End-users, not investors, will drive real estate this year
After 2015 failed to bring cheer to the property market, the new year may have begun on a promising note. Industry officials say slump is a thing of past and sales are slowly picking up in a few cities, including Mumbai, Hyderabad and Bengaluru.
Developers’ initiatives such as offering attractive schemes and deals to buyers, coupled with lowering of rates by the Reserve Bank of India, seem to be encouraging the fence-sitters to enter the market.
Buoyed real estate experts see stagnancy ending this year and the sales rising 25% across the country.
Pankaj Kapoor, managing director of property research firm Liases Foras, told dna India, “2016 will be end-user driven market and not investor-driven. We could probably see sales growth of 50% in the Mumbai Metropolitian Region with 65,000 units being sold in 2016. This is because affordability is improving and there is no scope of price correction. While in major cities such as Delhi-NCR, Hyderabad, Pune, Bengaluru, Chennai and Ahmedabad growth of 25% is anticipated.”
Though the challenges of demand-supply mismatch and high unsold inventory remain, there are signs of revival. Experts said the real estate market is maturing and, as a result , the risk-return expectations have come down to a more sustainable levels.
According to a JLL India report in the last quarter, cities such as Mumbai, Chennai and Bengaluru showed a marginal decline in the unsold inventory. Anuj Puri, chairman and country head of JLL, told dna, “Gone are the days when developers and investors made exorbitant returns on the back of information asymmetry and demand-supply mismatch. However, the opportunity in India still remains as the country continues to be a supply-constrained market in terms of real estate.”
Though largely lull, 2015 still brought some good news for the sector. A much-delayed real estate regulation Bill cleared by Cabinet last year and awaiting Parliament approval is expected to help home-buyers get a fair deal in a sector known for delays and overpricing.
“The regulation Bill is need of the hour. If it becomes a reality in 2016, the perception of real estate sector in India will undergo a sea change. The transparency will bring in the much required confidence of consumers and financial institutions. I expect not only the flow of funds to increase but a substantial reduction in cost of funds too,” Samantak Das, chief economist and national director-research at Knight Frank, told dna.
Secondly, in order to encourage FDI in real estate, the government has relaxed norms related to entry conditions (quantum of investment and size of projects) as well as exit conditions (lock-in period and phase-wise exits). This could trigger a new wave of FDI investments into the sector in the near future.
“The more adventurous investors can place their bets on markets that could benefit from major infrastructure development. For instance, it has been observed that whenever a new transport infrastructure is created, the benefiting micro-markets witnessed significant growth in sales and capital values. Often, entry of renowned developers in a new micro-market gives an indication of the upcoming development of that micro-market,” said Puri of JLL.
On the other hand, 2015 was remarkable year for commercial realty. According to the JLL report, India’s office space absorption during 2015 stood at 35 million sq ft – the second-highest after 2011. The demand for office space in 2011 came from occupiers taking advantage of low rents after the global financial crisis. This time, however, it was the result of corporates implementing their growth plans. Cities such as Pune, Bangalore, Hyderabad and Chennai have a vacancy rate of just 5-10%, highlighting the need for fresh supply to meet growing demand, it said.
“In 2016, we expect the economy to be on a stronger footing and the office market to maintain a steady growth trajectory.” said Samantak.
The industry expects certain more reforms in the sector for substantial improvement in 2016, including goods and services tax, higher inflow of FDI into real estate sector and launch of real estate investment trusts.