BANGALORE: As the country heads towards the general elections with policy uncertainties expected to get resolved once a new government assumes office, it seems that the Indian real estate sector is yet again high on the wish-list of the investors, both, domestic and international. If the investments and the policy announcements since the second half of 2013 are any indication, there has been a clear indication that the phase of over-cautious market sentiments is getting over. Furthermore, there is a general feeling that the new government will have more industry-friendly policies, in general, and with regard to the real estate sector, in particular.
Market movement which has been slow for nearly three years now, is once again abuzz with activities and even the incumbent government at the centre, has rolled out policy initiatives, including clarity over the regulator, land acquisition, REIT, SEZ, among others, to give the market reasons to feel optimistic. Analysts maintain that the year 2013 has been the beginning of the revival of the Indian real estate market. They believe even if the sentiments have not been bullish from a sales perspective due to high interest rates and overall macroeconomic sentiments, the year has been reasonably well from the standpoint of sector’s quest for finance and the direction which the sector can look forward to.
Facts speak for themselves. As per a recent report by Cushman & Wakefield, the total inflows during the year 2013 stood at Rs 7,000 crore ($1.2 billion), compared to Rs 6,200 crore in 2012 ($1.1 billion). Overall, private equity investments across sectors in India, have also increased by 11 per cent, from $9.49 billion in 2012 to $10.5 billion in 2013. The increase in private equity inflows was primarily due to rising investments in residential assets and other sectors like retail and hospitality. While the number of deals has increased to 40 in 2013 as compared to 34 in 2012, the average deal size has declined marginally and was approximately Rs 175 crore ($28 million).
Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield, says, “A large number of global investors, including a number of sovereign funds, have taken the first move by partnering with successful local investors and developers for investing in the Indian real estate market. This is expected to result in high transaction activity, especially in income yielding commercial office assets during 2014.”
Sachin Sandhir, managing director-South Asia of RICS, reiterates that in the last few months, whether it was the Land Acquisition Act, the Regulator Bill, the REIT guidelines; suddenly there was a plethora of activities happening in the finance ministry, as were measures to get the economy back on track. Looking ahead, from a policy perspective, there have been some measures which at least, give out some hope that post elections, depending on which way it pans out, there would be some progress. He believes some of these developments have the ability to change the market dynamics significantly. “Looking forward, it all depends on the elections and whether there is a decisive mandate. That will decide the overall macro-economic sentiment. One would still believe with the great India growth story and the real estate as the best asset class, there will be some rebound in the second half 0f 2014. I believe there will be more rationalisation from the policy perspective and price points. Post the Lehman crisis, it has been monitored that in some markets, the new launches with a price rationalisation has propelled the transactions and led to a resurgence,” points out Sandhir.
Neeraj Bansal, partner-Real Estate and Construction with KPMG India, is of the opinion that the rules of the game are changing and he feels that in 2014, the developers will be forced to put their own house in order. “The consumers are very aware these days and competition is intensifying. With REITs bringing in some good capital, if you have a good game plan in place, then 2015 or 2016 can be a smooth ride,” says Bansal.
However, Gaurav Gupta, MD of SG Estates, has a caveat here when he says that everyone is expecting the real estate developers to put their house in order. No one is talking about the government putting their house in order. According to him, the new government must be clear about policies and guidelines on all the regulatory measures. “We are often confused with the price point of the product in absence of clear guidelines. We don’t need a regulator; we need a facilitator who not only controls us but also helps us in getting certain approvals in a timebound manner, which also helps us in delivering on time and helps us in improving our image. We are suffering from an image deficit due to policies,” insists Gupta.
Beyond these discussions about policy facilitation, or rather the lack of it, the fact of the matter is that, international players are looking at the Indian realty market with some renewed interest. For example, Kuwait-based investment company Hayat Invest, as part of its plans to foray into India’s domestic real estate business, has announced its first residential project near Chennai, under its joint venture Indian partner, XS Real Group. Hayat Investment Company would invest about USD 100 million in next couple of years. For the first two projects, it will invest about USD 25 million.
This may be one major foreign investment in the Indian market after a lull phase but is definitely indicative of a change in mindset as far as Indian realty as an investment destination is concerned. The Indian market is definitely poised to attract major investments this year and the analysts are unanimous that post the general elections, the capital flow into the sector will revive the fortunes of Indian real estate.