While the passing year had been a damp squib for realty, the New Year has come with a lot of promises riding on the back of a good monsoon and growth in the infrastructure sector. Yet, a lot depends on key policy decisions that may prove to be a real gamechangerfor realty
Though the real estate sector went through a bad patch in 2013 due to a drastic fall in sales, dismal corporate earnings growth, high retail inflation, rising interest rates, in contrast, 2014 seems to be harbouring some promises.
While for the first quarter of Financial Year 13-14, India’s growth in gross domestic product (GDP) stood at 4.4 per cent, the Reserve Bank of India (RBI) projects it to reach 5 per cent by end of FY 2013-14. Experts believe that the slow growth projection can primarily be attributed to India’s depressed industrial production and high interest rate environment, especially in the real estate sector.
“The third and last quarter of FY 2013-14 are likely to demonstrate improved momentum on account of agricultural prosperity, thanks to a good monsoon and growth in the infrastructure sector (including the realty segment), pushing up the performance of the industrial sector. Another effect that the Indian economy will see in the first half of 2014 will be on account of the general elections in May 2014,” said Colin Dyer, president and chief executive officer (CEO), Jones Lang LaSalle (JLL) Inc.
However, Samantak Das, chief economist and director (research), Knight Frank India, said: “From the perspective of the real estate industry, high inflation coupled with muted income growth has already made a dent on consumer affordability. At least a status quo on key policy rates will serve as a breather for households and leveraged developers alike.”
The real estate market may have seen challenging phases in 2013 but developers still seem to be betting big on the high-end residential projects. In the first nine months of 2013, the numbers of launches in the high-end residential segment have grown by 142 per cent as compared to the corresponding period last year, according to real estate consultancy firm Cushman & Wakefield (C&W).
“The number of new launches in the high-end segment stood at 24,032 between January and September as against 9,940 last year,” the C&W report said, adding that the stupendous rise in new launches in this segment is happening at a time when the overall launch of new
inventory across all housing segments remains muted.
On the policy front, two key announcements in the sector “the Real Estate Regulation Bill 2013 and draft guidelines on SEBI (REITs) Regulations 2013” have the potential to change the fate of the sector.
“If implemented, these will not just bring greater transparency but will also help boost investments in the sector. However, their enactment as a law may take time,” said Sachin Sandhir, managing director, RICS South Asia.
As far as real estate prices are concerned, many of the Indian metros have crossed sustainable limits. The real estate development business may not be sustainable at the current exorbitant price levels. Banks, therefore, perceive it as risky to lend to property developers. Lending institutions have taken an unyieldingly hard stance and are attaching the under-construction projects of defaulting developers.
While for the first quarter of Financial Year 2013-14, India’s growth in gross domestic product (GDP) stood at 4.4%, the RBI projects it to reach 5% by end of FY 2013-14
Realty analysts believe that as soon as prices start becoming more rational, there will be a significant mitigation of risk and banks will begin granting more loans to developers.
“I definitely foresee a correction in prices across many Indian cities. In fact, it is overdue. However, corrections will depend on certain aspects. We are seeing a massive inventory of unsold residential units in the larger cities, and the developers with the larger shares of this inventory will have little choice but to yield to the price pressures. It also depends on area specific demandsupply condition or macro market,” said Dyer.
“The housing prices are expected to move up marginally in 2014 due to the current negative sentiment impacting the real estate market which will continue to affect it even in the next six months till the general elections in April-May 2014,” Sandhir added.
The third and last quarter of FY 2013-14 are likely to demonstrate improved momentum on account of agricultural prosperity, thanks to a good monsoon and growth in the infrastructure sector (including the realty segment) pushing up the performance of the industrial sector. Colin Dyer, President & CEO, JLL Inc.
Real Estate Regulation Bill 2013 and draft guidelines on SEBI (REITs) Regulations 013 have the potential to change the fate of the sector. If implemented, these will not just bring greater transparency in the sector but will also help boost investments in the sector. However, their enactment as a law may take time. Sachin Sandhir, MD, RICS South Asia
From the perspective of the real estate industry, high inflation coupled with muted income growth has already made a dent on consumer affordability. At least a status quo on key policy rates will serve as a breather for households and leveraged developers alike Samantak Das, Chief Economist & Director (Research), Knight Frank India
According to the JLL report, since the last quarter of 2012 during which 80,000 new units were launched across the country, new launches have come down to 50,000 in the third quarter of 2013. Sales have dipped from 50,000 to 40,000 in the same period and the inventories have piled up. “The majority of sales taking place are during the project launch phase that corresponds to competitive pricing. Sales during the construction phase have dried up,” the report said.
In spite of all odds in the sector, real estate developers are quite hopeful that the sector is set to witness fundamental changes in 2014 and the regulatory bill will be the main driver for this change.
The bold move by the RBI, by keeping the policy rates unchanged in the December quarterly review, has infused positive sentiments in not only real estate sector but also other sectors of the economy. Anil Kumar Sharma, President, CREDAI-NCR
“If it becomes law, it will herald new era for the sector and will set the stage for both industry and infrastructure status. The policy environment in the country is likely to experience change and clear-cut mandate for growth. Last but not the least, we are hoping for the return of lower interest rates. The bold move by the RBI, by keeping the policy rates unchanged in the December quarterly review, has infused positive sentiments in not only the real estate sector but also other sectors of economy,” said Anil Kumar Sharma, president, CREDAINCR.
With a sense of recovery in the sector, the developers also realise that the depreciation of rupee has provided a good encouragement and opportunity to non-resident Indians (NRIs) and high value buyers of property in prime locations which improved the sale figures although the bottom lines remained sluggish due to increasing cost of raw materials.
“We expect the government agencies to peacefully settle issues that create hurdles for the developers in the area to ensure smooth implementation of projects. The long standing demand of the real estate industry for the central government to grant it the status of ‘industry’ to avail project funds from authorised sources, need to be addressed without further delay,” said RK Arora, chairman and managing director of Supertech.
So while 2013 has been more of a damp squib, it does make good sense to say that the New Year has come as a harbinger of new and big hopes
WHAT DEVELOPERS SAY
Outlook is positive, if you look at commercial sector, we believe that the commercial sector is on its way back to recovery path. This year, I think it should be around twenty six to twenty eight million sq ft of leasing in Grade-A space pan India, next year we expect it to be thirty two, thirty three million sq ft space. So, most of the companies, especially the MNCs have done well. Market was driven by the companies mostly based in the US which has been on recovery path. This will have an impact on the sector in India as well. In the housing sector people are waiting for the elections. We expect next year after the elections are over, both the end-users and the investors will be out in the market again P Sahel, Vice Chairman, Lotus Greens
The demand has started picking up with revival in sentiment and interest. We expect this trend to continue. Owing to the increased investor demand coupled with the recent political scenario, we expect residential prices to rise in 2014. There might be some sporadic pressures building up at times that will flatten the growth curve momentarily and put pressure on prices, but we do not expect a complete downturn in the sector. In fact, the long run will see the market becoming buoyant and strong, David Walker, ED, SARE Homes
Owing to the political developments in the New Year, it is expected that market conditions will get better and property prices will further increase. Incorporation of land and the real estate regulator bill, widening of ECB and granting infrastructure status to the sector will further improve the sector. Nikhil Jain, CEO, Ramprastha Group
Market sentiments drive real estate sector. Though Q1 was a bit slow for the sector, things started to move in the Q2 with increasing demand. Industry saw some new launches in the Delhi-NCR region. There were some favorable moves by the government in the sector like the regulatory bills and REITs which has further strengthened the sentiments of buyers, investors and developers as well. The demand is expected to increase in the coming 4-5 months Aman Agarwal, Director, KV Developers
While the first half of the year was affected by the economic slowdown, the last quarter saw some revival. It is expected that with the sentiments improving slowly, the current trend will continue owing to the recent political developments. The year 2014 seems promising, getting the thrust back for the economy’s revival and strengthening sentiments of the market. Brijesh Bhanote, Director, The 3C Company
Real estate is one such sector which is completely driven by market sentiments. In last 6-7 months, demand in the market has revived. Industry also saw some new launches. Government agencies and authorities also came out with some favourable steps which has further strengthened sentiments. Going forward, the trend is expected to continue for another 4-5 months. Pradeep Jain, Chairman, Parsvnath Developers
There was a slowdown because of the liquidity crunch in the market for various reasons and the period of correction in the market has also crossed 75% of its impact. Definitely from July 2014 everybody will see a tremendous impact on the positivity factor and there will be a boom in the real estate sector Vikas Raj Sharma, Director, Cosmic Group
The real estate market in 2014 is going to be responding well from July 2014 onwards as the stability factor in the country will be crystal clear by that time paving the way for the customers to take a decisive step towards buys. Rajesh Goyal, MD, RG Group
From April 2014 onwards, the sector should improve considerably, as by that time the political uncertainty would be reasonably clear in the country. As such there is no shortage of demand but the customer is slightly conscious before committing. Manu Garg, Director, LandCraft Developers
The real estate market is going to respond much better in 2014 as there will be the Lok Sabha elections and people will get a stable government. Stability matters a lot in decision-making sentiments of the buyers. Alok Tyagi, MD, ATN Group
There is growing evidence that despite the fact that international investors and domestic investors seemed to target commercial property at the beginning of the Indian real estate boom, residential property is now more in demand. There are a number of reasons for this increase in demand for residential property, many elements of which are likely to continue for some time to come. Ashok Gupta, MD, Ajnara India
Year 2014 looks to be the year of ‘hope’ after the dull and bad year (2013) for the real estate industry. We hope to get the stable government by the middle of the year and inflation is also expected to ease by March 2014. Rates of interest are at the peak and from here onwards, interest rates are expected to fall. The above factors will create a positive sentiment and the growth story may start again. It is expected that the policy will be clear on REITs and inflows may start from 2014. This will ease liquidity pressure especially in the commercial real estate segment. I expect the prices to firm up from Q2 of 2014. Gaurav Gupta, Director, SG Estates
Deteriorating economy, increasing inflation, increasing interest rates, tough FDI norms, oversupply of inventory and risk of job security etc have been a few of the hurdles during 2013 in the sales and development of the real estate sector. But now consumers who were waiting to buy are coming into the market. I am expecting sales to increase in the January-March quarter of 2014. Pankaj Kumar Jain, Director, K World
It is perhaps no surprise to learn that both international and domestic investors are now targeting partially completed developments which only require additional finance to get them over the finishing line. So, taking account of the lack of new developments, and the relatively small number of partially finished developments, this will likely help to maintain real estate prices in the short to medium term Deepak Kapoor, Director, Gulshan Homz
There is pent-up demand for a long-term real estate development in India. The economy is starting to improve again and inflation is set to fall significantly which should all ensure a steady long-term progressive Indian real estate market. There may be ups and downs, there may be issues outside the control of the Indian authorities but the dynamics required to expand the Indian residential real estate sector as well as the commercial real estate sector are certainly in place. Prashant Tiwari, CMD, Prateek Group
The real estate market in 2014 is going to be responding well from July. The Indian and Chinese economies have performed extremely well over the last five years or so, especially in the light of the US mortgage crisis which impacted the worldwide economy. There has been a slowdown in the economic growth of late which has perhaps caused many economists to rein in their optimistic forecasts from just a few months ago. However, the long-term dynamics for the Indian real estate market are still there, the growing population, an expanding economy, increasing international investment as well as a middle-class which continues to grow even during these challenging economic times Kushagr Ansal, Director, Ansal Housing
In 2014, the market for residential property will increase as compared to the commercial. Though there will be a huge challenge due to the weak Indian economy and political instability, but mid-2014, the market we are expecting will be better as compared to 2013.Even though the expected growth at the end of 2013-2014 is 5%,
I think there is no reason for us to worry much, let’s be optimistic. Jugal Khetawat,Rameshwara Group
There is no doubt that the underlying dynamics for a very buoyant residential real estate market in India have been there for some time. At the same time, both domestic and international investors have recently shown great interest in the sector. The real estate sector has a promising outlook in 2014 and growth will continue in the longer run. There is pent-up demand for long term real estate property in India, the economy is starting to improve again and inflation is set to fall significantly. Anand Raj, COO, MMR Group
I personally feel that in 2014, the Indian real estate market will be more focused on mid-segment buyers. The young entrepreneurs will play a major role in buying properties across the nation. However, we need a transparent market regulator to check the entry of ill-gotten money in the market and also ‘firm rules’ on the quality assurance of the property. Ajit Pal Singh, Founder, Supravina Constructions
I think 2014 will be a big challenge for all of us who are in the real estate market. The simple reason is economic instability and high mortgage rate. It’s a myth that with the, depreciation of rupee, investors abroad will show their interest in the Indian real estate market. Nobody will show their interest, till the rupee stabilises in our country Bimal Rathi, Founder, Ayush Constructions
We expect prices to go up in the coming year. However, the demand for both these segments will be on a rise in 2014 as well. M3M deals with straddling ultra-luxury and premium residential complexes and have commercial and hospitality projects. We continue to have the projects on full swing construction setting new trends in the realty sector in 2014 Pankaj Bansal, Director, M3M India
With the current market, the real estate market is low. To predict the real estate market in 2014 is difficult considering the immature market. Things will depend on government policies in the near future. The private equity (PE) money has dried. Those who had invested couple of years ago are looking to cut down their losses and exit. But I am hopeful that our economy will recover soon and the market will do better. Pradeep Chopra, Chairman, PS Group