Home construction being one of the oldest industries known to mankind, is on the cusp of a rapid transformation in India. With Internet penetration bringing information access to the remotest corner of the country, it brought along efficient construction practices and awareness among consumers. Population growth, Urbanisation and rise of nuclear families being the key demand drivers for homes, the preference between apartments and individual homes varies across geographies and socio-economic strata. The total housing demand is estimated 75 lakh units per year, while the supply is only 40 lakh houses.
Individual home construction is highly unorganised, localised and an informal industry. 98% of construction jobs were informal as of 2020. The key problems faced by the end customers are trust deficit and cost/time overruns. Currently most of the individual home construction is carried out by general contractors in the respective locality. As the size of the transaction is huge, people generally prefer to get their home build through a known contact. Because of this trust deficit, large players dedicated to individual home construction haven’t emerged in India yet. For comparison there are 30 home builders among the Fortune 1000 in US. So, the industry is ripe for disruption by any player who can solve for trust deficit and timely/cost effective construction.
There are two models that have emerged in the market i.e Marketplace model and Super contractor model. In a marketplace model, the platform connects the end customer with the contractor, ensures timely completion and best practices. The platform charges a flat fee on the GMV and manages the contractor in return. The second model is a super contractor where the company manages the trade contractors like mason, electrician, plumber etc and make a margin in the whole process. Super contractor will have to find and set-up the whole sub-contracting arrangement while expanding in a new city while Marketplace model is faster to scale. But on the flipside, the super contractor will be able to pocket more margins by resource pooling, implementing better processes, while the marketplace model does not unlock such efficiencies for the general contractor they work with. In both the models, these start-ups can command lower price with the sub-contractor or the general contractor, because they are aggregating demand and are able to provide steady flow of jobs to them. Hence, they are ready to take a lower price in return for more steady jobs.
With home construction picking up pace, the value unlocking will drive formalisation of the entire value-chain and lead to various adjacencies. As these business model gather sufficient momentum they would be able to aggregate the demand for construction materials, procure directly from manufacturers and pocket an additional margin. There are players that are already piloting and implementing this practice across geographies and have shown good results. Another adjacent area would be project management software. Individual homes as well as large projects are still being executed with very little and rudimentary technologies. The use of software is mostly upto planning stage and there’s negligible involvement of software in the execution stage among smaller players. This has given rise to few construction management SaaS companies that have gotten the attention from top PE/VC funds as well.
Individual home construction is a low frequency transaction and hence stays out of the larger public’s top of the mind recall. But given the sheer size of the industry, we can expect huge value unlock and wealth creation in this space in the coming years.