Leveraging DMM to explore the development potential of real estate in Tier-II cities

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Navin Dhanuka, CEO & MD, ArisUnitern RE Solutions

The Development Management Model (DMM) is steadily gaining traction as the real estate sector is expanding its footprint across India. Over the past few years, especially after the pandemic, the sector has gained momentum, and this high tide of growth has the stability where developers are confident about their future expansion plans. To penetrate deep into the maturing market and feel the bullish pulse, a lot of renowned developers are taking the Development Management route to gain maximum value and gain sizeable market share.

Going by the definition, a Development Management Model is a collaborative process under which larger developers associate themselves with smaller and medium-sized players to reduce financial risks associated with a project, effectively manage the development cycle and also transfer and exchange knowledge & expertise to make the best out of a project. To adopt this model the involved parties or the developers need to get into agreements known as Development Management Agreements or DMAs.

When it comes to the adoption and practical application of DMM, interesting activities can be witnessed in Tier-II cities. A recent report by a global real estate consultancy revealed how Tier-II cities are emerging as real estate hotspots and how these cities will be the next growth mile for the sector. The report suggests that in the last 10 years, India’s urbanization rate grew by nearly 5% points to reach ~36% as it stands today, having a big influence on real estate markets. Delhi-NCR, Mumbai, and Bengaluru, which have been considered megapolis cities saw markets consolidate and mature further, whereas fast-emerging cities such as Hyderabad, Pune and Ahmedabad gained significant market shares and today comprise the top-8 real estate markets in the country. Going forward, this urbanization rate is slated to move swiftly to over 40% by the end of the present decade, making a strong and compelling case for newer cities to emerge. This presents a lot of new opportunities for the big national developers who are using DMM as an effective tool to leverage the situation.

This is a two-way street where there is everything for everyone. While the regional players can help with land acquisition, local market intelligence and resource mobilization, the big developers can lend their operational and technical assistance and also infuse capital and investment inflows starting from the launch of the project till the final delivery. Another key factor is flight to quality which is driving the real estate sector’s growth. A lot of global occupiers and investors are eager to explore the prospects of the Tier-II markets and they prefer assets that are compliant, relevant, and future. DMM is helping in meeting these demands as through the adoption of this model, developers in these emerging markets can adopt quality control standards which are necessary for the sector to mature in these markets.

In India, the regulatory environment is complex. While it is pretty much streamlined in the top 8 mainstream markets, the Tier-II markets have a long way to go. Sometimes this acts as a hindrance for the regional developers to execute a project and achieve the desired result. Through the adoption of the Development Management Model, these players can now smoothly navigate the legal complexities required for developing a project and can also mitigate the risks associated with delays.

Overall, the Development Management Model is acting as a key enabler for both the national & regional developers and thus giving a big positive push to the real estate sector, mainly in the emerging Tier-II markets. As the future lies in these cities owing to great development potential, improving infrastructure, availability of talent and great connectivity, DMM will become an important growth engine to propel the sector towards a new realm of growth.