India's image in the field of business and policy environment is gradually changing with the government's intent to promote business, leading to better prospects for the country at the moment. In an exclusive interaction with ET, US-based JLL Inc President and CEO Colin Dyer says that India now has a positive face in the form of Prime Minister Narendra Modi. Edited excerpts:
Has global business leaders' and investors' perception about India, and Indian real estate for that matter, changed in the past one year since the new government took over?
Perception has become positive in the past one year since the uncertainties surrounding elections have passed. Also, the current government is quite engaging with the industry which improves confidence amongst business leaders and investors.
PM Modi is changing the perception about India and its business environment steadily. They (investors) also seem convinced with the government's vision, and will be closely watching the action, going forward. Initiatives such as Housing for All by 2022, Smart Cities, development of tourist circuits, etc., are positives for the real estate industry.
There are a lot of new regulatory developments taking place in India, how do you perceive this from a foreign investors' (private equity, investors and commercial space buyers) point of view?
Relaxed FDI norms, facilitation of REITs (Real Estate Investment Trusts), attempts to increase transparency through Real Estate Regulatory Bill are steps in the right direction. Foreign investors have been viewing these moves as a positive for the industry and this will improve the investment inflow into India.
Where does Indian real estate stand vis-a-vis global markets in terms of transparency? Will the Real Estate Regulatory Bill help in improving accountability and transparency?
India is still perceived as a market that is semitransparent, particularly when compared with mature markets like the US, UK, etc. However, it appears to be a lot more respectable market off late in the Asia Pacific region. The only two countries (in APAC) that feature better than India are Singapore and Hong Kong; they have been the most transparent markets in the region.
As of 2012, Indian tier-I was ranked 48, which has improved to 40 as of 2014. Similarly, in tier-II cities, ranking has improved from 49 to 42 during the same time period. On the other hand, China's ranking for tier-I cities fell from 32 to 35, and for tier-II cities, fell from 46 to 47, during the same period. India has performed very well on the transparency front. And yes, the regulatory bill will surely help to improve transparency, but it will take some time .
What do you think needs to be done apart from setting up a regulator to improve the consumers' and investors' confidence?
India must put in place a system to augment the government delivery mechanism as this is outside the ambit of the regulatory bill in its current form. Faster approvals, faster dispute redressal system, reduced information asymmetry are things that will make Indian markets mature and will strengthen consumer and investor confidence. We believe that some of these will be addressed with the establishment of the regulator.
How do you think the Indian property market is performing vis-a-vis other global markets like China and mature markets like US and UK?
As discussed earlier, Indian real estate market is not comparable to those in the West as they are vast and mature. However, when compared with China, Indian real estate space looks more favourable at present.
Do you think, property prices in India — particularly in Mumbai and Delhi — are unaffordable, which is keeping buyers away?
Yes, property market in India seems unaffordable to many. Existing completed projects that command a higher price are finding few takers owing to lack of depth in demand. However, developers have realised the current market scenario and have been launching new projects that bridges this misalignment in prices.
What factors could revive the demand? Is there a possibility of some rationalisation in property prices in some of the metros in India? If so, by when and how much?
The most important factor for reviving demand is price. Unless price is lowered, we foresee limited participation from consumers. India is a pricesensitive market and a slight reduction in price could make a big difference in demand, as seen in the past. Developers will also have to come to terms with the new normal profit margins that are acceptable to the market. They will have to balance between price reduction and sentiment management.
In the middle-income group, around 5% reduction in prices will help improve the sale velocity. For the high income and luxury category of homes, prices must fall in the range of 5-10% for the desired improvement in sale velocity.
Lot of luxury brands are joining hands with Indian developers for branded residences in India...is India ready for such offerings? What could be the next trend one can expect?
The tier-I cities of India have already seen the emergence of branded residences and some of them have received good response. However, at this point in time it is too early to judge whether this trend will catch on in tier-II cities and beyond.
Most Indian cities have FSI usage limit. This is in contrast with international cities...your views?
In India, FSI is linked with the existing infrastructure. Most cities are struggling to cope with the existing infrastructure and therefore are stuck with the existing FSI limitations. City planners in India understand the problem and they have been constantly working towards finding a solution. Either they can increase FSI and consequently make the city more dense, or simultaneously improve the infrastructure for a coordinated effort towards growth of the city. Indian cities require higher FSI, but it is more important to do that in a planned manner.