India real estate overview
The Property market ‘overall’ has been going through a slowdown and a flat phase for over last 12 to 18 months.
The few questions that loom over us are:
Is it the economy?
The Elections?
Over supply?
Lack of demand?
I feel it is a combination of all! Given the restrictions within our economic policies coupled with red tapism and corruption, it has made it extremely tough for local corporates to International ones to look at development across sectors. Not many politicians or bureaucrats are ready to put their neck on line in clearing or accepting new proposals. Each one at that end is waiting for Elections and what the results of same will bring about.
As for supply, there is a lot in the pipeline across the country but the same is almost in tandem with potential demand. However, on the demand side the buyers’ are willing to commit only at the ‘correct’ value/price; which I think can and should be corrected by minimum of 15-20 per cent.
Sustainability at current expectations from developers/sellers is going to be tough. Yes, funds were (not anymore) available easily via institutions and Real estate fund houses. Banks too finance for construction against potential receivables or land mortgage but it seems like the party is almost over. I am not saying it can’t or won’t start again, I am just saying that, the sooner the greed (profit/margin) is corrected the sooner the party will re-start and stay longer and healthy.
There is still a huge untapped logistics market to be exploited in this country. We do need more airports and better connectivity. The Delhi–Mumbai corridor is one such ambitious project, which, when it takes off and takes shape will help change our global image and economy. I am extremely optimistic that if we revive our Industrial growth alongside our agricultural growth, we will sustain as a country.
FDI in retail can and will be another boost to our country’s economy. Contrary to how few people think, I think it will push growth opportunities in creating jobs, industrial, logistics, farming amongst many others.
The commercial property market, especially the rental segment has seen a huge correction in the last 3 – 4 years. At these correct rates, we are seeing deals happening across cities such as Mumbai, Delhi (NCR), Bangalore, Pune, few in Chennai and Hyderabad too. On the ownership front, within the new developments, both the actual user and the investor seem to be shying away from commitment. If my bank gives me 9 per cent on a fixed deposit, why would I want to invest in a property where there is no surety of growth for next 2-3 years. Even the rental yield versus capital value has dropped to 5-6 per cent.
Same is the case in residential. Where the rental yield has dropped to 3-4 per cent pre-tax. Unless someone is keen on buying for actual use; buying in order to rent makes no sense.
Chetan D. Narain, president and CEO – Narains Corp
Chetan Narain is the president and CEO of Narains Corp. He is also an eminent member of Royal Institute of Charters and Surveyors – UK (RICS) and National Association of Realtors – USA
The views expressed in this article are the author´s own.
