Real estate sector: Growth starting,but no bull-run yet

Real estate sector: Growth starting,but no bull-run yet

The real estate industry is anticipating relief in in Budget 2014-15,post elections.

The year 2013 was a year of survival for the real estate sector,but expectations are now high among developers and analysts. The industry is pinning hopes on a mid-year turnaround after the General Elections,it is not likely to materialise given the time lag for policy implementation.

So how would 2014 pan out for realty? The first three quarters would see much of the problems of last year persisting,before showing some signs of change. Few experts believe that prices in several locations will go northward.

That would be constraints since the problems of the sector remain unsolved,and policies have made no substantial impact,and those on the cards may not be enough to give the required momentum.

Persistent problems

It was a year of “slow-down,stagnancy and stalling” for real estate,says Sachin Sandhir,MD,South Asia,Royal Institution of Chartered Surveyors (RICS),a body certifying professionals and setting standards for the sector. “It was a year of much economic turbulence. The current account deficit has fallen to 1.2 per cent of GDP in July-September period,while inflation is again above 10 per cent,as recorded in October. Wholesale price inflation was at an eight-month high of 7 per cent while retail inflation crossed 10 per cent. The rupee dropped sharply by net 22 per cent during first two quarters. Private equity (PE) investments witnessed a drop of over 65 per cent for the quarter-ended September 2013. All of this has negatively impacted investment sentiment.”


Even as the rupee fell,NRIs cashing in on the foreign exchange situation did not show up in sales numbers. The Reserve Bank of India’s actions too,did not help. “Monetary tightening resulting from RBI’s measures to control inflation was the major macro influence on the real estate business in India,” says Shishir Baijal,CMD,Knight Frank India,a real estate consultancy firm.

“High interest rates,spiralling vacancy levels and lower margins arising from inflationary pressures too,led to a slowdown which resulted in reduction of new launches and also delayed project deliveries. Developers with exposure to residential projects are worried as slow sales have created a situation of oversupply in many parts of the country,” adds Baijal.

Election time

The industry is anticipating relief in in Budget 2014-15,post elections. “As far budget is concerned,there could be some appeasement for votes and some concessions to developers for funds by the outgoing government,” says a property consultant on the condition of anonymity. “However there is a risk of those decisions getting reversed when the new government takes charge. Irrespective of who comes to power,the second half year will be consumed in reviewing,modifying and approving various reforms and policies. Its impact will be experienced in 2015.”

Reform impact

“The partial paralysis on the policy front has been one of the primary reasons for the slowdown,” says Anuj Puri,chairman and Country Head Jones Lang LaSalle India,a real estate consultancy. “Notoriously non-transparent,the sector certainly needed a fresh infusion of progressive reforms. The Real Estate Regulatory (RER) Bill and The Land Acquisition,Resettlement and Rehabilitation (LARR) Act are the major ones,” adds Puri.

“However,both have clauses which threaten to further escalate prices in a market craving for absorption numbers. While RER Bill raised developer’s funding concerns,the Land Acquisition Act has rendered the process costlier and more time-consuming.”

According to Anshuman Magazine,CMD,CBRE South Asia,“In principle,the LARR Act is meant to promote transparency in land titling while protecting land holders but owing to rising cost and associated risks in it,more developers are likely to opt for joint venture development.”

Another ray of hope is entry of Real Estate Investment Trusts (REITs). “Real estate is completely driven by market sentiments. REITs aim at better transparency and larger investment to further strengthen sentiment,” says Pradeep Jain,chairman,Parsvnath Developers.

Introduction of REITs in India failed earlier mainly due to economic slow-down. Capital markets regulator Sebi has released draft guidelines. However,if slow-down continues,REITs would run into trouble again. Further,if taxation issues are not resolved,the initiative may flounder yet again.

Property prices

It was a vicious circle. High prices led to low sales and developers had piles of unsold inventory and lack of liquidity. This led to over-supply in many markets. In order to offload inventory,developers began offering discounts and freebies. But even that was beyond affordable limits of buyers. Deliveries were delayed,while low demand led to cancellation of new launches. Demand for ready-to-move in spaces and resale flats shot up as buyers were reluctant to risk their money in under-construction projects The same situation of 2013 is likely to continue in most of the period of 2014.

According to a report by Colliers International,a real estate services firm,“The end users will continue to be cautious. Current oversupply will get mitigated in coming quarters as very limited new projects are being launched. Capital values across most micro markets in almost all the major cities will remain stable even though the transaction volume will remain a constraint.”

“Overall,residential markets are expected to witness stable capital values except for those projects which are over-leveraged and are unable to attract sales,” says Sanjay Dutt,Executive MD,South Asia,Cushman and Wakefield,a real estate consultancy. “Due to on-going infrastructure developments such as metro rail,mono rail and roads in Mumbai,NCR,Chennai,Bangalore etc,select locations here may witness healthy business activity,” adds Durtt.

According to Puri,redevelopment would be a growth driver in many metros and newer verticals such as rental housing,affordable housing and senior living would show increased activity.

Developers’ take

Developers expect the government to take a supportive approach towards the sector. “The government should plan to reduce the housing shortage and encourage rental housing besides enacting the proposed bills,” says Sunil Mantri,president,National Real Estate Development Council (Naredco). “We expect the government to implement single-window and on-line approval system besides support in dealing with acute skill shortage,” adds Mantri.

“The year 2013 has been the worst in terms of growth,sales and governance (approval process). However,the first three weeks in December have shown better sales than the previous month. This is an indication of the realisation that costs have gone very high thereby there is a very little possibility to reduce sale price,” says Lalit Kumar Jain,chairman,Confederation of Real Estate Developers’ Associations of India (CREDAI). “This with the pent up demand will result in better performance in the coming year. Political uncertainty is already discounted by the market but if there is a stable government post elections,then there is all the possibility of market getting into a very vibrant and upbeat mood,” adds Jain.

End users

Currently,investors and end-users are fence-sitters. Analysts are of the view that post elections,end-users with adequate funds will begin picking up the right sized and rightly priced properties. This absorption will lead to demand surpassing supply and in turn prices would see a rise in several selected locations.

The positive impact of the new policies and reforms will translate in to better and bigger fund-flow in second half of the year,keeping prices buoyant. The expansion of manufacturing and services in Tier-II and Tier-III cities will result in greater demand. “Residential capital value will increase in a subdued range of 10 to 12 per cent year-on-year,pan-India for the whole of the year 2014,” says Puri.

“The market has turned from sellers to buyers with attractive offers across a range of projects. We expect the market to start upward momentum by the end of 2014 and suggest end-users and investors to utilise this opportunity to book their homes as these offers would vanish once economy starts showing signs of recovery” says Brotin Banerjee,CEO and MD,Tata Housing.

However,all analysts are unanimous that the buyer carrying out due diligence before signing up,and not be taken in by sentiments. Do a check on delivery record and the developer’s reputation. Also bargain hard and bargain well. Desperate developers may be ready to offer discounts anywhere between 10-25 per cent. The mantra of right size,right price,location and infrastructure applies.

The affordable and mid-size housing is likely to see better returns. Until new supply enters,rental and resale segments look strong.


Overall,for the investor,the pre-election market will remain sluggish,but post elections,2014 will be no bull run.