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Journalism of Courage
During the boom that lasted from 2003 to 2007,the price of real estate in the major metros grew by 35-50 per cent on an average. As a result,real estate investments acquired an aura of invincibility. The myth that real estate prices could move only in one direction upward got shattered in 2008 and 2009.
In the euphoria of the boom days,many developers had scaled up their operations,in the process acquiring high levels of debt. Then the financial crisis struck and market conditions changed dramatically. Demand fell,especially in the luxury segment of housing that most developers were focusing on then. Developers problems were compounded further by the liquidity crunch of September-October 2008 which caused all forms of financing to dry up. Developers responded to the crisis by restructuring their core business: from luxury housing they decided to shift focus to affordable housing. Developers were also forced to lower prices. In the metros prices corrected by only about 5-10 per cent within the city. But in the suburbs,as also in tier II and tier III cities,the correction was much steeper.
All these developments reworking of the product portfolio and lowering of prices had a salutary impact. Says Vineet Singh of 99acres.com: When 2009 started the realty market was down in the dumps. But as developers reworked their product portfolios and started launching new projects with smaller apartments that were reasonably priced,buyers started coming back into the market. From February to April you mostly had window-shoppers in the market. But as the economic outlook and job prospects improved,stock markets went up,and home loan rates settled at less than 9 per cent,people started buying again.
After April,says Singh,the real estate market in India appeared to be on the mend. Banks too tried to support the revival by coming out with home loan schemes where the interest rate was set low for the first two-three years (at about 8.25-8.50 per cent).
Then came the proverbial spanner in the works. Though the recovery was weak,from September onwards developers started raising prices. Consequently,transaction volumes fell once again from October onwards,says Singh. The year ended on a tepid note. The unambiguous message from buyers is that they will only buy at the right price. Anything that appears even slightly overpriced will not sell, adds Singh.
A vote of confidence in the latter half of the year came from institutional investors. Several real estate companies managed to raise capital through private placements. Says Devinder Gupta,CMD of Century 21 India: Successful qualified institutional placements (QIPs) during the latter half of the year suggest that the outlook is improving.
TRENDS 2010
As 2010 begins,the sector is optimistic that the New Year will be better than the last.
Anuj Puri,country head of Jones Lang LaSalle Meghraj (JLLM),says that in 2010 the residential segment will be at the forefront of the revival as there is more demand in this segment compared to office and retail,thanks to lower mortgage rates and price rationalisation in newly-launched projects. The residential segment is also best placed to receive funding. Liquidity is available for certain typologies and formats,especially for the affordable housing segment. This is also the segment that is least dependent on international funding, he says.
Puri believes that private equity funding for affordable housing projects will increase in 2010,since demand for such projects is almost assured. Most of the money,he says,will flow into projects being developed by established brand names that have the potential to complete their projects on time and ensure quick absorption.
According to Samir Chopra,director of RE/MAX India,In 2010 most projects are likely to be developed in the suburbs and in tier II and tier III cities where land is available and the rates are viable. However,whether there will be demand for housing in these areas will depend on how quickly infrastructure gets developed.
Some experts,however,believe that prices could correct further in certain pockets. According to Irfan Razack,MD of Prestige Group,a Bangalore-based developer,In recent months,property prices have corrected by 22-42 percent in major cities. A further decline of 10-15 percent is expected as the rates where hiked to unreasonable levels. This will occur despite India having a housing deficiency of 23 million units.
In a recent report,property consultancy Knight Frank has said that 1,38,000 residential units will become available in 2010. This is 57 per cent more than the supply in 2009. Most of the supply will come up in cities such as Hyderabad,Pune,Bangalore,Chennai and Kolkata. Further,the report adds that as the situation improves further within the real estate sector,3,67,000 affordable housing units will become available by 2011,mostly two-three bedroom units.
GOING GREEN
In 2010 one could also witness increased interest in green buildings. Though the initial cost of such development is higher,experts believe that carbon credits and better operational efficiency will create interest in this segment. Moreover,in future,more and more corporates,especially multinationals,are likely to evince interest in occupying green buildings.
A New Delhi-based developer,3C,and a Kolkata-based,Siddha Group,have announced green projects. While 3C will develop two green residential projects in Noida at an outlay of Rs 2,600 crore,the Siddha Group plans to develop a green housing complex,Xanadu,in Kolkata. In Mumbai,Mahindra Lifespaces is developing a green project,Mahindra Splendour,in Bhandup.
Despite the real-estate sector passing through a trough,the concept of green buildings is catching on because of two reasons: growing environment consciousness,and lower ongoing cost of operation of these buildings. With the cost of energy rising,the demand for such buildings is expected to rise further in future.
KEY VARIABLES
According to experts,some of the indicators that point to a positive outlook for the sector in the New Year are low interest rates,attractive price points,rising consumer confidence and better job prospects. According to Gupta of Century 21 India,the key factors that will determine demand in the residential segment in the New Year will be job security and salary levels. He further adds: Events such as the Common Wealth Games,Cricket Asia Cup and Hockey World Cup could act as morale boosters for the real estate sector since a lot of infrastructure development is undertaken prior to such events. The development of the Mumbai-Delhi industrial corridor could provide a similar boost.
2010 could well be the year when the sector shrugs off the slowdown. However,for this to happen developers will have to display greater transparency and customer-friendliness than they have in the past. They will have to curb their instinct to raise prices at the slightest hint of a revival. Challenges such as managing debt and timely execution and delivery of projects will be as much present in 2010 as they were in 2009. However,the sector can draw solace from the fact that the basic long-term drivers of demand for real estate,such as a young working population and rising income levels,remain intact and will only strengthen in 2010.l
praveen.singhexpressindia.com
