Real Estate

Realty sector banks on reforms, economy growth

Our Bureau Hyderabad | Updated on December 27, 2012 Published on December 27, 2012

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The country’s real estate sector is banking on reforms and growth of the economy for better times in 2013.

Interaction with some of the leading sector players provides interesting insights about pricing, environment, foreign investment among others. The affordable segment is seen to be having immense potential.

“If 2012 was a year of realisation and consolidation by Government, Corporates, developers and individuals, 2013 will be a year of reform and a more positive environment,” Sanjay Dutt, Executive Managing Director, South Asia, real estate consultancy Cushman & Wakefield.

The general outlook is cautious growth but people are basing their optimism and expectation on reforms that could activate the sector, he felt.

“The optimism is based on the hope that the economy will get better and we may see higher GDP growth rates of about 6-7 per cent from over 5 now and also based on softening of interest rate regime,” he told Business Line.

“The prices will go up in select micro markets, the foreign direct investment in the sector will depend on the reforms and the likely share it could get from the global pool. However, several of the private equity deals that were closed few years ago, may see being sold out or some write offs. Even the FDI will get selective basing on the fixed industry assets like Blackstone and Ascendas investments,” he felt.

Lalith Jain, President of Confederation of Real Estate Developers Association of India (CREDAI), told Business Line, “The Government failed to use last two years to help create the momentum missing in the sector after the real estate was impacted in 2007-8. Even the reforms announced by the Government have not been fully implemented, causing much strain on the sector and also hardship to potential buyers as interest rates are still ruling high.”

“The input costs for realty development has gone up by 35-40 per cent, the prices of completed projects continues to be stable. There is small window for the Government to take positive steps and help create the buzz in the sector over the next three-four months. Thereafter, the political parties will get into election mode and the focus will drift away from addressing sector issues,” Jain said.

Clear direction

The Finance and Housing Ministry need to set a clear direction for the affordable housing projects, which are estimated to constitute about 90 per cent of the total housing sector business.

It is time the Government realised the impact of real estate sector on the country’s economy. It employs the second highest number of people after agriculture in the country and more than 265 industries are dependent on the sector, this includes steel and cement. Therefore, it is vital to accelerate its growth, Jain felt.

Assuming that changes are brought about as expected, these will take anywhere between 18-24 months to yield results, Credai official felt.

According to Anuj Puri, Chairman and Country Head of consultancy firm Jones Lang Lasalle, while there have been signs of improvement of demand in the real estate sector, developers are still struggling with rising inventories and buyers tending to be cautious and delay purchases.

Infrastructure continues to be a key constraint in developing the residential real estate market. There have been instances of overpricing in some cities. This has meant that the transactions are muted.

Referring to FDI in retail creating demand, Dutt said that most of the investors continue to evince interest in the country but have the tendency to have a local partner to address local issues. The supply is limited as developers had adopted a cautious approach. It will take some time for fresh supplies to continue. However, this will boost the demand in the long run.

Price of residential property has breached affordability limits in Mumbai and some other select cities and homes are difficult to be sold at current price points. This may mean the need to re-calibrate prices, it was felt.

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Published on December 27, 2012
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