Realty Check | Day 3 | Balaji R: Need for focused push for real estate sector to remain buoyant

08 Aug,2014

By Balaji R
CMO-Vizag & Chennai, Shriram Properties

 

The Indian construction market is expected to be the world’s third largest by 2020. It is currently the fourth largest sector in the country in terms of FDI inflows. The market is projected to reach US$ 649.5 billion by 2020 from US$ 360 billion in 2010.

 

Real Estate contributes about 5 per cent to India’s GDP. The market size of this sector is expected to increase at a compound annual growth rate (CAGR) of 11.2 per cent during FY 2008–2020.

 

The Government of India has shown support for the industry. It has allowed foreign direct investment (FDI) of up to 100 per cent in development projects for townships and settlements, as well as formally approved 577 special economic zones (SEZs).

 

Growth:

Real Estate is an integral ingredient in the formation and growth of all businesses and steadily maturing into a big business itself. As such the performance of the real estate sector depends largely on the performance of the economy and the businesses in specific. Decision-makers have been in a state of indeterminacy given the fabric and structure of how the country keeps oscillating between promises and optimism and persistent challenges and policy inertia.

 

At a juncture like this, there is a need for a focused push in the right direction for the real estate industry to remain buoyant going forward. It is therefore essential for all stakeholders to equip themselves with a deeper understanding of not only the real estate sector but also the businesses they serve.

 

There is vast opportunity for the real estate sector to grow. The healthcare sector is estimated to touch US$ 100 billion by 2015. Also, emergence of nuclear families and growing urbanisation has given rise to several townships that are developed to take care of the elderly. Further, growth in the number of tourists has resulted in demand for service apartments.

 

Issues of Concern:

The year 2013 was a year of survival for the real estate sector, but expectations are now high among developers and analysts.

 

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.

 

Real Estate is an asset class that demands specialised skills and the complexity surrounding this sector increases in the Indian context.  Compared to the mature real estate markets in the developed nations, buyers in India need a higher degree of diligence before entering into property agreements.

 

Issues pertain to ownership rights of the property, understanding the difference between usable area and saleable area in absence of standardised definitions, completion of the project and receipt of the completion certificate and so on. Further, when evaluating multiple investment opportunities, the absence of industry standards in developer ratings, building structure comparison, price distinction across different projects and other factors create difficulties in arriving at a direct comparative approach. In brief, information asymmetries and laxity in disclosure norms need to be addressed for the sector to achieve optimum potential in development and investments.

 

:: It was a year of “slow-down, stagnancy and stalling” for real estate.

:: 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.

:: Monetary tightening resulting from RBI’s measures to control inflation was the major macro influence on the real estate business in India

:: 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.

 

Persistent problems

India has its own unique and integral complexities and business is not an exception to it. Corporations strive for increased efficiency and productivity amidst these complexities. Real Estate is an integral ingredient in the formation and growth of all businesses and steadily maturing into a big business itself. As such the performance of real estate sector depends largely on the performance of the economy and the businesses in specific. Decision makers have been in a state of indeterminacy given the fabric and structure of how the country keeps oscillating between promises and optimism and persistent challenges and policy inertia.

 

The recently approved Real Estate Regulatory Bill is an important initiative by the government to address the concerns of real estate sector. Land Acquisition and Rehabilitation and Resettlement Bill that is yet to be approved is also expected to be another step towards regulating the real estate sector. However, information asymmetries and laxity in disclosure norms need to be addressed for the real estate sector to achieve optimum potential in development and investments. While the real estate sector is moving ahead slowly and steadily, certain inaction is resulting in to stagnation from this dense and multifaceted much to be attained growth.

 

At a juncture like this, there is a need for a focused push in the right direction for the real estate industry to remain buoyant going forward. It is therefore essential for all stakeholders to equip themselves with a deeper understanding of not only the real estate sector but also the businesses they serve. The key for businesses to do well will be their ability to decipher this complexity and embrace it with a pragmatic approach, and the same applies to real estate sector.

 

References: Ministry of Finance, Press Information Bureau (PIB), Media Report, Department of Industrial Policy and Promotion (DIPP), CREDAI, The Union Budget 2014-15

 

Coordinated by Shobhana Nair

 

Post a Comment 

Comments are closed.

Today's Top Stories
Videos