Shifts in real estate sector over the years

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Published: September 27, 2014 12:48:01 am


By: Anshuman Magazine

Following a new political dispensation coming to the helm of affairs earlier this year, a forward-looking budget favouring investments and economic reforms soon after and the more recent green shoots of economic recovery — it seems India’s economy has finally begun to roll. India’s gross domestic product (GDP) during the first quarter (April–June) of FY 2014–15 grew at a better-than-expected rate of 5.7 per cent — evidently the highest quarterly growth rate in the past nine quarters. This rebound raises hopes of a steady economic recovery and further growth in forthcoming quarters.

The government’s reform-focussed agenda — aimed at re-invigorating investment flows and reviving consumption — is expected to support growth in the real estate and construction sector too. The Centre has relaxed curbs on FDI in the housing sector, permitted the set-up of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), promoted faster infrastructure creation and decided to develop a ‘100 SMART Cities’ and new industrial clusters.

During a decadal shift in policy regulations, urban development and professional attitudes, the growth of India’s leading cities and the evolution of some of our major commercial office spaces has emerged as the backbone of India’s organised real estate landscape.

India’s housing landscape also witnessed vast transformations over the last 10 years, shifting from largely independent low-rise plotted developments to high-rise apartment complexes.

Despite the considerable supply of residential units, a majority of the urban housing infused into our major cities is beyond the affordability of EWS/LIG sections. This is mainly because developers by-and-large focus on launching luxury, high-end and mid-end housing projects that are considered safe from a risk and return perspective. To address the issue of housing shortage in India, particularly for low-income groups a national vision of ‘Housing for all by 2022’ was announced in the Budget.

Demand for housing across leading cities remained subdued in the first half of 2014. Due to high pricing and lending rates, buyer preference remained focussed on secondary and emerging markets of cities, while developers began to offer discounts to boost sales ahead of the festive season.

On the whole, residential real estate pricing displayed mixed trends in H1 2014. Capital values in the premium as well as mid-end/high-end segments in the NCR fell by about 4–8 per cent owing to low demand during the first six months of the year. Conversely, prime residential locations — such as Poes Garden and T Nagar in central Chennai, and Aundh in Pune — attracted capital appreciation of around 10–12 per cent over H2 2013, primarily driven by the fact that the prices of certain “trophy properties” were picked up at a high rate.

The recent economic assessment by the ministry of finance hinted at gradual economic recovery, citing weaker inflationary pressure and reforms driving improved investor confidence. Faster infrastructure approvals and corporate decision-making look likely in the coming months, which will support investment and demand for commercial real estate. A relaxation in interest rates is also required to revive demand in the housing segment and generate investor confidence. The fact that 2014 is a watershed year for India’s governance, and much is expected in terms of an economic revival over the next few years, holds tremendous significance for the future growth and development of the realty sector in India.

The author is CMD, CBRE South Asia Pvt Ltd

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