Realty Check | Day 9 | Jackbastian Nazareth: After the elections, fence-sitting investors have become active

19 Aug,2014

By Jackbastian Nazareth
Group CEO, Puravankara Projects Limited

 

Real Estate is completely driven by market sentiments. In the last 6-7 months, demand in the market has revived. The industry also saw some new launches. Government agencies and authorities also came out with some favourable steps like the Regulatory Bill and REITs which has further strengthened sentiments. The trend is expected to continue.

 

Despite an overall slowdown in the economic scenario due to high inflation and reduced sentiments, the Indian real estate sector continues to be a favoured destination for global investors. Real Estate sector growth is projected to be around 15% YoY, in the next 3-5 years even as India’s GDP grows by 12-13% according to IMF estimates.

 

Global investment in the real estate sector is likely to increase 55 per cent to $45.3 trillion by 2020 from $29 trillion in 2012. The future investment in developing Asia-Pacific countries, which includes India, is likely to rise by 140 per cent to $10.2 trillion by 2020 from $4.3 trillion in 2012.

 

Consumer confidence is expected to remain subdued until the second quarter of 2014 due to uncertainties surrounding macro-conditions. However, after the elections, fence-sitting investors have become active. The increase in absorption of residential units will help reduce the currently large inventory holdings of developers and residential prices are expected to raise 10-12 per cent during 2014.

 

While domestic demand will remain stable, NRI demand will be on the rise because of rupee-dollar fluctuations.  The depreciating rupee has rendered properties in India almost 20 to 30% cheaper for NRIs. Consequently, the value of NRI remittance has risen over the last 5 years, amounting to nearly $70 billion in 2012, 2 to 4% of which was apportioned to real-estate purchase. The NRI market contributes around 35 to 40% of the total real-estate investment in India; that trend is expected to continue in the coming years

 

The coming year could be a defining period for India’s construction industry. Liberalization of policies and a concerted effort by the government can open several doors to the construction companies. The real estate regulatory bill will usher in greater transparency and standardization in the sector.  One remains optimistic that the bill would be a step closer in affording industry status to real estate and enable favourable RBI policies.

 

The housing industry of India is one of the fastest growing sectors. A large population base, rising income level and rapid urbanization leads to growth in this sector. Housing shortage estimated for urban India at 18.78 million and rural India at 43.67 million wherein 90% shortage is for Below Poverty Line and EWS/LIG segments

 

The issues pertaining to housing are deeper and more inherent than those pertaining to consumer durables or the automobile industry. Resolving these issues involves fiscal adjustments to key real estate-linked policies and may even require constitutional amendments. That said, the support extended to the affordable segment is positive, and will hopefully help revive construction activity beyond the leading 3-4 metropolitan cities.

 

With new regulations in place, affordable housing will definitely continue to be an area of focus. We expect more developers to enter into the budget homes segment in order to take advantage of tax incentives, and also the greater demand-supply mismatch there. However, the key to success of such schemes remains the timely and transparent implementation of the announced scheme and the completion of the said projects.

 

Domestic construction overall has also been jostling with steep and steady rise in prices of land, cement and other input materials over the years. Steel, cement and labour are the main components of house construction and account for almost 75 per cent of overall construction cost and these have witnessed significant rise during the past few years. Labour cost alone in the construction industry has increased by over 30 per cent compared to last year (2012-13).

 

Additionally, the current high interest rate of bank’s loans also contributed in rise of construction cost. State governments need to adopt a proactive role in creating affordable housing and work on the public private partnership model with realtors to develop such projects. Once the single window clearance for real estate projects comes into existence the realty sector will get a major boost – CREDAI

 

The current economic churning has hit hard on most of the sector and real estate has witnessed the severe blow as most of the housing developers are grappling with huge inventories. In these circumstances, affordable housing segment has enough growth prospects if it is backed by proper policy framework by the government and increased public private participation.

 

Structural changes at the regulatory level, stiff policy actions to restore the land acquisition, speedy single window clearance among other reforms will be very welcome.

 

The Real Estate regulatory bill will assure in greater transparency and standardization in the sector. One remains optimistic that the bill be a step closer in affording much needed industry status to Real Estate and enable favourable RBI policies.

 

With the rise in the number of cities, urban infrastructure has not kept pace and has emerged as one of the biggest challenges. The Government has initiated a number of projects such as the construction of metro rail lines in many Indian cities and is also looking at ways to integrate it with intelligent transport system and introducing 100 smart cities. India needs specific governance and management as it is a complex nation. There is a need to adopt and adapt the new India vision.

 

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