Real Estate sector up for a positive transition in 2015
During the past few years, the Indian real estate sector had to confront tough times; difficult economic and business environment and high inflation affected all stakeholders such as occupiers, investors, developers and home buyers.
Theyear2014brought in positivesentimentaroundIndian real estateandamongIndian as well as internationalinvestors in recenttimes,mostlydue to the formation of newgovernment as it enthused the investorandbusinessconfidence in the Indianeconomy.There were numerouspositivepolicyannouncements which helped in generating a favourablemoodfor the realestatemarket.During thepastfewyears,theIndian real estatesectorhadtoconfronttough times;difficulteconomicandbusinessenvironmentandhighinflationaffected all stakeholderssuch as occupiers,investors,developersand home buyers. As a result,significantunsoldinventoryandexecutiondelayswereprevalent in almost all real estateclassesduring the pastcouple of years. In the last fewmonths,policymakershavetakenseveralinitiatives to revivethe real estatesectorandimproveinvestor and buyerconfidence.
Thefollowing are possiblegrowthdrivers which can helporchestrate a speedyrevival of the sector in 2015.
Economic GrowthDrivers:RealEstate is regarded as the backbone of the Indianeconomy as it contributestoabout5-6% of the nation’sGDPand is the 2ndhighestemployerin the country(afteragriculture).Nowadayswith the changingmindset of consumersandtheirshift of focusfromliving on rent towardsowningtheirownproperty,therealestatesectorhaswitnessedhugedemand in the residential segment.Thedemandforcommercial developmentisalsogrowing at a fastpacedue to a paradigmshiftfromunorganized towards organized retail coupledwithincrease in MNC’sinterest in establishingofficeshere in India.The real estateandinfrastructuresectormaybenefit a lot from the slide in oil prices which is up at almost 25 percentover the pastfewmonths.Unlikemany other Asiancountries,Indiaprovidesautomotivefuel at fixedpricestotheconsumers,thususheringsomemonths of budgetarysavingfor the governmentexchequer.Add to that, the highpossibility of interestratereductionby RBI in the firstquarter of 2015 will be a boostfor the realtysector.
GovernmentPolicies/Regulations-Although real estatesectorhasbeen on top of the priority of the governmentbut it still lacks clear laws tobeguided,apartfromvariousotherchallengeslikelack of clear landtitles,absence of industrystatusandrisingmanpowerandmaterialcosts that havebeenrestricting its growth.TheGovernment of Indiahas taken severalinitiatives to encourage the development in the sector.Someof them includerelaxation of FDIrules,establishment of REIT,redefiningaffordablehousing,Housingfor all by2022, tax incentive on homeloans,SmartCityprojectsandsetup of NationalIndustrialCorridorAuthority.Allthesegive a clearpicturethat2015 can be a verypositiveyearfor the real estatesector as well as forIndian economy.It is also likely that thegovernment willamendtheLand Acquisition Act. which mightgiveimpetus to investment in infrastructuredevelopment.
A number of regulatorychangesandpolicymeasureshavebeeninitiatedthisyearand are likelytobear a positiveimpact on the Indian real estatesector.Suchpolicies will help reduce the riskperceptionassociatedwith the sectorandensuregreatertransparency in transactions.Thistransformation is expected to attractlargerglobalinvestments that will contribute to better real estateproductofferingsand a morevibrant,matured real estatesector.
FinancialGrowth:Indiahashugepotentialtoattractlargeforeigninvestmentsinto real estateand the global real estateplayers are looking at emergingeconomiessuchasIndiafortappingopportunities in real estate.Almosteveryinvestor today seekstoinvestsomepart of his asset allocation in the real estatesectortosafeguard againstanyfinancial marketfluctuations.Investing in real estatethroughhome loan routenot only gives the convenience of investing,butalsotaxbenefitsfortheamountrepaid. With the NarendraModi led NDAgovernmentannouncing its plans to buildover100smartcities,smartcitydevelopment is the nextbigopportunityforbuildersandinvestors.Some of theexisting smart cityprojectshavebeen witnessing a growthprospect of 10- 15%annualincrease with expertssuggesting a muchbetter long terminvestmentprospective.Forthoseseeking to investwith a long term prospective,investing in Smartcities can be the bestinvestmentdecision in thecoming year.
InvestmentScenario-PrivateEquity(PE)fundinghaspickedup in the last one year duetoattractivevaluations. It hadbeenprojected that privateequityinvestmentsinIndia is touched a staggering$12billion in 2014primarily on account of reform measurestakenby the governmentat the centre.Bangaloretopped the PE transactions in the firsthalf of the year with Rs. 2500 cr as againstmerelyRs.103 cr in the previousyear.Mumbai also witnessed a good inflow of investments worth Rs. 1140 cr majorly in residentialsector.Theincrease in PE investments in Indian real estatehasbeenmajorlyduetoincreasinginvestments in leasedofficeassetsbybothforeignanddomesticfunds,giventhepotentialforstableyieldsandattractivecapital value. Domesticcompanies are moreinclined towards investing in real estate sectorbecause of companiesstarted to acquirelandandspacesrequired to stimulateandexecutegrowthstrategies.Thedevelopers'communityisupbeataboutforeigninvestmentsand are optimisticforfurtherinvestments in the comingyear.There are reports that investmentsworth$4.5billion were made intorealtysectorduringtheperiod of January-September2014, which givesanotherclearindicationofgrowingpositiveinvestmentsentiments in the sector.
TechnologicalAdvancements:Technologicaladvancementshaveplayed a major role in evolving of Indian real estatesector. Real estatedevelopersareadoptingadvancedconstructiontechnologiesforfasterexecution of housingprojects.Thenewsoftwaresolutionshavebeendoingwondersfordevelopersbybringing in accuracy, moreaccessibility and timely completion of projects.Adaption of advancedconstructiontechnologies is becomingincreasinglyimperativeowing to rapidpace of infrastructuredevelopment,tighterprojectcompletionschedulesandacutepaucity of skilledworkers.Moreover,thisyearwesawonlineRealEstateportalsrevolutionizing the wayproperty is sold. Over 500houseswere sold onlineduring Great OnlineShoppingFestival(GOSF)bygivingbuyers a 3D view, map basedsearch,access to applicationbasedsearch,thusadding to value to theoverallbuyingexperience of the consumerandremoving the brokersystem.Theuse of technologywillcontinueto transformthefield in the years ahead,enabling homebuyers to research both propertiesand theareas in whichthey are located,includinglookingatpicturesandfinding out about the neighbourhood’sschools,crimeratesand other statistics.Marketing over the internet with pictures of propertiesandvirtualtours will beimportantforbrokers as majorityofpeopleuse the internetbeforepurchasing real estate.
The road ahead:Overall,2014 was veryencouragingfor real estateindustryprovidingmorehits than misses, compared to last few years. Thefirsthalf witnessed a hugeslowdownmajorlydue to politicalambiguityandpoorbusinessconfidencewhereas the secondhalfsaw a suddenuplift in the sentiments of bothbuyersand developers. Theformation of new stable government at the centrerehabilitated the dyingeconomyandfuelled the growthbut in terms of its impact on the realtysector,while it didhave a positiveeffectbutanysignificantimpact can only beseen in the comingtimes. In 2015,overallpropertymarkets are expected to continueedgefurtherintorecovery. If all aforementionedfactorscontinueboostingIndian Real Estate then we can surelywitness a hugetransformation in terms of investmentscoming in thissector. As of now, real estatebeing a capitalintensivesectorhasbeen seen chasingforcapitalbutputting all thesereforms in place it won’tbesurprising to seecapital chasing the sector in thenearfuturemaking it one of the mostlucrativesectorsforinvestment.
The author is Chairman& ManagingDirector,PosiviewConsultingPvt. Ltd.
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