Current Scenario – Real Estate Sector in India 2013-14

On paper, India should be a prime candidate for opportunistic investors. Public markets are “more or less stagnant,” and because banks remain reluctant to lend to developers, borrowing costs are high. As a result, according to one investor, “If you want to list your real estate business and you missed the window, then you’re in a bit of trouble, so to recycle capital you have to sell off assets. We’re seeing a lot of distress there:  pricing has come off dramatically and people are hurting.”

The Indian real estate market has seen a sharp upturn in the recent years. Even when the world economy was reeling from the aftershock of the huge recession that hit hard even some of the largest & leading economy, the Indian real estate market remained immune to the downturn that was seen in almost every other sector.

The real estate sector witnessed and is still getting investment from a large number of investors of both India and abroad. It has been a golden harvest even in this turbulent financial market. For most investors, real estate has been a refuge from the burn most bear due to the downturn in almost every other sector.

The question arises what kept the real estate such a prosperous option even during a time when every other investment option seemed such a huge risk. Studies have revealed the transparency in the way the real estate sector works and the strong legal rules guiding almost every aspect governing investments in this sector has made it a great option for the investors. With India becoming one of the major targets for the Foreign Direct Investors, the need for new property is on the rise.

People need more residential complexes, places to build shopping malls, offices, industries, and even agricultural lands. And they need these in proper locations which will benefit the business. Thus the demand for real estate properties at some of the key locations within the country skyrocketed within a few years.

India today is a fast growing economy and almost 50% of the population comprises of the young, dynamic generation. As they establish themselves in the society, their requirements also increase. From tourism department to hospitality, all are grabbing the opportunity. The high income younger generation today is their primary target. Thus, demand for real estate is also on the rise. Space is required for hotels, restaurants, leisure activity zones, etc.

While the rise can be seen in all the parts of India, but the major towns and metro cities are most in demand. And it can be safely assumed that an investment at property in India is one of the safest options which can yield a high return for certain. With the continuing rise of the price of properties available in India it is one of the smartest choices when the question of investment decision arises.

One might be apprehensive given the recent news of major frauds happening in the financial sector, but one can always rely upon some of the oldest available options when it comes to buy real estates. There are many websites as well as companies which deal in the sector and one can always rely upon these to grab a great deal. These property sites will also provide excellent guidance to the first time investors. With such lucrative options available and such high returns guaranteed, the Indian real estate sector is one of the primary investment options one should look out for.

As per a recent report prepared by the global property consultant, CBRE, ‘Assessing the Economic Impact of India’s Real Estate Sector’, The real estate sector of India is estimated to have a total pipeline of nearly 3.6 billion square feet lined up for completion in 2013, out of which 98% is concentrated in the residential areas. The real estate sector, an inherent component of the construction industry, has a tremendous potential in our country. The proper tapping of the real estate sector will also generate considerable economic opportunities.

Real estate is also an employment intensive sector and the predictions are it will generate employment for at least 17 million people by 2025. However, exhaustive cooperation of the Government is necessary for the real estate to become an economically viable sector contributing consistently to the national GDP. The 2013 statistics of the real estate sector shows that an investment of Rs 2,54,000 crore is necessary for the implementation of the construction projects in the available land mentioned in the CBRE report which in turn will generate a revenue of Rs 3,70,000 crore and provide countrywide employment opportunity for 7.6 million people.

The sustained growth of the Indian economy in the past few years has resulted in a phenomenal growth of the real estate sector in India as evident from the changing skylines of all Indian cities and townships. The hub of industrial parks, high-rise residential complexes, sprawling malls, huge commercial complexes and brightly colored cranes, rubble, construction and hordes of workers scurrying up and down the towering skyscrapers, are the testimony of the explosion of real estate sector in India.

Currently, contribution of realty sector to Indian GDP is about 5% and its market size is expected to touch US$ 180 billion by 2020. The demand of affordable housing by lower income group was estimated at 19 million households in 2012 and expected to reach 900 million by 2050. As such, it is expected that residential real estate sector will witness a steady demand rise in future.

The real estate sector is the second largest employer in the country next only to agriculture. The growth in demand has resulted in emergence of several organized real estate developers and intermediaries. In certain segments of real estate, there is an influx of investments by private equity firms, overseas investors, domestic financial institutions and speculators, which is adding to the hype and frenzy created in the concrete world of real estate in India.

Residential Real Estate In 2014

Residential property prices have breached affordability limits in cities like Mumbai. Nevertheless, developers will have to factor in the ground realities of the business while debating the lowering of prices to catalyse sales in 2013. Obtaining the 57-odd permissions to begin construction of a project can take as much as two years. During this time, the cost of acquisition or even just holding the land for a project rises. Builders are already beset with the increased costs of license costs and cost of construction.

However, it became evident in 2012 that homes are not selling at the current price points, and developers do need to re-calibrate their bottom lines while still remaining viable as businesses. It is extremely doubtful that the previously offered freebies and other such incentives will prove to be much of a booster in the current environment.

The only way to catalyse healthier sales at this point is offering buyers tangible financial relief, we are likely to see drastic trimming of frills in projects to make them more marketable from a pricing point of view, and innovative payment schemes.

Developers will also offer buyers attractive pre-launch benefits in a bid to accelerate sales momentum in the initial months following a launch. Developers with large-scale projects with a greater share of unsold inventory will be under greater pressure to offer discounts than those with smaller projects and limited inventories.

Although most of the cities of India will see an increase in residential launches in 2013, the southern cities of Bangalore and Chennai will witness a decline in launches as compared to 2012YTD. It is important to note that these two cities recorded a historical high in terms of the number of launches during 2012.

Amongst other cities, Pune has recorded an average of close to 6000 units per quarter over the past three years (20102012YTD). This is more than twice the average quarterly launches recorded during the period 2007-2009. As a market that has grown too fast in such a short time, launches in Pune will be moderate in the near term. Following in the footsteps of Pune, other Tier 1 and Tier 2 cities are bracing themselves for such a Real Estate boom in the coming financial year. The magnitude of investment in Real Estate will also be aided by lavish infrastructure development plans taken up by the central and state governments.

Commercial Real Estate In 2014

The fact that the major cities of Mumbai, NCR-Delhi, Bangalore and Chennai saw 72.5% of the total commercial space absorption in 2012 is a telling one, and indicates the forward path. These cities will grab the lion’s share of contribution in total commercial space absorption in 2013, certainly within the range of 74-76%.

In terms of commercial real estate investment potential, Mumbai, Bangalore and Delhi NCR will continue to be of highest interest to big ticket investors focused on real estate in 2013. We also expect investor-driven demand to remain upbeat in Chennai, Hyderabad and Pune. Mumbai will see the highest share of commercial corporate property transactions from companies focused on their own occupancy needs. The Delhi NCR region will be more popular with high net-worth and institutional investors.

We expect 2013 to bring a larger-than-usual number of NRI investors into the commercial space arena. This is because NRIs are currently enthused by the prevailing exchange rate benefits and the fact that commercial real estate capital values are still 15-25% under their 2007-08 peak levels.

Retail Real Estate In 2014

In 2013, new organized retail project completions will increase significantly (by 109% y-o-y). Chennai, Hyderabad, Kolkata and Pune will be among the major contributors to this increase, with a 53% share of the country’s overall mall supply for 2013-14. The primary reason is that a sizable amount of supply that was expected to reach completion in 2012 has been being pushed to 2013-14. Altogether, India`s major cities like Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata will see the addition of close to 9.5 million square feet of mall space in 2013. Mumbai, NCR-Delhi, Bangalore and Chennai will together contribute 70% of the total retail space absorption. Other cities like Pune, Hyderabad and Kolkata will account for the remaining 30%.

The Government`s nod to FDI in multi-brand retail will be a major driving factor for increased activity in 2013-14. Since the policy opens the portals to major MNC retail brands in India, the organised retail sector will see a major transformation in terms of its overall contribution in the mid-term. This, in turn, will positively impact the absorption of retail space over the next 1224 months. The absorption is forecast to touch 6.8 million square feet and 7.1 million square feet in 2013 and 2014 respectively.

That said the benefits of the much-awaited FDI decision will not become fully evident in 2013-14, as it will take mall developers at least two years to incorporate the design elements and dimensions required to meet global standards. Mall developers are expecting a massive increase in demand for their projects in 2013; however, those whose shopping centres do not meet the requirements of international brands in terms of location, overall size, design, professionally managed operations will fail to see any action.