RBI step may boost real estate slump

The city developers welcomed the Reserve Bank of India’s decision of reducing the 25 basis point repo rate, hoping that it would lead to less expensive home loans.

However, the buyers feel that the developers also need to slash the highly inflated property rates to make housing affordable.

The developers said RBI’s move will help decrease the interest rate, boosting the slow down in real estate industry. “It is a small, but good beginning. We hope that RBI will come out with many more such steps. And, bankers will follow suit by cutting down the lending rates,” said Paras Gundecha, president of MCHI-CREDAI.

He added that it would boost liquidity in the real estate market, easing pressure on cash-strapped developers.
“Last year was particularly bad for the real estate sector. Due to liquidity crunch and costly EMIs, sales plummeted,” said Gundecha, adding that the RBI should take some pragmatic decision to support the capital- and labour-intensive real estate sector.

The real estate sector is reeling under the burden of huge debts and poor cash flows caused by slowdown in sales. “The consequential drop in home loan rates will greatly benefit consumers and stimulate demand for new housing. The long-awaited move will trigger off a change in sentiments and catalyse the required buyer behaviour,” said experts.

Real estate expert Atul Nemade said developers were asking to cut down interest rate.

“Now, they have to take some complimentary steps to make unaffordable houses affordable. Beside the bank interest, the current skyrocketed housing prices are major factor for low sale. Now, it is the developers turn to cut the property rates to boost the sale,” he said.

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JLL Makes India Property Predictions for 2013

According to global real estate consulting firm Jones Lang LaSalle (JLL), India’s property markets closed 2012 with a few notes of positivity as the inflation was below the Reserve Bank of India’s (RBI’s) projected levels and the Index of Industrial Production (IIP) growth increased in the last two months of the year, giving new hopes for 2013. Overall, 2012 remained inactive, affecting all the major sectors in real estate.

Office space absorption remained lower compared with 2011. Meanwhile, retail faced challenges of quality supply, affecting the overall absorption.

The residential demand improved; however, developers continued to struggle with unsold inventories, yet expect moderation in inflation and strengthening policies.

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Below are 13 interesting India property and market insights for 2013 from various Jones Lang LaSalle India analysts.

1. Economy – As per RBI, the policies will focus towards growth in 2013, although risks of inflation will continue to remain. Interest rates are expected to witness a downward correction of 100 to 150 bps in 2013.The softening of interest rates is expected to reduce the home loan rates, in turn increasing the buying of real estate assets. Increasing urbanisation and consumption despite the slowdown in GDP growth will be the key drivers of the economy in 2013.

2. Policies – The recent policy initiatives are expected to improve the investment climate and business environment, and they are likely to benefit the real estate sector in 2013. Few policies to look at in 2013 are: the Real Estate Regulation Bill, likely to be tabled in the upcoming winter session of the parliament; the real estate investment trusts (REITs) or real estate mutual funds (REMFs), expected to get launched in 2013; and the Land Acquisition and Rehabilitation and Resettlement Bill, likely to be tabled in the upcoming budget session in 2013.

3. Infrastructure
 – The infrastructure sector achieved a substantial FDI of USD 2.8 billion, accounting for a notable 7.7% of the total FDI inflow in FY 2012. In the year 2013, the relaxation of FDI policies in multi-brand retail is expected to surge the investment in back-end infrastructure development such as logistics. Moreover, an FDI of up to 100% is also permitted under the automatic route in built-up infrastructure and is likely to surge the development of the city and the regional level infrastructure in 2013.

4. Office Real Estate
 – Office space absorption in 2013 is likely to remain equal to that in 2012. Supply correction will lead to fewer options for occupiers, and steady absorption will decrease vacancy levels. Competition for space in prime buildings in prime locations is expected to increase in 2013, and these spaces will start earning a premium. Rents are expected to increase from 2H13 onwards as fewer new projects are being launched, and vacant spaces are steadily filling up. Decisions on occupying special economic zone (SEZ) spaces will be taken by occupiers who are sure of taking a position in India as they have to go live by March 2014 to avail the benefits.

5. Retail Real Estate
 – The relaxation in FDI policies in multi-brand retail interestingly has surged aggressive growth amongst Indian retailers to take the first-mover advantage. This is expected to drive the demand in 2013. However, as supply of retail malls remains a challenge, retailers are likely to opt for built-to-suit (BTS) options or high-street properties. As most developers are focusing on residential developments, the supply of malls will reduce in the major cities over the year. In 2013, retailers will be cautious and take more time to execute agreements as they will do a detailed analysis before closing transactions. Retailers will commit to space only if they see approvals in place and the construction of the space in progress.

6. Residential Real Estate
 – REITs in India allowing investments in rental housing is a new trend worth watching. The framework and details of REITs, once formulated, are likely to drive the investor demand across the prime cities in India in 2013. Another interesting trend observed in the last two years was that the stock in the range of INR 2,000-3,000 per sq ft was fast sold out. In 2013, this range is likely to shift to INR 3,000-5,000 per sq ft with the increase in inflation and construction costs.

7. Industrial Real Estate
 – Sale and leaseback of exiting industrial assets by existing companies is likely to increase in 2013. MNCs testing the waters in India are likely to focus on BTS industrial properties. Warehousing companies are now preparing for the goods and services taxes (GST) and are slowly moving from go-downs to distribution centers. The growing trend in e-retailing and FDI in multi-brand retail is expected to surge the demand for warehousing spaces in 2013.

8. Education and Health Care – There are aggressive growth plans in K-12 and skill-space educational institutions in 2013, particularly in the non-metro cities of India, where there are large opportunities. In the health care segment, hospital chains, along with day care centers, are expected to expand aggressively in 2013. Both these segments are expected to attract private equity investment in 2013.

9. Investment sentiments
 – Debt capital is likely to increase in 2013. Banks are expected to be more flexible in lending. Most of the realty funds are close to their exit periods as they were invested around 2006-2007. Therefore, the exit of real estate funds is expected to increase in 2013. Meanwhile, interest on income-producing assets by institutional investors is likely to increase over the year. However, the availability of such assets will continue to remain a challenge. Assets will witness a softening of yield rates amidst increased liquidity.

10. Delhi
 – Most of the absorption in Delhi NCR is likely to focus around Gurgaon and Noida, with the exception of Delhi International Airport Limited (DIAL) and few select stand-alone Grade A projects of Delhi. As the demand supply gap of quality office space is expected to increase because of the supply constraints in select precincts of Delhi NCR, rents are expected to increase in certain micromarkets by 2H13. Developers will focus on delivery of the products.

11. Mumbai
 – Office absorption and residential demand will continue to increase in Mumbai. The trend of completion of high-quality new office projects pushing up Grade A office vacancy levels and providing tenants with greater bargaining power will reduce in 2013. With banks drastically reducing lending activities over the last two years, resulting in debt remaining a constraint, not much of new commercial supply (except spillover from 2012) is expected to be completed in 2013 and 2014. Residential launches are expected to increase; however, price drop is unlikely to happen over the year. Amidst constrained supply of quality retail malls, rental gap between Grade A malls and Grade B malls will further widen in the year.

12. Bangalore
 – In terms of office space, Outer Ring Road will continue to be the sought-after destination in 2013. For residential real estate, North Bangalore is expected to continue to remain as the best performing region in the city with strong infrastructure development, increased demand and price appreciation in 2013. Meanwhile, Whitefield will continue to retain its sheen for both office and residential real estate because of affordability, proximity to key work places and good social infrastructure.

13. Other Cities – Chennai, which witnessed a historical high number of residential launches in 2012, is likely to slow down in 2013. This trend is also expected in Pune. Meanwhile, Kolkata and Hyderabad are likely to witness increased launches. Prices of residential units are likely to increase in all the cities because of the increased construction costs. Ahmedabad, Bhubaneswar Kochi and Coimbatore are other cities in India that are likely to witness immense development activities in 2013.

Indian economy to grow at 6.7 percent in 2013-14: CRISIL

India’s economic growth is expected to accelerate to 6.7 percent in 2013-14 from the projected rate of 5.5 percent in the current financial year on a revival in consumption, CRISIL said in a report Wednesday.

A pick-up in agriculture, predicated on a normal monsoon, lower interest rates and higher government spending will support private consumption demand, the research and ratings agency said.

“India’s GDP growth in 2013-14 will be supported by the revival of the private sector consumption growth aided by higher growth in agriculture, high government spending and lower interest rates,” Roopa Kudva, managing director and chief executive officer, CRISIL,  said in the report.

According to the report, core inflation is expected to come down to 7 percent in the financial year beginning April 1, 2013, as against the projected inflation of 7.7 percent in 2012-13.

“The improved agricultural output, along with a stronger rupee and lower crude oil prices will also help in reducing Wholesale Price Inflation (WPI) to around 7 percent from 7.7 percent projected for 2012-13,” it said.

CRISIL expects that the Reserve Bank of India (RBI) would cut interest rates by 75-100 basis points this year on the back of easing inflationary pressure. This would lower retail lending rates and boost demands in interest rate sensitive segments.

“The likely increase in government spending in the form of higher expenditure on social sector schemes and rural development will be driven by the upcoming general elections in 2014,” it said.

Increased welfare expenditure by the government, lower interest rates, moderation in inflation, and high farm incomes (assuming a normal monsoon) will boost household spending and, thereby, benefit sectors such as consumer durables, hotels and restaurants and financial services, the report said.

“Further, improved external demand, as a result of marginal recovery of global growth, could raise India’s exports, especially in the IT and IT-enabled services sector. We, therefore, expect the services sector to remain healthy at 8 percent in the next fiscal,” it added.

According to the report, the agriculture sector is expected to grow by 3.5 percent in the 2013-14 financial year.

 

Signs of recovery in real estate but challenges ahead

After a long lull, the year 2013 is expected to bring back hopes of growth to the real estate sector, mainly due to the government’s positive approach towards reforms and moderation of interest rates, experts say.

Land Acquisition and Real Estate Regulation Bills are expected to be passed during the year, while there is a likelihood of Reserve Bank bringing down the interest rates.

“The passage of FDI in multi-brand retail by the government shows its seriousness on introducing reforms. RBI can be expected to lower interest rates in the coming months which will benefit developers as well as consumers. This will boost the sentiments,” Knight Frank India chairman Pranab Datta said.

Residential prices, which have been increasing over the past few years are likely to witness subdued growth in most markets in a short to medium term till the pressures of unsold inventory are eased out, CBRE chairman and managing director Anshuman Magazine said.

Finance Minister P Chidambaram had recently asked the developers to sell their unsold inventory at a lower price.

“Besides, infrastructure initiatives such as Greater Noida metro rail network and proposed metro link in north-west Bangalore are likely to have a positive impact on the residential market of these cities,” Magazine said.

FDI in multi-brand retail will also boost the demand for commercial real estate.

“Apart from the international brands, several domestic brands are also exploring opportunities to increase their foot prints across the country. This anticipated growth in demand is expected to bring some upward movement in retail rentals, particularly along established hubs,” DTZ-India chief executive officer Anshul Jain said.

According to Jones Lang LaSalle, major cities like Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata will see the addition of close to 9.5 million sqft of mall space in 2013.

“The primary reason is that a sizable amount of supply that was expected to reach completion in 2012 has been being pushed to 2013,” JLL Chairman and Country Head Anuj Puri said.

While Mumbai, NCR-Delhi, Bangalore and Chennai will together contribute 70 per cent of the total retail space absorption, cities like Pune, Hyderabad and Kolkata will account for the remaining 30 per cent.

Further, the ongoing policy reforms are expected to provide some cushion to corporates who are likely to execute their expansion plans in near future.

“Demand for office space is expected to be broad-based and not restricted to IT-ITeS and banking sectors. However, even as leasing activity performs relatively well, rentals are expected to remain stable owing to large upcoming supply and high vacancy levels across most cities,” Jain said.

According to JLL, cities including Mumbai, Bangalore, Delhi NCR, Chennai, Hyderabad and Pune will witness commercial corporate property transactions focused on their own occupancy needs.

“We expect 2013 to bring a larger-than-usual number of NRI investors into the commercial space arena. This is because NRIs are currently enthused by the prevailing exchange rate benefits and the fact that commercial real estate capital values are still 15-25 percent under their 2007-08 peak levels,” Puri said.

An optimistic future: Government’s concern towards real estate fuels hopes

MUMBAI: Developers across the city are expecting favourable policies and industry status in the New Year.

While the end of 2012 witnessed the initiation of a few regulations by the government benefitting the realty industry, 2013 can be considered as the starting point for these policies to be executed.

Several experts feel that 2013 would witness the much needed steps to be formulated for the realty sector.

Sukhraj Nahar, CMD, Nahar Group says, “The real estate industry is currently passing through a transformation. All of its participants have made serious efforts to bring transparency in 2012. Going forward, we feel this will help both industry players and stakeholders. The industry is still unorganised and its efforts with the government for awarding them industry status are in progress.” Nahar also has a lot of expectations from the government in terms of various positive initiatives like priority lending from banks, immediate rate cut by RBI and single window clearance for project approvals.

The economy had its share of ups and downs during the last year, but it picked up in the end because of a few government initiatives. Samujjwal Ghosh, Head of Marketing, Lodha Group says, “The Indian economy slowed down between mid 2011 and mid 2012, but then bottomed out and started rebounding. This was partly because interest rates started falling and partly because the government started taking proactive measures to push up the economy in the last few months. Also, last year many developers adopted a wait and watch attitude due to changes in FSI norms and approvals, which will now change as the sector will be buoyant this year. This is good news for the industry as well as for customers being a win-win situation for both.”

Lodha plans on continuing with the development of their city centre project New Cuffe Parade. Ghosh lists Wadala as a prime destination to invest in property in 2013 as it has proximity to the premium business districts of Bandra Kurla Complex and is the only confluence of the Monorail, Metro and Eastern Freeway. Joint government efforts can help revive the real estate sector and take it to new heights.

Lalit Kumar Jain, CMD, Kumar Urban Development Ltd and President National – CREDAI, believes that if the government shows concern towards the industry, they expect a lot from the government like the Finance Ministry and RBI working together to strengthen demand and supply by a special housing development policy. He says, “We also expect the Housing Ministry to work with the Finance Ministry and work outaffordable housing through various measures in the Finance Bill.”

Several essential issues in the real estate industry need to be addressed immediately. Approval of single window clearance, stamp duty and VAT, among many others, is important for the sector to grow. Dhaval Ajmera, Director, Ajmera Realty & Infra India Ltd says, “2013 is expected to be vibrant for the realty industry. The need of the hour is quintessential reforms to be passed along with the approval of single window clearance to ensure speedy approval. Matters which urgently need to be addressed include stamp duty, VAT,service tax and labour tax.”

The year 2012 has seen maximum number of steps taken by the government to boost the realty sector. As a result developers believe that 2013 would be a positive year for the sector. A Kalpataru spokesperson says, “We are expecting 2013 to be more robust compared to the past few years based on the government’s impetus on the infrastructure development including the Mumbai Metropolitan Region; coupled with positive steps taken by the Centre to find concrete solutions for issues in the industry.”

The Kalpataru spokesperson also feels that the Finance Ministry’s motivation through softening of interest rates and lending more to the real estate sector will have a positive impact on both developers and consumers. Thereal estate market could start to perform better as the easing of FDI norms will begin to show results during the second half of the year, believes Jain. He says, “The economy will also recover in 2013 which in turn will perk up the real estate sector in India. With the government trying to introduce developer and buyer friendly policies, the outlook for real estate in 2013 does look promising.”