Like in all products and markets the real estate industry in India and specifically the real estate markets in Hyderabad have gone through the product or market maturity cycle. Having zoomed through the stages of 1) introduction and 2) growth, they have now entered a stable maturity stage.

In fact according to popular perception real estate industry in the last half of the previous decade made unbelievable amounts of money.

The success of any industry begins and ends on the demand side and we were well and truly in the growth stage.   We had a tremendous shift in all cities in India from an industrial economy to a service economy. Huge demographic shifts in the population, changed where they worked and how much they earned, thus creating tremendous demand for new buildings with new features to work, shop and live. A lot of the aspects of what a building offers as a product had also dramatically changed and improved over the past twenty years.  This made older space less attractive an option, leading to an explosion on the demand side.

Entry barriers into the industry were low, and a lot of new competitors came in. Some of that competition came from financial buyers or real estate players backed by these financial players (both large companies and groups of individual investors who got together to form companies).   Some of these large companies with their unlimited access to capital (through banks and capital markets) backward integrated into the industry.    New competitors therefore also had access to more capital to build larger and bigger projects compared to the industry veterans.

What however was ignored by the pundits was that like in any industry it is the demand that drives businesses and any wrong estimation of demand or the slackening of it can create over capacities. We forgot to see that real estate as an industry and buildings as a product will go through the established product life cycles and reach a maturity stage, where the market is not growing as rapidly as earlier.  To this already dangerous mix of over optimism was added the bursting of the housing bubble in the mother of all economies, the US Housing Market.  The recession that followed as they say is history or is it?

However India is still growing and all is not lost from the perspective of the Real Estate Industry. It is imperative that we in the industry make choices about how we compete in the future.  Previous models of business suitable to the growth stage of the industry will be inadequate to carry us through the next decade.

The questions that confront are of strategy and execution.  When you study any industry, whether it is real estate or manufacturing or services, there are two basic questions that each of us has to contend with while developing an effective strategy.

The first has to do with what’s going on in the industry itself.  One has to appreciate that Industries differ dramatically in their profit potential and that this profit potential changes over time and life cycle of the industry itself. In other words the days of making obscene returns on investment might be behind us.

The second basic question in strategy has to do with your company’s position within the industry. How is a company going to compete and how does it position its products so that the company is a superior performer.

When we look at the world around us and look at any industry, no matter how small its profit potential, some companies within that industry always do a lot better than others. Experts rightly opine that, such a company has found the right strategy and the skills to execute it. 

Therefore it is for us the companies operating in the real estate sector to find a strategy.   The two fundamental questions to develop a sound strategy are 1) How much do you understand your industry and the competitive environment, and 2) where do you want to position your company and its products within that environment?