Will the tapering of funds affect the realty sector?
Mar 19, 2014
Source : The Times of India


CHENNAI: With liquidity tapering, the US federation may consider withdrawing stimulus programmes that it provides to developing nations like India. If the federation does so, it will have an impact on our economy (particularly the real estate sector) but to a very limited extent, say most stakeholders of the industry. Had it happened 6-7 months back, it would have created a much larger impact on our economy. Thanks to some of the corrective measures that the RBI took quite recently through which it could minimize CAD to 1.2 percent of the GDP. The rupee has also corrected itself and is back to around Rs 61 per dollar mark. Today, there is some stability in the market as compared to the situation six months back.

Sachin Sandhir, managing director, RICS South Asia, says, “The Indian market is less vulnerable to tapering in comparison to other Asian economies. The recent events in the Indian economy have minimized the risks from the tapering of the US stimulus. India has managed to bring down the current account deficit in the recent months. The aggressive stand taken by the Reserve Bank of India to bring down the high retail inflation by tight fiscal measures will give positive results in the medium-to-long-term.”

However, Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield, maintains that “The looming scenario of tapering of the US fed’s liquidity infusing Quantitative Easing programme in 2014, could result in investment outflows and dictate the currency fluctuations in India, affecting all policies on tightening of interest rates to protect the rupee in the coming months.” The Reserve Bank of India had recently decided to raise the repo rate by 25 basis points to 8 per cent. Commenting on the impact of the easing, Lalit Kumar Jain, chairman, CREDAI, says that “There is nothing worse that can happen to the sector as the industry is already under pressure on various counts like inflation, rising cost of inputs, fuel price hikes, apart from the high interest regime. There cannot be a fall in prices of property as the cost of construction and capital is very high.”

Shobhit Agarwal, managing director – capital markets, JLL India, shares similar sentiments. “The US fed’s liquidity tapering is unlikely to have any major impact on the Indian real estate sector. For India, the major challenges were high inflation and political uncertainty. While the worst seems to be behind us, we don’t expect a V shape recovery. In fact, we expect the sentiment to improve in 2H 2014 and this will positively impact the country’s real estate sector.”

Sandhir remarks, “We can expect some improvement in the market only in the second half of the year. Little improvement is expected ahead of the general elections. While there are indications in the market that the overall economy is stabilizing, the Indian real estate market will continue to remain weak on account of domestic problems. High retail inflation, high interest rates, high cost of raw materials, rising cost of labour and shortage of skilled professionals, have been the impediments so far. Sales too have been low.”

Negative sentiments of the people definitely has an impact on the realty sector as buying a home continues to remain an emotional decision, agrees Ravi Ahuja, executive director, Cushman & Wakefield India. “If the stock market falls due to the quantitative easing, real estate will also be negatively affected as the sentiments of the people are negatively impacted. This easing will drive the Indian macro-trend which can either become positive and growth oriented or cautious,” says Ahuja.

Pradeep Jain, chairman, Parsvnath Developers Limited, concludes by saying that “As far as real estate is concerned, I do not see much impact of QE, reason being rise in the PE investment in the last three quarters. For the sector, one of the major sources of funding is PE investment, which has grown by 26 per cent to Rs 4716 crores since January 2013. We foresee this trend to continue, thereby, safeguarding our flow of fund.”

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