Overview of Indian Real Estate sector in 2013:
Real Estate and infrastructure witnessed unprecedented growth in the last two decades. However, with growth comes the slack, and with the economies facing a slump in the past few years, no sector has been left unscathed
Monetary tightening resulting from the Reserve Bank of India's measures to control inflation was the major macro influence on the real estate sector in India, through most part of the year. High interest rates, spiraling vacancy levels and lower margins arising from inflationary pressures too, led to a slowdown of construction activity leading to a drop in new launches, and also delayed project delivery by several months. Developers with exposure to residential projects are particularly worried, with slowing sales leading to a situation of oversupply in many parts of the country.
Mumbai and Chennai, which are land-locked from one side by the sea, have the highest weighted average price of Rs 5,900/sq. ft. and Rs 4,700/sq. ft., respectively. Their unique topography has ensured restricted supply of land resulting in high prices for residential properties. The weighted average price in Mumbai city is much higher at Rs 15,000/sq. ft. It goes down to Rs 5,900/sq. ft. for the entire Mumbai Metropolitan Region, which includes areas such as Thane, Navi Mumbai, Mira-Bhayandar and Vasai-Virar.
Bengalore, Pune and Hyderabad have a relatively lower weighted average price of Rs 3,800/sq. ft., Rs 4,500/sq. ft. and Rs 3,450/sq. ft., respectively. Emergence of the peripheral markets in these cities on the back of large scale development of the IT/ITes sector, has managed to keep prices to more reasonable levels. Bangalore is remain the most affordable residential market, with over 77% of its under-construction residential units priced below Rs 50 lakh. In Chennai, 75% of the new homes are priced below Rs 50 lakh. Developers in these cities are focusing on the peripheral areas and offering the right-sized apartment to make homes affordable and ensure demand.
Interestingly, Hyderabad has only 51% of its under-construction homes priced below Rs 50 lakh despite the city having the lowest weighted average price among the top six metros. It is because most of the new projects have big apartments.
Mumbai remains the most unaffordable market with 29% of the city’s total under-construction units surpassing the Rs 1 crore mark, against 11% and 5% of under-construction homes in the Delhi-National Capital Region and Bangalore, respectively.
Current Scenario & Future
At 5% gross domestic product (GDP) growth in 2012-13, the Indian economy grew at the slowest pace during the last decade. Besides, policy inconsistency and apathy towards the sentiments of the international and domestic business community have aggravated the agony. Hopefully, the policy makers realize that relaxing foreign direct investment (FDI) norms is not enough to attract foreign investments. Conducive business environment, transparency and policy consistency is a greater prerequisite.
In a positive, the Securities and Exchange Board of India (SEBI) revived the process of introducing real estate investment trusts (REITS) in the country. In October 2013, SEBI introduced the draft REITs Regulations, 2013.
The Indian real estate industry continues to be tremendously attractive despite all the issues and challenges. While major cities have seen some saturation, smaller cities have huge scope for real estate activities with the industries (including information technology, IT) moving to small towns to lower costs. So Indian real estate is poised for a boom.
Though land prices have been sky-rocketing, residential and office space are still available at reasonable prices in most places of the country.
The overall outlook for the Indian real estate sector remains positive. If the country's policy makers can get the investment story right, lower the fiscal deficit and have more progressive monetary policies by the country's central bank, India can spring back on the growth track by the second half of 2014.
(This is an edited version of the article authored by Shishir Baijal, Chairman and Managing Director, Knight Frank India.)
The overall outlook for the Indian real estate sector remains positive. If the country's policy makers can get the investment story right, lower the fiscal deficit and have more progressive monetary policies by the country's central bank, India can spring back on the growth track by the second half of 2014.
(This is an edited version of the article authored by Shishir Baijal, Chairman and Managing Director, Knight Frank India.)