While Har Ghar Mein Kamal Khile (Let the Lotus bloom in every house) turned out to be a popular slogan for the Bharatiya Janata Party (BJP) and its epic victory run in the recent Lok Sabha polls, the dream of many a common man of owning one’s own home is just a fantasy for many. With a new government in place, will the common man get to live in a place he can call his own? Will the realty sector bloom like the Lotus in the coming years? Will developers live up to their promises? These are questions that the new., government will seek to answer in the days to come . . .
The new government with a clear majority has come at the right time. Even as the Sensex and other parameters of the economy have zoomed, the electoral verdict, among other things, and growth of the construction sector in the country.
“There is hope that the government will create new structural reforms, including strict governance for infrastructure bottlenecks and reduction of red tape,” says Thomas Rookmaaker, director, Sovereign Ratings Group, Fitch Ratings.
” We hope that with such a resounding mandate,the NDA government will be well disposed to take firm and decisive policy decisions for removing various bottlenecks dragging the economy in general and real estate sector in particular to propel the growth. As BJP’s manifesto has promised housing for all, we look forward to work with the government in achieving that goal,” says Rohit Raj Modi, officiating president, Credai-NCR.
Despite the realty sector being in the rough for quite some time, developers have charted and explored newer corridors to invest their capital in. To name a few, such corridors, Sohna and NH-24 in Delhi-NCR, Ulwe and Karanjade in Mumbai, Hennar Road in Bangalore, etc. have shown remarkable resilience and have developed many a lower-priced project for buyers.
At the same time, the country’s residential sector is still passing through an interesting phase. According to a recent report by international property advisor, JLL, while supply is showing variable signs of cyclical ups and downs depending on launches, the demand is showing a slowing curve in NCR -Delhi, but stable in all other cities, primarily on the back of new launches in emerging residential corridors which have been successful in attracting buyers.
“On the supply side, affordable and lower-priced residential corridors such as Greater Naida and NH- 8 (NCR-Delhi), western suburbs and T hane (Mumbai), Whitefield and Hosur Road (Bangalore) and southern suburbs (Chennai) were the prime drivers of the new launches. On the demand side, while NCR-Delhi contributed over one-third of the total new launches, its share of net absorption dropped from above 40 per cent to just over 36 percent by the first quarter of 2014,” says the JLL report.
As India’s housing shortage is legendary, and the government has always kept low-cost housing in focus, most developers have shied away from focusing on this space because affordable housing is a relatively low-margin business and in high inflationary scenario, profitability remains a key concern. Equity participation by private equity (PE) funds has also been limited in the budget housing space. Therefore, a strong initiative is required of the new government to heal the sector.
According to a survey by one of the leading industry chambers, ASSOCHAM, the country currently requires 18.78 million additional houses, of which 95.62 per cent are in the economically weaker section (EWS)/ Iower income group (LIG)/middle income group (MIG).
“The new government may look at helping on quicker land acquisition, faster approvals, easy and low-cost funding availability and better infrastructure to make it a more interesting proposition for developers and investors / buyers. In Gujarat (the home state of Narendra Modi), the government has been extending a helping hand to developers who construct low-cost homes, although availability of cheap capital, lengthy approval process and affordable land availability continue to remain challenges,” says Anuj Puri, chairman and country head, JLL India .
However, Rana Kapoor, president, ASSOCHAM, believes that India is at the crossroads of experiencing rapid urbanisation in the current decade. Addressing the concerns of affordable housing is the need of the hour, he says. “Given the slowdown in the real estate sector, additional HNI investments in the sector at high interest costs and the increase in ready reckoner rates by some state governments, will only push up property prices further. Taking adequate and appropriate measures to increase affordable housing alternatives will not only create a GDP multiplier, but also improve the living standards of Indian citizens.”
As the infrastructure and real estate sector occupy a big pie in the country’s growth, an improvement can definitely be expected in the near-term investment sentiment. This will have an impact on the investment growth within the GOP.
The JLL report says: “As a testimony to that, industrial GD P (comprising of investment-heavy sectors such as mining, manufacturing etc.) is forecast to grow at 3.5 per cent year-on-year (consensus of professional forecasters empanelled by the RBI) during the current fiscal year 2014-15 as opposed to an abysmal 0.6 percent year-on-year in the previous fiscal year.
As for the investment in the sector is concerned, investors clearly suggest that domestic money is in the search for good investment options; investors are eager to strike a deal at attractive valuations. However, foreign money has been waiting in the wings and awaiting political stability before entering India. In that respect, a clear majority is the best possible scenario.
Earlier experts were thinking that most investors were comfortable with a government with minor alliances as long as there was a clear agendas and strong voice dictating those agendas. But things have changed now. “What investors are looking for in a ruling government is clear goals and the will and strength to achieve them,” adds Puri
In the recent past, infrastructure projects planned and underway were positioned as pull factors for residential projects launched in the vicinity of such infrastructure developments. New highways and the Metro connectivity also raised the attraction quotient for upcoming locations. But unfortunately, the buyer/investor’s sentiment remains weak given the high interest rates and rising residential prices.
“Investors have become cautious and are investing in select projects, and by staying away, they have affected investor-driven, speculative residential markets. Buyers have become fence sitters, waiting for economic headwinds to improve and better credit conditions,” says Rohan Sharma, senior manager (Research & REIS), JLL India.
On the other hand, developers have been taking a wait-and-watch stance, holding the prices. They have shown more flexibility in offering discounts and are looking towards proactive policy changes. They are also targeting emerging corridors for low-ticket project launches. Keeping their sentiments in mind, will the government be able to drive their thought into reality?
FDI IN REALITY
With a view to protect the interest of small and medium retailers and SMEs, the new government’s manifesto has more or less conveyed its resistance to opening up foreign direct investment (FDI) in certain sectors.
Recently, ASSOCHAM had also urged the new government to ease the conditions for FDI in real estate and reduce minimum capital requirement from $10 mn to $5 mn and minimum tenure before repatriation from 3 years to 1 year. But as per JLL study, retail is in the negative list as per the manifesto; however, if the country has to welcome FDI and international investors, it might need to consider the number of international retailers waiting on the side-lines in wait-and-watchmode.
“A few retailers have already announced their plans to go ahead with the cash and carry model of operation in India, therefore kick-starting a new cycle of investment in retail. The overall FDI policy will be conducive, as the new government is committed to promote FDI in other sectors and also to reforming the Foreign Investment Promotion Board (FIPB) functioning to make it investor friendly,”says Puri.
As foreign money is the most sought-after wealth for future India, experts and developers are hopeful that now foreign fund will keep flowing into the domestic real estate sector.
“Any stable market that promises more transparency in processes, transactions and healthy returns has the potential to attract funding. India too has the potential to deliver quality investment grade real estate that not only promises growth but also promises healthy returns to its investors. With some of the proposed reforms such as the introduction of real estate investment trusts (REITs), the market will then provide an investment avenue in quality real estate within the country,” says Sachin Sandhir, managing director, RICS South Asia.
In a bid to end red-tapism and bring out transparency in the realty sector, the draft Real Estate (Regulation and Development) Bill-2011 has proposed to set up a real estate regulator. With a buzz in the air that transparency and good governance will bring the sector to a trust level for one and all, industry insiders are hopeful that setting up a real estate regulator may be the new government’s priority.
However experts believe that the new government will definitely boost employment and growth in the next 12 months period if it works towards the betterment of the sector by removing the regulatory bottlenecks in the way of project approvals and bring pending reforms such as real estate regulation.
“The Real Estate (Regulation and Development) Bill 2011 has been pending before Parliament from a long time. I do believe that the government should bring such reforms at a priority. Disclosure norms envisaged under the regulation will improve investments into the sector and help consumers in a big way. While consumers will then have all information on a particular project, the Appellate resolution,” says Sandhir.
It is likely that the new government will take up the legislation afresh wherein the developers are much hopeful with their concerns and expect it can be addressed favourably.
Land Acquisition Woes
There is sense that the Land Acquisition Act. which came into force from January 1 this year, will make it even more difficult to bring about the much required investments, as land prices are expected to triple in the coming days, and approvals to become more complex for the industry. Considering that the land bill was passed with majority support, including by the BJP. the industry may find it increasingly difficult to acquire land, which will cause inordinate delays for the projects that can cause massive cost overruns