Indian property market

In 2015, festive season or special Diwali celebration session in Mumbai comes with many surprise gifts from PM Narendra Modi as he relaxed the norms and regulations for foreign investment in Indian real estate sector. This year home buyers are discouraged by the rumors that real estate builders are unlikely to run out of money.

Since the opening of the market, government restrictions was preventing the global investors from putting their money in small and mid size construction projects, whereas; for global investors it was also tuff to make the exits of their money, but this festive season Indian government settles all restrictions with a stroke of a pen. Now global investors can invest their money even in completed commercial property projects as earlier they were not allowed to do that. After new rules some imported brands will be able to set up their own stores and in that Indian shopping malls will be proved as more valuable assets in near future. If like this PM Modi is going to respond every time after losing elections, so investors will gladly wish him more defeats.

Cash strapping Indian real estate developers aren’t complaining about the investment policies and foreign investment regulation, which announced at the evening of Tuesday. Now Indian real estate developers can redevelop small projects with more luxury and facilities at the centre of the city with foreign equity. In past due to rumors that Indian real estate builders are unlikely to run out of money, many home buyers get discouraged from investing in the market. In present, purchasers have no idea that when they will get the possession, however in top six cities there are more than 70% of unsold homes which are getting delayed by east 18 to 24 months for completion due to lack of funds, as per the reports of Rising Straits Capital Management, a private equity firm located at Singapore and has invested $1 billion in focused Indian real estate and infrastructure sector.

However; it’s clear that access to foreign money will not repair the financial foundations of builders because intolerably high cost of capital is meaningless until the domestic banking system becomes more confident about lending money to Indian builders. But it is expected that this new investment policy will at least stem further rot. Liquid, income generating real estate sector is ready to attract new foreign investment because of family offices of wealthy NRIs. However; in India US and Australian property projects are offering return of 14 to 15 per cent, but still its hard to get real estate funds in less develop Indian market at least then when annual depreciation in of rupee is about 5 to 6 per cent. It is expected that in coming year’s Indian property market will emerge as a viable asset class for global investors. Whereas; real estate investment trusts can speed up the process of construction in India.

moody’s investors service

According to Moody’s Investors Service, in past two to three years the capability of the Indian real estate developers to execute commercial and residential projects in market has been challenged because of late approvals and stretched liquidity. And such delays have slowed the flow of payments from buyers and investors as well as it has also reduced investor demand for new projects because of low returns and locked up capital. The more they added that India’s premium and largest property developers will face new challenges in next 12 to 18 months over the environment operation including; flat sales, stagnant prices and weak cash flows.

Recently, Moody’s releases a report on the Indian property market with title “Cash Flows to Remain Weak Amid Flat Sales and High Costs”. According to Vikas Halan, VP and Senior Credit Officer at Moody Investors Service, “A the same time, apart from many difficulties, we are expecting solid economic growth for the year 2014-2015  and it will provide some support to the sales in real estate sector, which will enhance the confidence and investment activity of the investors and buyers”. The more he added that if the cuts of interest rates by the Reserve Bank of India will be passed by banks, so it will filter down the property market by reducing the cost of borrowing for buyers as well as real estate developers and it will support the demand. But declines in savings rates and high residential property prices will act as the major factor, especially in the cities like Mumbai and Delhi where property market exhibits a notable degree of variation when it comes to affordability and cost of property.

It is expected that some of the major real estate developers such as; Lodha Developers Private Limited (Ba3 negative), Unitech Limited (unrated), DLF Limited (unrated), India-bulls Real Estate Limited (B1 stable), and Oberoi Realty Limited (unrated) will face challenges in the operating environment and they will experience more pressure on cash flow, sales and high inventory volume because they are operating in the city like Delhi and Mumbai, where prices of properties are the highest. However; in contrast developers such as; Prestige Estate Projects Limited (unrated), Brigade Enterprises Limited (unrated), and Sobha Developers Limited (unrated), which are Bengaluru based will face better and stable demand for housing sales.

Currently, instead of reducing the prices, real estate developers are modifying product and offering some lucrative schemes. On the other side the confidence of consumers are getting boost due to Real Estate Bill (Regulations and Development), which is planning to set-up new  regulatory authority and guidelines for residential and commercial development. However; still developers are facing stricter terms over the receipt of capital and use of advance cash. But according to Moody’s the new bill will promote the transparency, accountability and discipline in the real estate market which is positive indication for homebuyers.