The curious case of ‘hand sanitiser’ and few takeaway for the realty sector

Barring few credulous people, none would have even ever imagined that ‘Hand Sanitiser’ would one day become the most essential product for an Indian household than the ‘Toothpaste’. ‘Hand sanitiser’ is a familiar product, nothing unusual. But that it instantly secured a place in every Indian’s survival toolkit elevated it as a marvel during the crisis struck by Covid-19.

Almost fifty distilleries and sugar industries were granted permission by the regulators to manufacture hand sanitiser. Some local schools, educational institutions like IITs and even some universities started their own DIY (Do It Yourself) hand sanitisers on the face of mounting demand albeit as per WHO (World Health Organisation) prescribed formula. This led to a double whammy for the manufacturers of branded hand sanitisers. The price differential between the branded hand sanitiser and the generic equivalent started to taper. Maximum retail price (MRP) was capped by the same regulators while the raw material price remained in oblivion.

According to some media reports, cost of the main raw material, rose by almost five times between the Pre-COVID-19 period and early April 2020. This sort of economics in turn is expected to push manufacturers to adopt high volume and low margin business strategy.

Disruption is the new norm be it a forced one. In order to cater to the EWS (Economically Weaker Section) population during this crisis, some manufacturers are planning to introduce hand sanitisers in sachets, few are evaluating the alternative to the costly raw material. Distilleries, Beauty and Wellness Centres and even perfume & deodorant manufacturers are gearing up to manufacture hand sanitisers.

COVID-19 like any other crisis too shall pass but it is surely expected to change the world of commerce. In the words of the historian Yuval Noah Harari, who is also the author of the book ‘Sapiens – A Brief History of Humankind’ “the storm will pass, humankind will survive, most of us will still be alive — but we will inhabit a different world”. 

Even though real estate product is completely distinct from a hand sanitiser, there are certain commonalities in the demand and supply pattern. The ongoing crisis would have forced many to think out of the box and realign their businesses and livelihoods. Be it an established product or a compelling business plan; what is being witnessed is that even a seemingly less important product or service can command a lot of attention - for instance the ‘Hand Sanitiser’.

Investments in residential real estate product always holds high relevance for the retail investors due to the quantum of investment and potential for value appreciation. It is imperative that during the ongoing crisis and post crisis also existing and potential retail investors will reassess their liquidity in the context of future investment/ commitments. This aspect brings out the first commonality which is during the EFGH (Economic, Financial, Governance and Health) crisis; the resilience towards realty investment shall be tested by the broad spectrum of the society. The belief that real estate is not just four walls will be put to test again. For the panic shaken middle class buyer, a home is where the heart is. In emergency, survival always precedes revival. Buying a house for self-occupation is seeming to be more profound than buying for any other speculative purpose. Property developers which have struck a right balance between the 4Ps (Product, Place, Price and Promotion) are less likely to be succumbed by the inventory overhang than those which have gone overboard. Drastic changes in the economy due to the current crisis is likely to severely impact the financial strength of the developers by exposing them to the vagaries of demand-supply mismatch.

Second commonality aspect is about the manufacturers of Hand Sanitiser evaluating cost effective alternate to raw materials which became too expensive within a span of few days. The gravitas in case of property developers is likely to aggravate by few notches than this. In a quest to further optimise the cost and to make the product more attractive, developers will evaluate each process minutely across life cycle of the project starting from land acquisition, planning, procurement, construction and everything in between. The role of local authorities including the State Governments at large will play a critical role as they must find ways to optimise the various levies that will allow a developer to become lean on costing.

Construction cost, despite having a certain threshold can always be reassessed in the light of advancements in construction technology. For instance, increased adoption to BIM (Building Information Modelling) may result into more efficiency in the entire construction process. Land which is a state subject and its cost will also be further scrutinised under the lens by the buyer, seller and other intermediaries.

Finally, adoption of best practices by developers is not only limited to design, technology, processes but also implementation of right corporate governance standards and environmental stewardship.  All these combinedly are expected to enhance the image of the entire real estate sector for good and this is going to be the new normal.

 


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Digbijay Das | Colliers International | Bengaluru

Digbijay Das

Associate Director

Bengaluru

I am a part of the real estate industry for more than a decade and half wearing the shoes of a property consultant. My real estate career began in E&Y with a feasibility study of a tech park and then my real estate career saw roles across research, advisory and valuation services. What made it further challenging and interesting at the same time is that I got the opportunity to work with diverse set of stakeholders including property developers, investors, occupiers and government agencies mainly across South India.

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