What is the connection between real estate and elections
Apr 01, 2014
Source : The Economic Times

 

MUMBAI: While all eyes are on the general elections, the real estate sector is holding its breath for the potential optimism that is expected once the results are out. This optimism is expected to boost transactions and lift homebuyer sentiment.

There is no doubt that the actions and inactions ascribable to the current government have made homebuyers and developers anxious. The next government's economic and employment policies will be key drivers to growth in the real estate sector for the next five years. 2012 and 2013 were not the best years for the Indian realty market, and the slowdown impacted all asset classes, except in a few pockets. Revival is no doubt the need of the hour.

There is a sense of hope among developers for a positive post-poll scenario. Will things start looking up for the sector after the general elections? Will clarity on the new government lead to businesses investing? So far, none of the campaigns have outlined a comprehensive proposal for recovery of the real estate market - specifically in terms of providing more housing and managing interest rates.

Cash Crunch Ahead Of Elections

In India, the property market is a key election financier, and considerable amounts of unaccounted money are being pumped out from the real estate sector to fund the elections. Before the polls, developers are expected to provide liquidity to politicians so as to finance their campaigns. Many developers who are funding possible candidates are delaying their projects due to the lack of liquidity.

The timing is certainly bad. Reduced housing absorption has already adversely impacted developers' liquidity and in turn, developers' funding ability. Political commentators also note that certain properties are sold below market rates in order to generate cash for the election campaigns. Given this situation, many developers cut down on new launches and focus solely on selling the existing inventory.

Realty After Elections

With just a few weeks to go before the world's largest democracy chooses its new government, fence-sitting investors and homebuyers will remain spectators for that period and make their moves. Many assume that property prices will shoot up post elections, but this expectation in unfounded - there are too many factors at play, regardless of which party wins. Election results do not make or break a market, but they do affect market sentiments to a significant degree.

Over the last few quarters, political uncertainty has significantly weakened buyer confidence in many regions. A decisive win for any of the alliances will uplift homebuyer sentiment and the property market will see a return of buyer demand due to the reinstatement of confidence. Post elections, if the road to recovery is unhindered, property buyers may very well re-enter the market in good numbers.

Great Expectations

Political uncertainty certainly has a tangible effect on the Indian real estate market, and it is not easy to separate political uncertainty from broader economic factors such as job creation and interest rates. A better vision on infrastructure will help make the market more buoyant. New infrastructure initiatives have a tendency to boost pricing of residential property in the immediate vicinity.

The manifesto of one of the parties in the electoral fray mentions several initiatives in the infrastructure space, with an intended spend and spending $1 trillion on upgrading India's infrastructure over the next decade.

It also commits to significant expansion of and improvement in the Indian Railway network, including covering a million plus cities by high-speed rail. The manifesto also mentions upgrading the infrastructure of the port sector, developing inland waterways to strengthen infrastructure and encouraging public private partnership for the creation of world-class airports.

The manifesto of this party's strongest opponent has a lot to live up to. Considering the disdain with which it dismissed the opposing party's manifesto, what the real estate sector would expect from this party is a dedicated focus on housing and infrastructure investment, given its vision of a 12 per cent GDP growth rate.

The key factors currently at play on the Indian real estate are unsold inventory, absorption and interest rates. It is unlikely that these factors will change immediately post polls, regardless of which party wins. Over the longer term, what will matter most to the real estate sector are a hard relook at FDI in housing, REIT legislations and the effective implementation of Real Estate (Regulation and Development) Bill.

The Reserve Bank of India will pay a key role in the post-election scenario, be it in bringing down interest rates for home purchase, or allowing flexibility to reintroduce subvention schemes, or restructuring debt for debt-ridden developers. The RBI's role in deciding whether to ease lending rates in order to make it easier for more people to qualify for a loan - and magnitude of down payment needed to buy a home - will also impact the real estate market.

Undoubtedly, a new stable government will boost businesses and ignite investor confidence. However, the real impact of any changes will not reflect in the economy for at least another one year, and the effectiveness of any new initiative is something only the future can tell.

A combination of bottomed-out property prices, low interest rates and a return of buyer confidence can create the perfect environment for recovery - and even a bull run. If the incoming government is able to keep interest rates low and employment generation high, it will provide the platform for a far more stable and investment-friendly real estate market.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Latest Realty News

10 more days for property tax recovery even as fiscal year ends
Apr 01, 2014
KOLHAPUR: The Kolhapur Municipal Corporation (KMC) has extended the recovery period for property tax for ten more days though the financial year ended on March 31.
Five risks worrying RBI governor Raghuram Rajan about India
Apr 01, 2014
DELHI: Highlighting that the Reserve Bank of India's (RBI) policy stance will be 'firmly focussed' on keeping the economy on a disinflationary glide path, the central bank governor Raghuram Rajan on Tuesday kept all key rates unchanged in the monetary policy review.
Ahuja Group raises ?60 crore from Motilal Oswal realty fund
Apr 01, 2014
MUMBAI: Motilal Oswal’s second real estate private equity fund called India Realty Excellence Fund II LLP has made a fresh investment of ?60 crore in Mumbai-based developer Ahuja Group’s housing project.
Lift for real estate, jewellery markets on Gudi Padwa
Apr 01, 2014
NASHIK: The real estate sector and the jewellery market saw good business across the city on the occasion of Gudi Padwa on Monday.
Guide to stamp duty for homebuyers
Apr 01, 2014
MUMBAI: Stamp Duty is one of the many expenditures that home buyers pay to own a property. However, most of us don’t know what stamp duty is and what it comprises of. Here is the brief on stamp duty for all the prospective home buyers.
Is Mumbai and Pune market going to see a major change on gudi padwa?
Apr 01, 2014
MUMBAI: “Buyers are back in the housing market!” exclaimed one of the city builders with a sigh of relief and they have enough reasons to be relieved. There is a considerable rise in the sale numbers, compared to January and February. City builders are only hoping that this trend will continue in the coming months as well. Madhurima Basu, director – residential services, Cushman & Wakefield, says, “Increase in demand is expected, due to developers offering discounts and subvention schemes to att
Gudi Padwa will boost market sentiments
Apr 01, 2014
PUNE: Gudi Padwa is believed to be the most auspicious time for a ‘new beginning.’ The emotional quotient of buying a property on this propitious day is very strong. Many prospective buyers wait for months and put in all efforts to lock in on a deal, on this day. Developers have come forward to lure the buyers and offer a wide range of properties to every segment, including end-users and investors.
Growth centres planned by state yet to see the light of day
Mar 31, 2014
THANE: The state government's plan to set up growth centres at Bhiwandi, Kalyan-Dombivli and four other locations has developed a hitch.
Civic body to auction 28 blocks in APMC market
Mar 31, 2014
AURANGABAD: The Aurangabad Municipal Corporation (AMC) on Sunday initiated the auction process of 28 blocks belonging to shop owners in the Agriculture Produce Marketing Committee (APMC) complex at Jadhavwadi market after they failed to pay property tax.
Big purchases add sheen to Padwa celebrations today
Mar 31, 2014
PUNE: For Prachi Puranik of Pashan, this year's Gudi Padwa on Monday is particularly special as her family will bring home an SUV.

Latest Realty News Of State

Realty Talk's