The Curious Case of Indian Real Estate

The Paradox of Manpower Resources

"If we keep doing what we are doing, then we will keep getting what we are getting":

-David Thornburg, a noted American author 

Our recent primary study of real estate developers across India suggests that they, on average, intend to triple their development activity within a year. For sure, they see a clear demand for real property in their respective markets. More importantly, their intentions to triple their space production also means that they are confident to capture that share of the market.

This made us wonder about the dynamics of their manpower. In other words, we wanted to see how sensitive the size of their manpower is given a larger market they get to serve every passing year. Since we do not have any time-series data on the companies, we conducted a cross sectional analysis (i.e. we looked at our sample of companies at a given time rather than analyzing them over time). Our approach was simple: correlate the company's size with its manpower size as was reported in our study. The results are encouraging but not at par with the growth in demand! With each year of increase in the company age, the Indian real estate companies in our sample reported to have increased less than 85% of the man power.  Now, compare this manpower growth (<85%) with the companies' product growth (>300%) and you will get a picture of how critical the dearth of skill in Indian real estate is. Thus, although the opportunities triple, the manpower does not even double itself.

Variation of Company size with respect to Company Age | realism.IN Research

We argue that the dearth of skilled manpower is a far more serious problem than what it looks like. It points out a dire need for specialized real estate expertise the absence of which has made Indian real estate what it is: unorganized, opaque, volatile and, above all, unpredictable.
In our paper titled "10 Reasons Why Indian Real Estate Needs Specialists", we have uncovered many facets of this issue in detail.
In our follow up to this article, we will present the volatility pattern in the publicly traded realty sector of India. We examine the connection between the capital markets of Indian real estate and the underlying property market fundamentals. The question then arises is do we understand these fundamentals? More importantly, have we developed those fundamentals? Well, in spite of being one of the largest real estate markets in the world, we do not have many dedicated research/educational institutions that focus on the development of fundamental knowledge of real estate. It is a challenging task. First, we need to have institutions which have serious interest in developing the right, localized knowledge of real estate. Second, we need robust mechanisms to disseminate the knowledge sustainably. In order to fill the gap, private research and educational institutions should be encouraged and funded; not only by the government; but also by the private sector. In addition, the public institutions need to partner with the private ones to uplift the standard of real estate research and education in India.

Real Estate was established as an independent research & educational discipline in the United States during 1800s and in the UK in early 1900s. The understanding of real estate sector in these nations is superior, sophisticated and forward looking. Moreover, there has been an increasingly higher push on differentiating the  real estate assets from other financial assets. In India, we keep treating real estate as just another type of financial assets. That is why, we have failed to identify the need for regulatory changes in this sector. We face major challenges in establishing the REIT system as we lack the insights pertaining to their implications. Our secondary mortgage markets are embarrassingly smaller compared to an implied primary market. We continue to treat real estate as a subsidiary of either finance or infrastructure or engineering or design sectors (without being sure of which one of these does the realty sector actually belong to).

Some educational institutions and professional bodies (which can be counted on finger tips) have dared to come forward and fill the gaps and transform the realty sector. At realism.IN, we are committed to participate in the transformation.




Prashant Das, the opinion editor is a partner at realism.IN