Revival of the residential real estate market this year

From the past few years, India’s residential real estate market has experienced a slowdown. Thanks to the macroeconomic indicator and measures taken by the Indian government to bring transparency, this sector is all set to rebound.

It is believed that apartments in Whitefield (Bengaluru), apartments in OMR (Chennai), and apartments in Kondwa (Pune) are great for investment, at the moment.

Ashwinder Raj Singh, the CEO, residential services, JLL India, said,“India’s residential property market has been going through turbulent times for past few years. However, things are looking up now with changes in the economy and various initiatives announced by the government.”

Factors like low demand, high inventory levels, and limited fund flow has dwindled sales in the sector, affecting the new establishments.

As per a recent report by JLL, the novel residential venture launches witnessed a reduction by 6 percent in the first quarter of 2016 over the last quarter of 2015.

Overall sales of residential properties declined in the financial year 2015-16 compared to 2014-15. As per recent reports, 1,58,211 units were sold in the financial year 2015-16 as opposed to 1,61,875 units sold in the financial year 2014-15, which is a decline of 2.2 percent.

A ray of optimism was seen in the otherwise hopeless situation with the rise of sales in the first quarter of 2016.

Specialists believe that the implementation of the Real Estate Act will give a positive drive to the feeble sector by reviving the spirits of the buyers through manifold initiatives.
One of the best initiatives taken is that the aggrieved party has the right to claim the amount at the prescribed rate along with the interest if the possession is not given.

Shveta Jain, the managing director, residential services, Cushman & Wakefield said, “The Real Estate Regulation and Development Act 2016 will encourage investments from foreign and domestic financial institutions and protecting the interest of the home buyers. Mandatory disclosure of projects, including details of the promoter, project, land status, clearances, approvals, etc. would increase the credibility of developers and would protect consumer rights as well.”

Ashwinder Raj Singh of JLL states 5 points for the road ahead for the realty sector:

• The expectation of good monsoon, recovery in the economy, decreased inflation, and the fact that the rates of residential properties are on a hike again has brought a shift in the trend. Also, the combination of an improved regulatory environment of the realty sector and progressive Government schemes like AMRUT, Housing for all by 2022 and Smart Cities are starting to create a positive influence. Moreover, factoring in banks’ passing on of interest rate cut advantages to the end user; the residential department is on the path of regrowth. 

• At the end of the financial year 2015-16, the rates were stagnant or at a modest rise. While Lucknow witnessed a hike of 16.1% in the prices in third quarter 2015, NCR witnessed a price ascent of 5% during the second quarter of 2015. Moving forward, rates are expected to rise moderately.

• The establishment of the Real Estate Regulatory Authority to ensure timely delivery of the real estate projects and bring more transparency in the dealings with builders has build trust in the market, motivating the buyers to invest again. A credible start has been indicated by the affordable housing segment, with this division seeing heightened traction on the outskirts of the leading cities. Of the entire sales, more than half the properties were marked below Rs. 5000/sq ft in the financial year 2015-16.

• International factors have an effect, but India’s present low-interest rates and low inflation rates along with moving economy will encourage development in the residential realty sector in the mid-to-long term.

• The encouragement that the latest Union Budget is providing to both, the demand as well as supply side has improved the funding for the real estate industry. It has also helped in clearing problems on REITs. More impressive signs of recovery should be evident during the last quarter of the year 2016 or by the first quarter of 2017.

This is a guest post by Deepak Yewle

India’s economic growth to improve despite unfavorable global winds

With the fluctuations in the economy of India, investors are playing it safe and choosing to invest carefully. According to the finance minister of India, Arun Jaitley, due to the continuing reforms, India’s financial growth will skyrocket higher than last year 7.3 percent despite global challenges. Since years now, India has always been in the spotlight for its economic growth and its impact on the real estate segment. Researchers claim that among the different metropolitan cities and residential areas of India, the apartments and villas in Devanahalli, Bangalore, have witnessed significant demand by potential buyers and real estate investors.

• Changes in Indian economic scenario

As the nation has the potential to be the bright spot in the gloomy world economic scenario, foreign investors are lured with the relaxed and hassle-free conditions of doing business in India. The private sector investments have been slow, and a high cost of capital was also affecting several other factors. Local companies, which were working with some constraints in the wake of global demand slowdown and a plethora of capabilities, were capable of overcoming those challenges. Today the financial situation in the country is no longer acute as it used to be earlier. The fiscal deficit is dropping down while the inflation is under control. A keen understanding of competitive federalism is driving the Indian growth story as the states are all aggressively seeking investment. The ease of doing business is still said to be work in progress. Significant advancement has been witnessed, and a lot of improvements need to be done on a continuous basis. The cost of capital is high and its impact on infrastructure, real estate sector, and manufacturing, which is an essential engine of growth in India, is currently felt.

• Attracting foreign investors to invest in India

On seeing India’s growth story, international investors with a collective asset under management of $10 trillion have been advised to invest in infrastructure, manufacturing, and other sectors that have funding needs. It is considered that international investment is going to be an exceptional source of resource for India as the government is working on a slew of reforms. It includes a new law to ensure disputes are settled through arbitration within six months.

• How real estate in India is affected by the dynamic nature of India economy

In India, housing plays a critical factor from affordable accommodations to infrastructure and generation of employment. The residential segment comprising of building, townships, colleges, hospitals, and other projects make the maximum contribution in real estate industry and commands a large part of its market share. The overall health of the economy plays a key factor that directly affects the value of real estate. The GDP, manufacturing activity, prices of goods, employment data and few other indicators measure the health of the economy. The size and scale of the property market make it an attractive and lucrative avenue for investors. Due to the low capital requirements, low transaction costs, and high liquidity available in the market, the average investor prefers to invest indirectly in real estate. It has been observed that the south Indian cities have become a hotspot for real estate investment. Be it for residential purposes or as second home, cities such as Hyderabad, Chennai, and Bangalore are often chosen by potential investors. Buying apartments and villas in Devanahalli or Bannerghatta is more than just luxury.

 

With foreign investors organizing investment summits in their states and finding a resolution of long-pending tax disputes, the nation is well on its way to overcoming economic hiccups and finding financial stability.

 

 

This is a guest post by Surendra Hiranandani, Founder and Managing Director, House of Hiranandani

Will real estate stocks recover after elections?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Real estate S&P BSE realty Index was introduced in July 2007 at the height of real estate boom in India. The S&P BSE realty Index was hovering at 7019.88 on 17th August 2007, whereas the S&P BSE Index was 14141.52 on the same day. However, by the end of 2007, the S&P BSE realty Index grew by whopping 81% to reach at 12727.42, while S&P BSE Index grew by 43% to reach at 20286.99.

And after growing in initial few months of 2008, the indices fell sharply in 2008. Realty index fell by 82%, whereas BSE Index fell by 52% in 2008 because of global financial crisis which was triggered by US sub-prime crisis.

Here is a history of S&P BSE realty Index compared with the S&P BSE Index:

Fall of real estate stocks

The BSE Realty Index stands at 1468.4 on 31st March 2014. The fall has been substantial and retail investors are shunning from buying the stocks of realty companies. Among 12 Indices such as BSE Realty, BSE Power, BSE Metal, etc, the BSE realty has been the worst performer. In 2013, the BSE Realty Indices fell by 32%. What could be reasons for under-performance of real estate stocks? We list down the reasons:

Reasons for fall

• Rising debt levels

The debt on balance sheet of 11 listed firms in BSE Realty Index stood at Rs. 42000 crore till 31st December 2013. High debt levels erode the profitability of firms because major chunk of income generated goes in servicing of the debt. And which in turn, puts strain on sustainable growth of the firm.

• Falling demand

Demand from home buyers has remained low on account of lack of job creation and high inflation. Companies have put off or slowed down their investment plans and therefore job creation has been low. At the same time, Inflation has put off the investment by home buyers due to falling savings rates. Unless, inflation moderates, the sector will continue to see weak demand from home buyers.

• High interest rates

Interest rates have remained high for last 2 years resulting in high cost of borrowing for home buyers and it’s not surprising that transaction volumes have come down resulting in drop in sales of realty companies.


Recovery in last month (March 2014)

However, March 2014 witnessed some sort of recovery in real estate stocks.

Will the recovery continue? There is all the likelihood of it and post elections, economic recovery is expected. This in turn could result in revival of realty sector on account of the following:

1. Improved GDP Growth
2. Housing prices have corrected and it presents buyers an opportunity to buy the home now
3. Moderation in inflation
4. Reduction in interest rates

Appendix:

BSE Realty Index comprises of stocks of following companies:

Anant Raj, DB Realty, DLF, Godrej Prop, HDIL, Indiabulls Real, Mahindra Life, Oberoi Realty, Omaxe, Phoenix Mills, Prestige Estate, Sobha Developer, Unitech.

What do you think?

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