The Indian realty sector has grown tremendously over the past decade and has fetched high returns. But the sector has seen a slowdown in the last 8-10 quarters. High property prices and lower yields have pulled investors away from the market.
As per the 12th five year plan by the Planning Commission of India, the targeted GDP growth is 8%. With the achieved GDP of 5% and 6.5% over last two years being low, the target in the coming years would be to boost growth by introducing reforms to improve growth of the economy. The areas under spotlight would be rural transformation and sustained growth of agriculture, manufacturing, accelerated development of transport infrastructure, securing the energy future of India, managing urbanization and getting more and more FDI.
With rapidly evolving capital markets landscape, globally 2013 is seen as the year of realization and adaptation. The continuous fall of the Indian economy throughout the year made both investors and buyers cautious. This resulted in drastic decrease in the number of sales. Even in terms of funding, banks and other financing institutions followed a cautious approach.
On one hand in 2013 owing to slow sales, developers were giving discounts and freebies to liquidate their piled inventories and on the other hand increased cost of borrowing, inflation, and project delays kept buyers (especially end-users) away from the market. The trend was more prevalent in MMR (Mumbai Metropolitan Region) and NCR (National Capital Region) markets. Developers are already offering discounts in the range of 10 – 20% across all segments.
The Land Acquisition Bill and the Real Estate Regulatory Bill were positive changes that came about in 2013. The real estate fundamentals will hold strong in 2014, with improving optimism of buyers towards the state of real estate and infrastructure development in the country. Once these bills become laws, they will bring much needed transparency in the realty sector and both buyers and builders will get clarity.
Post the 2014 general elections there is a high probability that the central government would change, after the elections one can expect clarity in the market. In recent times the Indian public, especially the youth, have communicated a clear message to all political parties that they want development and populist measures would not work anymore.
Post elections, we will be seeing a lot of activity especially in the last two financial quarters of 2014. If BJP comes to power which is more likely to happen considering the current political turmoil, one of the focus areas would be development of road infrastructure. Their visionary project – ‘The Golden Quadrilateral’ would be taken to the next level with National Highway Development Project and Pradhan Mantri Gram Sadak Yojana that would link all villages with over 500 people by all-weather roads. Improved road connectivity with tier 2 and tier 3 cities would not only generate mass employment but would also help the manufacturing sector prosper.
Regardless of who comes to power, the focus would be on introduction of dramatic economic reforms aimed at boosting the economy and reversing the slowdown.
The focus would also be on increasing the buying power of individuals. An increase in individual savings would increase spending and the economy would transform into a transaction based economy which would help liquidate funds into sectors like real estate. This could be done by introduction of measures like revising tax norms, reduction in prices of necessary commodities, reducing home loan rates especially for first home buyers and increasing minimum daily wages.
Till then we will witness few new launches. Stagnant markets, slow economic growth and uncertain political environment are the factors influencing developers and restraining them from launching new projects.
Under construction projects are facing tough competition from resale and ready to move-in properties. The impact on business in the long run would be that the developers would focus on selling the existing inventories rather than launching new ones. With the market staying on as a buyer’s market, it would be impossible for developers to launch projects taking in to account the newly inflated costs (both land and construction) and tighter regulations.
Developers will move to tier 2 and tier 3 cities where building would still be feasible for them. But there again, lack of buyer participation and lower buyer purchasing power will impact the sales.
The market will eventually come to a level where developers who are able to maintain a healthy inventory and investment will exist and survive.
During the first three quarters of 2014 the market will witness an increase in number of sales with high participation from first home buyers for mid segment properties. Property prices have started increasing marginally; buyers who were following the wait and watch strategy with expectations of market correction are expected to finally take decisions on their property purchases.
There will be fewer launches in the luxury segment for coming years because of the increased risk involved in them. With the heightened increase in RBI’s concerns over the functioning of the real estate industry, funding would also become an issue especially for high stake luxury projects.
Under the 12th Five Year Plan, the Ministry for Civil Aviation recently announced 17 new airports in 11 states. The expansion plan will address the growing need and capacity challenges, along with improvement in air connectivity. One can trace the future growth of tier 2 and tier 3 cities from the proposal which should materialise in 2014. There are close to 30 more low cost airports in the pipe line.
As per the proposal, Karnataka will have four new airports in Gulbarga, Bijapur, Hassan and Shimoga. Goa will get its second airport in Mopa and Kerala a fourth in Aranmula. New airports are proposed for Arunachal Pradesh, Rajasthan and Jharkhand in Itanagar, Kishangarh and Deoghar respectively.
Another focus area this coming year would be affordable housing. It has been a critical area of concern for quite some time now. New set of policies and incentives will be drafted for both government housing agencies as well as private developers to bridge the gap between price and affordability. Also, rental housing as a solution to provide homes to the poor would be on the radar.
As per the 12th five year plan by the Planning Commission of India, the targeted GDP growth is 8%. With the achieved GDP of 5% and 6.5% over last two years being low, the target in the coming years would be to boost growth by introducing reforms to improve growth of the economy. The areas under spotlight would be rural transformation and sustained growth of agriculture, manufacturing, accelerated development of transport infrastructure, securing the energy future of India, managing urbanization and getting more and more FDI.
With rapidly evolving capital markets landscape, globally 2013 is seen as the year of realization and adaptation. The continuous fall of the Indian economy throughout the year made both investors and buyers cautious. This resulted in drastic decrease in the number of sales. Even in terms of funding, banks and other financing institutions followed a cautious approach.
On one hand in 2013 owing to slow sales, developers were giving discounts and freebies to liquidate their piled inventories and on the other hand increased cost of borrowing, inflation, and project delays kept buyers (especially end-users) away from the market. The trend was more prevalent in MMR (Mumbai Metropolitan Region) and NCR (National Capital Region) markets. Developers are already offering discounts in the range of 10 – 20% across all segments.
The Land Acquisition Bill and the Real Estate Regulatory Bill were positive changes that came about in 2013. The real estate fundamentals will hold strong in 2014, with improving optimism of buyers towards the state of real estate and infrastructure development in the country. Once these bills become laws, they will bring much needed transparency in the realty sector and both buyers and builders will get clarity.
Post the 2014 general elections there is a high probability that the central government would change, after the elections one can expect clarity in the market. In recent times the Indian public, especially the youth, have communicated a clear message to all political parties that they want development and populist measures would not work anymore.
Post elections, we will be seeing a lot of activity especially in the last two financial quarters of 2014. If BJP comes to power which is more likely to happen considering the current political turmoil, one of the focus areas would be development of road infrastructure. Their visionary project – ‘The Golden Quadrilateral’ would be taken to the next level with National Highway Development Project and Pradhan Mantri Gram Sadak Yojana that would link all villages with over 500 people by all-weather roads. Improved road connectivity with tier 2 and tier 3 cities would not only generate mass employment but would also help the manufacturing sector prosper.
Regardless of who comes to power, the focus would be on introduction of dramatic economic reforms aimed at boosting the economy and reversing the slowdown.
The focus would also be on increasing the buying power of individuals. An increase in individual savings would increase spending and the economy would transform into a transaction based economy which would help liquidate funds into sectors like real estate. This could be done by introduction of measures like revising tax norms, reduction in prices of necessary commodities, reducing home loan rates especially for first home buyers and increasing minimum daily wages.
Till then we will witness few new launches. Stagnant markets, slow economic growth and uncertain political environment are the factors influencing developers and restraining them from launching new projects.
Under construction projects are facing tough competition from resale and ready to move-in properties. The impact on business in the long run would be that the developers would focus on selling the existing inventories rather than launching new ones. With the market staying on as a buyer’s market, it would be impossible for developers to launch projects taking in to account the newly inflated costs (both land and construction) and tighter regulations.
Developers will move to tier 2 and tier 3 cities where building would still be feasible for them. But there again, lack of buyer participation and lower buyer purchasing power will impact the sales.
The market will eventually come to a level where developers who are able to maintain a healthy inventory and investment will exist and survive.
During the first three quarters of 2014 the market will witness an increase in number of sales with high participation from first home buyers for mid segment properties. Property prices have started increasing marginally; buyers who were following the wait and watch strategy with expectations of market correction are expected to finally take decisions on their property purchases.
There will be fewer launches in the luxury segment for coming years because of the increased risk involved in them. With the heightened increase in RBI’s concerns over the functioning of the real estate industry, funding would also become an issue especially for high stake luxury projects.
Under the 12th Five Year Plan, the Ministry for Civil Aviation recently announced 17 new airports in 11 states. The expansion plan will address the growing need and capacity challenges, along with improvement in air connectivity. One can trace the future growth of tier 2 and tier 3 cities from the proposal which should materialise in 2014. There are close to 30 more low cost airports in the pipe line.
As per the proposal, Karnataka will have four new airports in Gulbarga, Bijapur, Hassan and Shimoga. Goa will get its second airport in Mopa and Kerala a fourth in Aranmula. New airports are proposed for Arunachal Pradesh, Rajasthan and Jharkhand in Itanagar, Kishangarh and Deoghar respectively.
Another focus area this coming year would be affordable housing. It has been a critical area of concern for quite some time now. New set of policies and incentives will be drafted for both government housing agencies as well as private developers to bridge the gap between price and affordability. Also, rental housing as a solution to provide homes to the poor would be on the radar.
