MUMBAI: While the Indian real estate sector has been on a growth mode in the last three years, though not much support has been extended by the market or the policy makers, there is a strong optimism within the built environment that 2014, would be a turnaround year. Though, nothing much has changed in terms of issues and concerns of the sector as another year comes to an end, some of the policy decisions in the last six months, indicate that the sector is finally on the road to recovery. To add to it, the last budget before the general elections, also promises to take cognisance of the fact that it is the real estate sector, in general and housing, in particular that can put the economy back on track.
Collectively, all this makes the sector believe that the worst is behind and the year ahead is a year of revival. Critics may question whether there is any reason why the sector should look forward to revival in 2014. After all, it is election year where all the approval processes may slow down; the Reserve Bank of India (RBI) governor is taming inflation and there is no clarity over the next government at the centre, which is forcing economists to keep their fingers crossed for reasons beyond the realty market. However, the market fundamentals and political compulsions of the government do not support this pessimism any more.
The sentiment by and large has been that the sector has weathered the crisis, post the global slowdown. There is a strong feeling that the government has no option but to heed the legitimate needs of the sector, if it has to revive the economy before the general elections. So, the next Union Budget 2014-15, is eagerly awaited for the beginning of the revival of fortunes within the sector.
Rahul Gaur, CMD, Brys Group, asserts that the first half of the year may be confusing, prior to the elections but post the elections, the market sentiments in general, will be stable, if not bullish. Of course, the prospects of an unstable government is something that everyone within the built environment, including the banks and financial institutions, are not too keen on. Yet, the investment fundamentals of the sector are so strong that once the confusion about the next government is over, things will fall in place.
“The PE investment in Indian realty has already registered a 26 per cent increase in the first three quarters of 2013. The prospects of the Real Estate Investment Trust (REIT) becoming a reality next year, would open up another funding option for the sector and also benefit the retail investors who otherwise cannot afford to buy property. If REIT is allowed in the country without additional taxation issues defeating the purpose, it will also help the sector become more transparent and professional in its functioning. Moreover, post the elections, retail FDI will also start attracting a sizeable investment,” feels Gaur.
With the regulator expected to come into the sector sometime in 2014 itself, it will give the Indian real estate industry a much-needed image makeover in the eyes of the global investors who are apprehensive about the sector due to the opaque functioning and lack of corporate governance. Similarly, the Land Acquisition Act aims to ensure fair market compensation to the land owners and to put an end to the trust-deficit, protest and in some cases, judicial intervention, leading to stalling of the project.
Sachin Sandhir, managing director, RICS South Asia, says what can be vouchsafed is that 2013 has been fruitful from the policy and governance standpoint. The same cannot be said from the sales perspective. In a slow moving economy where the RBI’s focus has been to tame inflation and not encourage excess liquidity in the market, if the sales are still happening, it shows that there exists the right market at the right price point. “The time has come when the government, irrespective of which government comes to power post elections, has no option but to give the housing sector its due. Real estate has the potential to revitalise the Indian economy,” asserts a positive Sandhir.
More importantly, it seems that the slowdown has taught the developers a sound lesson that they have to define the demand before any new launch. The right product in the right market at the right price point, is the mantra ahead. Even in 2013, developers who have implemented this, are selling the projects despite an overall economic slowdown. So, the experimentation and learning in the Indian real estate sector, post the global economic slowdown, has led the sector well on the road to recovery.
Since the realty market is by and large sentiment driven, it seems the change in sentiments, after the next budget and the general elections, will change the sales velocity of the market as well. Reform oriented measures like REITs can further fuel the market with liquidity and hence, 2014 is largely seen as the year when maturity of the realty market will be recognised by the investors, policy makers and end-users alike.