DELHI: Hit by slowing economic growth, rising borrowing costs, and high property prices, demand in the realty sector remained subdued in 2013—particularly in the housing segment—resulting in sales slowdown and pressure on asset pricing across leading cities. Experts say the current cautious market sentiment is likely to continue, as headwinds to growth will prevail at least until the first half of 2014.
However, demand for property is expected to increase in the second half of this year. A newly released report by real estate services major CBRE says that sentiments are expected to improve in 2014 in case a clear political mandate is visible following the general election in April-May. A clear, forward-looking and reform-oriented economic policy by the new political dispensation may just trigger growth by the second half of 2014, the report says.
Another report by real estate consultancy firm Jones Lang LaSalle India also speaks along similar lines. According to it, consumer confidence will remain subdued during the first two quarters of 2014, owing to uncertainties surrounding the general election and macroeconomic conditions (global and domestic). However, after the election, fence-sitting investors are likely to become active. The increase in absorption of residential units will help reduce the currently large inventory holdings of developers.
A recently-observed trend of a gradual fall in supply in response to the subdued demand will only reverse with a lag, helping prices strengthen gradually in the second half. Therefore, pan-India residential real estate prices are likely to grow at 10-12% YoY (year-on-year), factoring in input-cost inflation and a gradual pick-up in demand. The risk to this growth estimate is largely on the upside, considering that after the election, a great deal of uncertainty, which currently exists, will be put to rest, the JLL report says.
Although a handful of industry experts still remain cautious, a majority of them seem to be hopeful of a recovery in the property market, fuelled by a variety of factors.
Gaurav Gupta, director of SG Estates, says: “2014 looks to be the year of hope after a dull and average year (2013) for the real estate industry. We hope to get a stable government by the middle of the year and inflation is also expected to ease by March 2014. Rates of interest are at their peak and are expected to fall from here onwards. These factors will create positive sentiments and the sector may look up again. I expect the demand to pick up and prices to firm up from the second quarter of 2014.” Om Chaudhry, chairman and CEO of Astrum Homes and (CEO) Fire Capital Fund, echoes similar views, saying that with a stable government in place by mid-year, 2014 should see a more robust economic environment, which will definitely help the real estate sector.
“While the first half of the year is likely to remain sluggish or improve slightly from where it stands today, the latter part of the year should see the return of good times for the real estate sector. While housing will continue to be the driver of growth, commercial real estate will pick up towards the second half of the year,” Chaudhry says.
Demand for affordable housing is also likely to drive growth. In fact, the realty sector as well as the economy will get a big push if affordable housing picks up in a big way. “The demand is huge and growing, but high land rates, long project approval process, and lack of availability of long-term funding are big impediments to the growth of the sector. Higher FSI levels in our cities, single-window approval, faster environment approval and fiscal incentives for affordable housing are expected to happen in varying measures in the near to medium term,” Chaudhry says, adding that there will hopefully be continuing focus on affordable housing, which will be the focus area for the medium term, not just 2014.
In 2013 while the depreciating rupee helped generate demand from foreign investors in India’s property market, domestic homebuyers’ sentiment remained cautious because of relatively high price points and housing preferences shifting to secondary and emerging micro-markets of leading cities.
“Homebuyers had serious complaints about the high prices of residential property, which caused concern in the realty market of the Delhi NCR last year. Due to this reason, demand did not take off as expected,” Vijay Jindal, CMD of SVP Group, says.
If the developers resort to some price cuts this year or alternatively, increase focus on affordable housing, it will surely boost the sector, mostly helped by fence-sitting investors.
“If new supply comes in at an affordable-price band, demand might take an upturn. In fact, most of the end users who are living or staying on rent will purchase a house in 2014. An almost equal number of second-home buyers or people with dreams of bigger homes or long-term investment will be able to fulfil their requirement this year,” Kaushal Jain, MD of Arihant Group, says.
Manoj Dwivedi, CMD of Shri Infratech, says: “As we move into 2014, it is very important to gauge the mood of homebuyers. A majority of them want to buy a home as they are staying in rented apartments. Therefore, a firm policy aligned with reality of our times to encourage affordable housing will ensure inclusive development.”
Dwivedi says that FDI in multi-brand retail will also boost the demand for commercial real estate in 2014. Since this policy facilitates the entry of major MNC retail brands into India, organized retail sector will see a major transformation in terms of its overall contribution to the economy. The recent policy initiatives are expected to improve the investment climate and business environment, and are likely to benefit the real estate sector in 2014.
While realty experts and property developers expect the sector to come back strongly in 2014—overcoming the current slowdown plaguing the sector in the last few months—they say this would not be possible without concrete policy support from the central government and the RBI.
“We hope that the outcome of the general election will definitely have a positive bearing on the economy. Each segment of our economy, be it consumer, businessman or investor is eagerly awaiting the formation of the next government,” Dwivedi says.
Ravi Saund, COO of CHD Developers, also expects the realty market to look up after the general election. “Stable government, sustainable policies, conducive RBI policy, better industrial growth, and focus on industrialization, improved infrastructure, and timely delivery of infrastructure will lead to positive market sentiments,” Saund says. He, however, cautions that new investors will not come in unless the rupee stabilizes and that the market will largely be end user driven.
“Developers riding on good reputation, decent location, right price point, and transparency in delivery will be able to hitch their wagon to success,” Saund adds.
From a policy standpoint, the passage of the Land Acquisition Act, the proposal for setting up the Real Estate Regulatory Authority (RERA), and the consideration of Real Estate Investment Trusts (REITs) are all likely to pave the way for long term reforms in the industry.
“Although India is not yet a significant player in the regional real estate investment market, going forward, we expect the entry of REITs to provide alternative funding channels to the realty sector. This might trigger strong growth in the sector’s investment volumes. Add to that, the growing attractiveness of core real estate assets—like commercial office and residential—and the projected recovery in economic sentiments could well position Indian real estate as a priority terminus for global institutional investors in the coming years, ” the CBRE report says. Talking about the sector’s expectations from the government, Vijay Jindal of SVP Group says that in 2014, “we are expecting some much-needed remedial policies so as to attract homebuyers and revamp the slump in sales. Also, the entire Delhi NCR market has to be made suitable for foreign direct investment to pour in. This is a very crucial and investment-yielding sector in India, which is why corrective reforms should be made so as to make it more lucrative and budget-friendly.”
If the government takes these measures for the real estate sector, the benefit will extend through the real-estate-economic-multiplier and the economy will benefit, as the sector’s contribution to GDP can be more than double the 5% it is now. “All these initiatives are vital to taking India’s economic growth to the targeted double digit levels,” Chaudhry of Astrum Homes says.