INTRODUCTION

RETAIL/REAL ESTATE SECTOR OVERVIEW:

The Indian real estate market is expected to touch USD 180 bn by the year 2020. In
India, Real Estate sector is the second largest employer after agriculture and is slated to
grow at 30 per cent over the next decade. The sector has been the major beneficiary of
the strong economic growth witnessed in India since the year 2000.There are many
allied industries which benefit from growth of the real estate sector. That is why this
sector has a huge multiplier effect on the economy. So as this sector grows, the
national income grows multifold. The Finance Minister has allocated Rs.4000Cr for low-
cost housing and Rs. 50000 Cr. for urban housing.
According to ICRA, the construction industry ranks 3 rd among the 14 major sectors
which has direct, indirect and induced effects in all the sectors of the economy.
This means that it not only generates employment in Real Estate sector but also
stimulates demand in other related sectors like cement, steel, brick, paint, consumer
durables, etc. Private equity (PE) funding has picked up in the last one year due to
attractive valuations. The Indian Government introducing newer policies which are
helpful to real estate and due to that this sector has gained sufficient growth in recent
times.
India has land area of 3.3 million sq. km, population of more than 1.2 billion and
average household size of 4.8 (data according to census 2011). This points to the huge
potential for investment in this sector. It is expected that real estate sector will incur
more NRI investments in the near future, as there is a 35% surge in the number of
enquiries with property dealers. In terms of most favored property investment
destination for NRIs, Bengaluru ranks 1st, followed by other cities- Ahmedabad, Pune,
Chennai and Goa.
Porter’s Five Forces REPORT THIS AD

1. Rivalry Among Existing Competitors

The intensity of rivalry among developers in residential development is relatively low.
The area where it is felt most is in the competition for development land. When it comes
to selling end units, developers typically try to avoid competing directly by
1)developing products in different markets/locations;
2) launching products at different time periods;
3) differentiating product types.
The key factor is that the residential property is sufficiently differentiable and not subject
to any sort of perishability or technological obsolescence such that developers have
much more flexibility with the timing of producing and selling their end product.

2. Threat of new entrants

Legal Authorization
No special legal authority is needed to enter the industry. Many non-property companies
find it easy to migrate into this industry when returns become attractive or simply out of
interest.
Technology
The technological expertise in this industry is not particularly high. Designs, names and
concepts can all be copied as these is less ability to protect these through patents or
copyright. Large value supply chains such as agents, consultants, property managers
and employees’ rivals can be hired or co-opted.
Capital 
Capital could be considering a barrier mostly for large-scale, specialized projects. The
ability to obtain banking financing also limit small players from scaling up their projects .

3. Threat of Substitutes Product

Currently in China, residential real estate is in high demand both for its utilization value
as accommodation and also for its investment value as a stable, inflation-proof store
of wealth. As accommodation, new private housing from any firm can be replaced by
1)competitive product from another developer;
2)existing private housing for sale or for rent:
3)social housing either for sale or rent.
REPORT THIS AD
Competition from other developers can be avoided by product differentiation such as
high quality and management services. The threat from social housing exists but not
significant. Usually those allowed to buy or rent social housing would only be able to
enter low end of the private housing market.
Given current state of low interest rates and capital controls in China, most individuals
have limited channels for savings and investment. Real estate has helped fill this void. If
investors were given more alternatives and other asset classes such as equities start to
perform better, investment demand for real estate would quite likely cool.

4. Bargaining Power of Suppliers

4 Key suppliers in the industry are land sellers (government or other developers),
construction contractors and building material & home furnishing manufacturers and
capital providers. Typical cost of sale is made up roughly 1/3 land, 1/3 construction and
1/3 financing costs. There is lower switching cost in changing suppliers for raw material
(cement, bricks, paint, etc.). There is negligible threat of forward integration by
suppliers. There are a large number of suppliers of raw materials for the real estate
sector. The bargaining power of suppliers is low in this case.

5. Bargaining Power of Buyers

Dependent on the stage in the industry cycle, regulations to protect consumer interests
and financial state of individual developers. Near the peak of property cycle, the
combination of investment and end user demand generally outstrip available supply,
giving developers pricing power and leads to outsized returns. he products (i.e., real
estate space) are standardized. Switching costs are very high. People look for
developers with good track record i.e., brand identity. The bargaining power of buyers
was low. But because of poor economic condition of 2013 and 2014, the property rates
were unaffordable to the people of the country. RBI has disallowed the 80:20 Ponzi
scheme being run by real estate developers. Also, the property rates were too high and
sellers were not ready to bring down the prices. So, the real estate sector became
cash crunched. This resulted in builders trying to woo buyers with discounts and offers.
The bargaining power of buyers which was low earlier, later on it increased and now
can be termed as moderate.