Real Estate Sector

Real estate experts believe that the 2016 will start with the positive note for real estate sector and in coming year it may witness pickup in the sales with improvement in the number of unsold inventories. In simple words we can say that year 2015 was little bit good for realty sector as it has witness some  regulatory changes, which will do the big impact in year 2016 as regulatory changes have relaxed the foreign direct investment laws, after the direct approval of Union Cabinet and it was much awaited Real Estate Bill. On Real Estate Bill there were mixed reactions from real estate experts, but broadly everyone sees it as a positive move as currently real estate sector is in sluggish mood.

As per real estate experts, In September the rate cut of 50 basis points by the RBI under monetary policy review will also increase the demand and supply in the real estate sector as well as government panel is also planning to bring seventh pay commission. As per the reports of Financial Express, “Investment in the real estate sector in 2015 was about $ 8 billion or Rs 53,000 crore and it was even year high even when the sector is not in a good shape. However; BSE Real Estate index also plunged by more than 16 percent on a year to date basis at the December 18. According to reports of Cushman and Wakefield private equity players have invested about $ 2.8 billion or Rs 18,700 crore in the real estate market till end September 2015. Add to that estimation $ 4.5 billion, or Rs 30,500 crore was of NCDs till the end of November 2015 and due to that the overall tally was up by 74 percent in comparison of last year which was about Rs 17,600 crore.

As per the statement of Anuj Puri, Chairman and Country Head of JLL India, “In past two years the real estate market is seeing some improvement and it has been adjusted to new trends in terms of aligning supply for relevant demand. The more he added that now real estate developers are paying more attention to the requirements of buyers and they are developing more property as per need of middle class which is in the price range of Rs 75 lakhs to Rs 90 lakhs in tier-I cities”.  According to Vikas Malpani, co-founder and Head of CommonFloor Groups, “The real estate bill approval is positive sign for real sector, which along with other trends could shape the real estate sector in 2016”. There are many experts, who are giving thumps up to the recently approved Real Estate Regulatory Bill as it can be helpful to clear the unsold inventory. We all know that whenever any new bill or law comes in the existence, the real estate developers tend to adopt a wait and watch approach. And due to that in present, the completions of existing projects are the prime focus of developers for some more months.

On the other side at the positive note the developers are focusing more on completing their existing projects as well as clearing the inventories and according to JLL India listed that following regions as the best bet for real estate sector in 2016; Noida & Greater Noida, Thane – Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Nagar Road – Pune, Whitefield – Bangalore, Navi Mumbai – Mumbai Metropolitan Region ( MMR), Viman Nagar and Kochi.

Demand for housing

While management of the inventory level and rising demand from home buyers may end with the decline in the rates of the property in Mumbai. In Mumbai Metropolitan Region (MMR) the property prices can fall by 20 per cent in next few months. According to recent study conducted by ASK, “The demand of housing in Mumbai Metropolitan Region is expected to increase by 1.20 to 130 lakh units per annum, while property demand in Mumbai is likely to correct by up-to 20 per cent in next few months and the main  reason behind this is large presence of inventory.

The demand for housing or apartments units has been driven by the sectors like; entertainment, media, telecom, finance, jewellery, IT/ITeS, gems and trading industry and it is expected that same will continue in future as well. Amit Bhagat, CEO and MD of ASK Property Investment Advisors stated that, “ Increasing sub- urbanization of the Mumbai region and demographic growth statics indicating that in next 2 to 3 three years there will be requirement of 1.20 lakh to 1.30 lakh housing units. The more he added that, “We are expecting that price will not go up because of balanced demand-supply ratio, while growth corridors are expected to witness rise in demand from end-user. It is expected that there will be 20 per cent correction in the price of real estate in next month.

“The expectations of low interest rates, standardization in approvals and different policy initiatives will provide boost to the real estate sector whereas; the imminent economic growth would result in higher addition of jobs, rising income levels and need for housing” ASK Group CEO and MD Sunil Rohokale said. At the same time, the housing units which meet the end-user budget can be the real challenge for real estate sector. The locations such as; Navi Mumbai, Ghatkopar, Andheri will be the future growth centers because of the infrastructure projects which are coming up in these markets. The availability of scarce land with limited FSI (floor space index) in the island city has compelled residential and commercial development to move north-wards. And various infrastructure projects are coming up in the suburban regions, which are attracting the developers to develop more projects in these markets.

Indian real estate sector

The Indian real estate sector is contributing almost 6 per cent in country’s GDP and it also has generated the employment for 76 lakh people. This sector has nourishes the industries like; chemicals, tiles, cement, steel, paints, fixtures and fittings. The growth of Indian economy depends on the growth of its cities and it is the product which real estate developers delivers. The contribution of real estate developers are overshadowed by antipathy against the entire realty sector of country.

On the other side it is true that some of the real estate developers intentionally undertake a slower pace of construction because of slow sale of their apartments. Whereas, in most of the cases the reason for delay is government authorities, who don’t grant timely approvals. Obtaining the 57-odd permissions to begin construction is not cup of tea and it could take as long as two years and it is possible that during this time the cost of acquisition, construction or even holding the land for a project, rises.

The other un-favorable condition for developer can be that he had to rework on specifications of their upcoming as well as ongoing unapproved projects and it can led towards the significant project delays. Apart from an exacerbated cash crunch, developers also had to contend with the ire of buyers. If we consider the unexpected price increases or changes in apartment area after consumers have purchased properties from a real estate developer, these often occur because of changes in the project plans were required by the authorities before issuing an approval. Before two years, revisions were made in the DCR regulations for the MMR (Mumbai Metropolitan Region), which simultaneously road blocked several real estate projects and added to the overall development costs by about 15 per cent.

For real estate industry the fact is simple that there are 20 per cent hikes in construction cost and price increases across most projects in MMR. Whereas due to faulty land acquisition and title disputes the few real estate developer are ready to fly with in the night. It is true for the some cases in the Noida Extension, which has been legally established because of acquisition issues have been the fault of the authorities. However as always the blame is on the part of builders and it’s high time for them as they take a balanced view of the problem