Hope in the NEW YEAR
21 December 2013, Times Property
2014 will lift the market sentiment in Indian real estate, says NAMRATA KOHLI
A year of challenges, 2013 saw the real estate sector grappling with many issues. The economy was marked with a pervading sense of nervousness with rupee depreciation and an overriding political and economic uncertainty.
Developers faced a double whammy with lack of liquidity and funding options on the one hand, and lower sales on account of insufficient demand, on the other. Demand was impacted as buyers faced the heat of the downturn, what with conservative wage revision, and expensive cost of borrowing-that is high interest rates on home loans. The general election in 2014 could pretty well turn the tide for Indian real estate industry.
One, a lot of money will be released into the market after the elections. It is noteworthy that, at the moment, developers have been only geared to clear their pile of inventories and there are hardly any fresh launches. "2013 saw a decline of 33% in new launches compared to 2012," a report by Cushman & Wakefield says. "The biggest decline was in the luxury segment, which saw no new launches. This was followed by a decline of 37% and 29% in mid and affordable segments respectively." The money which was held back thus far, will get released and change the market dynamics.
Two, elections will lead to clarity on reforms and it is the Budget 2014-15 that holds a greater promise. It is expected that the implementation of REIT, FDI in retail, landmark laws like the real estate regulation bill, land acquisition bill, companies bill, etc, which are under various stages of development, will be the real harbingers of change-for the better.
REITs have the potential to attract foreign investments and domestic funding. The announcement by Securities Exchange Board of India (SEBI) to introduce a separate regulatory framework under the proposed draft REIT (Real Estate Investment Trusts) Regulations, 2013 has already spurred positive sentiment in the real estate sector.
Sachin Sandhir, MD of RICS South Asia, says: "Ongoing issues like high inflation, large budget deficit and the slow pace of regulatory reforms are weighing down on business sentiment. The proposed regulations need to be implemented soon to revive the sentiments."
The recent report-Emerging Trends in Real Estate, Asia Pacific, 2014-published jointly by the Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC), highlights two positive developments: "One, the domestic real estate funds and NBFCs, have recently managed to raise substantial amounts of new capital from local investors, possibly as a result of a lack of appetite, to invest abroad following the decline of the rupee. The second is the establishment of a domestic REIT industry which will provide a potential exit for foreign investors."
"The market has bottomed out as of nowif anything, it will only look up," Gautam Mehra, executive director of PwC said.
They say that wise men invest during bust and reap returns during the boom. A time to learn, invest, introspect and spot opportunities, the economy's biggest money is made during recession-if only one is able to identify the right prospects.
In that respect, private equity (PE) funds are seen making the right move, taming India's commercial property, when the rentals and valuation is low, and yields stable. Once the market improves, the numbers are bound to go up. Global PE funds like Blackstone, Ascendas and GIG, are betting on India's commercial real estate-recently, Canada Pension Plan Investment Board (CPPIB) has announced its first India real estate investment.
Despite the slowdown, PE funds continue to see India as a top investment destination. The construction sector will continue to play a key role in underpinning the Indian economy over the coming years. Year 2014 should sort issues of governance and put the economic reforms on the fast track.
When India grows, Indian real estate is bound to grow. Chetan Bhagat had a witty nugget at the recently held Credai conclave 2013: "When a banker gets his big fat bonus, the first call is to his wife or mother (family) and the second to a real estate broker."
REITS HAVE THE POTENTIAL TO ATTRACT FOREIGN INVESTMENTS AND DOMESTIC FUNDING. THE ANNOUNCEMENT BY SEBI TO INTRODUCE A SEPARATE REGULATORY FRAMEWORK UNDER THE PROPOSED DRAFT REIT REGULATIONS, 2013 HAS ALREADY SPURRED POSITIVE SENTIMENT IN THE SECTOR
DESPITE THE SLOWDOWN, PE FUNDS CONTINUE TO SEE INDIA AS A TOP INVESTMENT DESTINATION. THE CONSTRUCTION SECTOR WILL CONTINUE TO PLAY A KEY ROLE IN UNDERPINNING THE INDIAN ECONOMY OVER THE COMING YEARS. YEAR 2014 SHOULD SORT ISSUES OF GOVERNANCE AND PUT THE ECONOMIC REFORMS ON THE FAST TRACK