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Monday, 11 Feb 2013
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Vision 2013 for Indian Real Estate Industry
Anand Gandhi, Director, Sugee Developers


  Sugee Group_ProjectsToday

Mumbai’s Real Estate Market Growth Rate is pretty fast comparing to other cities of the country. Real Estate Companies from all over world are taking interest in Mumbai’s Real Estate Market cause of growth of India internationally. So one can say that Indian Real Estate Market future is exceptionally bright. There was a time when the Real Estate Market was facing a lull thanks to the implications of both national as well as international economic problems. But with the new changes being implemented by the Indian government, things have again started to look up.


The Indian Government has allowed FDI companies residing in other countries to buy properties in India. Easy and cheap availability of talented and skilled work force, lower casts of logistics, constantly expanding Indian market, steady growth of Indian economy, etc. have been attracting and enticing factors for diverse foreign direct investment in real estate business in all across India. The challenges that are seen for Indian real estate, now and in the near future, are the expensiveness of liquidity for real estate, the lack of availability of serviced urban land, continuing procedural delays in approvals, the slow pace of infrastructural growth and the fact that the country still has relatively low transparency in real estate terms.


Mumbai has emerged as one of the most preferred destinations for property investment in the wake of its booming real estate market. Not only the residents of India prefer to invest in the properties of Mumbai, but the NRIs are also investing with an aim to gain maximum return with the upbeat market condition. There are lots of avenues where investors can strike a lucrative deal of property in Mumbai. Andheri, Malad, Navi-Mumbai, Juhu, Thane etc. are some of the preferred destinations for property investment. The city is viewed as a haven for property investment as it is the commercial capital of the country. Besides, the reason behind Mumbai enjoying such a great influence among the property investors is the heavy returns on the invested capital in very short spans of time. Hence, it is highly recommended to invest in property in Mumbai at the moment before the rates splurge even higher. Greater Mumbai areas like Vashi, Belapur, Khargar, Panvel are now being viewed as preferential locations for investment in the redevelopment of residential as well as commercial projects. India’s infrastructure sector continues to be a key driver of the nation’s economic progress. Despite battering through an ever growing gauntlet of challenges like rising interest rates, inflation, sluggish order inflows and squeezed profitability, the infrastructure sector continues to perform convincingly better. There has been a tremendous improvement in the infrastructure and construction management of India.


The challenges that are seen for Indian real estate, now and in the near future, are the expensiveness of liquidity for real estate, the lack of availability of serviced urban land, continuing procedural delays in approvals, the slow pace of infrastructural growth and the fact that the country still has relatively low transparency in real estate terms.


The residential property market is behaving like a swinging pendulum. Sale velocity has been rising and falling over the last two or three quarters, and now capital values are going up because of increased input costs. There is a slowdown in the real estate market at the moment but the scenario will change and grip up in coming quarters. Of the three primary real estate sectors, commercial property is most closely linked with global economic dynamics. We are already seeing the impact of these dynamics in the reduced absorption of commercial spaces in India. It is taking longer to close deals.


Project-specific price increases can be expected across all sub-markets – this pertains specially to projects that are being delivered or are nearing completion. The mid-end and affordable housing segments will record healthy appreciation in capital values in the short term from a low base. Meanwhile, residential developers will continue to tackle the current liquidity crunch due to high interest rates and slow sales. We will see a slowdown in construction activity for the time being. However, as demand improves, improving sales will benefit developers who will focus on execution of their on-going project portfolios.


Indian realty business is now transitioning from the regular horizontal construction methodology by going vertical hence redevelopment is the next big thing in Mumbai. Mumbai is known to be one of the most expensive locations for property and property rates are appreciating day by day. Also the availability of open plot is scarce hence builders today are looking at redevelopment of housing societies so that they can unlock potential of unused FSI. With limited availability of open land parcels in the city, major developers are now looking at venturing into the redevelopment space. There is an urgent need to fix up accountability on government side to clear the scheme in a time bound manner. Redevelopment schemes tend to take years due to issues like obtaining members’ consent and official permissions.


India’s construction industry employs a work force of nearly 32 million and its market size is worth about Rs 2,48,000 crore. It is the second largest contributor to the GDP after the agricultural sector. The construction industry in India is one of the most rapidly growing sectors and contributes significantly to the economy. It is growing at a rate of 9.2 per cent against the world average of 5.5 per cent.


The real estate sector in India is in a phase of consolidation. The regulatory environment is evolving constantly to promote and support this consolidation. Also technology is the key to drive efficiency and take the sector to the next level. Adopting green practices is no more an option; they are fast emerging as tools for sustainable and harmonious growth in the long term.


Another factor that can help real estate companies tide over the difficult times would be the ability to judiciously use cash by liquidating existing inventories. The government has taken initiatives such as relaxation in external commercial borrowing norms, capping subsidies as a fraction of the GDP, new manufacturing and telecom policies to revive global investor confidence. These steps are expected to generate positive results and will assist in generating investor inflows.


The government is committed to introducing FDI in multi brand retail, introduce changes in the existing SEZ policy to resurrect developer interest and expand the role of the private sector in infrastructure development.


Implementation of key economic reforms is likely to result in a gradual improvement in macro-economic conditions in the coming few months. This, coupled with a slow and gradual economic recovery in the Eurozone, is likely to result into a revival in demand in the real estate market.


The Government must consider enacting provisions for Special Residential Zones (SRZs) to incentivize the growth of housing stock at targeted locations. The budget needs to increase infrastructure spending in urban areas with a view to unlocking the value of neglected and hidden land assets in suburban and peripheral districts. This will enable more holistic growth for the real estate markets in our overburdened metros and allow the demand for housing to spread over a larger canvas. The increased demand in peripheral locations in which infrastructure has made the real estate markets there more viable will also help bring down prices in the central areas. In this budget, the Government should come up with simple and effective polices that will ease real estate development approval procedures. Obtaining the 57-odd permissions to begin construction of a project can take as much as two years. During this time, the cost of acquisition or even just holding the land for projects rises. Single-window clearances are the need of the hour, since the absence of such mechanisms causes project delays which prove to be expensive to both developers and end users. The Government should once and for all finalize and implement the proposed Real Estate Regulatory bill, which is needed to bring rationality back to the sector. This draft bill, which is pending since 2009, aims to create a regulatory authority for the realty sector, ensure sale of immovable properties in an efficient and transparent manner, and to protect consumer interest. One key proposal of this bill is to set up a regulatory authority in each state. The sector is looking forward to intentions in this regard finally translating into action.


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