.
If you have any questions related to the real estate sector, please post in the comments section.
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