Hope on the realty horizon

As we step into 2014, there is promise of something new and exciting to look forward to in the real estate sector. With the introduction of new legislations in 2013, the industry is all geared up for a progressive year, writes Bindu Gopal Rao

Year 2014 is being touted as the year of recovery for real estate. The end users will be in the market and the demand for mid and mid high segment will start improving from the second quarter of the calendar year. Anuj Puri, Chairman and Country Head, Jones Lang LaSalle India, says, “The lukewarm absorption of office spaces is likely to remain until uncertainty over some of the current headwinds dissipates. The US federal reserve’s decision on tapering (due early next year), the Indian general elections and the RBI policy direction (based on the inflation growth dynamics) are key factors to look out for in the coming six months.”

Again the sentiments continue from the last year as a spill over. Venkat Narayanan, Executive Director — Finance & CFO, Prestige Group says, “Based on the last three quarters of 2013, when the Bangalore market outperformed in terms of new launches and sales velocity, we are certainly hoping that the trend continues. Of course, interest rates will continue to be a key factor.” The presently cautious market sentiment is likely to continue, but the second half is likely to witness a gradual revival in absorption.

Manoj Goyal, Director, Raheja Developers Limited, opines, “We expect a growth in the prices of real estate by around 10% on year on year basis. It is also expected that the capital market regulator, SEBI, will notify the guidelines for Real Estate Investment Trusts (REITs) in India. This will help small investors to invest in the real estate sector.”

Shift in preference

A paradigm shift today is the preference towards exclusive and premium offerings. “Luxury housing is becoming a fad mostly because of the awareness created on the standard of living and also the role of banks in being liberal in providing housing loans. This segment has been a huge catalyst in expediting the growth of the real estate sector,” says Preenand Premachandran, CEO, Hebron Properties Pvt. Ltd.

The emergence of Tier II & III cities as an investment destination with good support infrastructure is expected to be a boost to this realty sector. According to a recent survey, Bangalore is estimated to have accounted for a record 30% share of the 1.32 lakh units launched across the top eight cities in India this year, which itself proves the positive upward growth.

“The New Year will witness the evolution of investments in real estate for both residential and commercial purposes. While retail units and the ‘mall’ culture will sustain its popularity, the hospitality industries will also gain ground in India,” says Deepak Dahiya, Managing Partner, Legal Imperials. Adds Sumit Jain, CEO and Co-Founder, CommonFloor.com, “Ready-to-move-in or soon-to-be-ready properties will be in demand than under-construction properties in 2014.” Kumar Bharat, Director, BCC Infrastructures, Bharat City says, “Precast or prefabricated construction technology is the next big thing which will not only drastically reduce construction time, but also improve on quality.”

Sectoral view

Residential market is fuelling demand and 2014 will be a year for the residential sector. “The year will be great for genuine property seekers and if home buyers have the purchasing power, they will be able to drive a hard bargain this year. It may not be a good year for investors and speculators as exiting in 12-18 months may be difficult. In the commercial sector, supply will be higher than demand and 2014 will not be good for returns,” says Aditya Verma, CEO, Makaan.com.

According to a recent research report by Makaan.com entitled Property Forecast 2014, property market in 2014 will be driven by end users and residential property prices will either stabilise or will appreciate marginally. Also, apartments will be the preferred choice of home buyers. Location and price will be the top purchase considerations in 2014 and high property prices will be the main hindrance for home buyers in 2014.

Says Sachin Sandhir, MD, RICS, South Asia, “Homebuyers will have an upper hand during transactions. It is expected that the number of launches will increase as the year progresses. This would give more options to first time homebuyers.”

Viswa Prathap Desu, Vice President — Sales & Marketing, Brigade Enterprises Ltd adds, “There will be an increased demand expected for A Grade Office Space, which will have a direct correlation to the residential sector in Bangalore. We expect to see good development in the North and East Bangalore regions as these are the locations that will see good growth in the years to come.”

Consolidation

In the current scenario, which is defined by low liquidity and increasing pain among developers, consolidation is bound to be a natural consequence. The market is currently not conducive for smaller players. While there is a sort of saturation in the Tier 1 cities, the good news is that Tier II cities have started growing with the IT and industrial sectors investing in such places.

“The notion that Indian real estate is expensive is based more on the cost of undeveloped land, which is becoming a scarce commodity, than finished residential or office space, which is still available at reasonable prices in most places,” says Shishir Baijal, Chairman and Managing Director, Knight Frank India.

The real estate business has, up to now, been a fragmented business. “That is because, in most cases, the ownership of the land is the key determinant of the project, and not anything else. That trend is fast changing. Due to the subdued environment in the last two years, access to capital has become difficult, and only those developers, who are well-capitalised, and are able to provide comfort in terms of delivery to financiers, have been able to attract capital and customers.

We expect that going forward, this trend, coupled with customers becoming more aware, vocal and demanding, the smaller, unproven developers will yield way to large developers,” says Lalit Kant, Head – Real Estate, Arthveda Fund management.

Price factor

The realty market has seen several price swings and metros have witnessed exorbitant rates. Opines B R Ravindra – Director, Pride Group, “Prices in the high-end residential sector have been stagnant for the last two years and we do not expect any change in the same, however, the prices for the mid segment residential sector has to show an upward trend because of rate consolidation, and the increase in the cost of construction and land price is being absorbed by the builders so far, as no escalation clause has been applied.”

Shreekant P Shastry, Vice President-Business, Ozonegroup explains, “2013 saw the ticket sizes between Rs 50 lakh and Rs 75 lakh doing well. This trend is expected to continue. Depending on the economical situation, larger ticket sizes may also see an upward trend.”

Prices depend on inflation and the cost of construction. According to Ravindra Madhudi, Executive Director, Samruddhi Group, “When developers come up with huge projects on the outskirts, there might be issues like water scarcity or other problems which might get difficult to deal with in a huge project, but in small units where consumption is less, problems can be dealt with more quickly.”

The residential sector has weathered rough tides in 2013. However, the perennial demand keeps it afloat. “Prices are likely to increase by a moderate 10-12% for this sector. Developers will have to battle high costs and high inventory levels, allowing them only a slight increase in prices. Commercial space in the medium price market will have to face high vacancy rate, but quality space in the high rent arena will be up for grabs due to the imbalance between high demand and limited supply,” says Advitiya Sharma, the co-founder, Housing.com.

The change in RBI guidelines on the 20:80 funding has had a serious impact on builder cash flows. “Most builders have highly leveraged balance sheets and the slowdown in demand has led to a serious pile up of inventory in most cities. In 2014, builders sitting on stockpiles of unsold inventory could be forced to lower prices to sell. Pricing being the key issue, buyers have been showing a preference for newly released stock which come with attractive pre-launch and launch offers,” says Sunder P, CEO & Co- Founder HomeShikari.com.

Reforms effect

The new Land Acquisition Bill, introduction of the Real Estate Regulation Bill, imposition of VAT on real estate, stamp duty on joint development agreement, equivalent to sale of property, etc., have been introduced in 2013. In the last three years, where not much support has been extended by the market or the policy makers, there is a strong optimism that 2014 would be a turnaround year. “The year ahead will pave the way for a smooth ride. The sector has weathered the crisis post global slowdown and it is time to leave the worst possible behind.

The government has to heed to the legitimate needs of the sector if they have 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 fortune within the sector, taking cognisance of the fact that it is the real estate in general, and housing in particular, that can put the economy on track,” says Pankaj Srivastava, COO, Maitreya Realtors & Constructions Pvt. Ltd.

Rohit Gera, MD, Gera Developments concludes, “I hope that we see the trend of eliminating corruption from the real estate sector in 2014. There should be a significant increase in transparency in the business, and reduction in costs in the process, and an overall increase in the efficiency in the real estate sector.”