Economic slowdown coupled with slower GDP growth, inflationary pressures, volatility in foreign exchange and stock markets, together with liquidity crunch and the high cost of debt took a bog toll on the real estate sector last year. And now in the new year, industry stakeholders look for a revival of realty on the back of expected economic recovery and political stability, writes Vinod Behl.
A number of policy initiatives were taken during the past year with a view to reform the realty sector, with the high point being the Parliament giving its nod to the ‘Right to Fair Compensation & Transparency in Land Acquisition, Rehabilitation & Resettlement Bill, 2013′, which will ensure stricter norms for land acquisition and fairer compensation to land owners. As part of the reform process, SEZ norms were relaxed, new norms for housing finance companies and builders to raise funds for low- cost housing through ECB were introduced, Reversed Mortgage policy was reformed and made more attractive with tax- free life-long annuity payment, and draft guidelines for REITs were released for opening new avenues for retail investors. However, the much anticipated Real Estate Regulatory Bill has not yet seen the light of the day.
Real estate market dynamics have undergone a significant change, as the predominantly investor-driven market of yesteryears has now given way to an end-user driven market today. Investors have been largely staying away as they did not expect market to improve in the short term amidst political and economic uncertainty. Both end-users and investors have been showing lesser appetite for risk, in turn opting for low-ticket affordable properties. So it’s been a buyer’s market with ample choices, and more or less stable prices, though despite inventory pile-ups, developers have been finding it difficult to cut prices due to ever increasing construction, labour and debt costs. Home buyers have been playing safe by opting for ready-to-move-in or nearing completion properties and construction-linked payments in the wake of large scale delivery defaults. The trend of theme-homes and serviced-residences had also gained momentum, and NRIs have been leveraging the advantage of rupee devaluation for investment in property.
Reeling under heavy bank debt, the muted commercial office segment is looking at new instruments like REITs and bonds backed by rental income from office and shopping malls as its saviour. And with absorption rate expected to pick up in 2014, this segment offering stable rental yields, with prospects for capital appreciation with low risk, is expected to gain momentum and remain attractive for occupiers.
There have been challenging times for retail real estate due to economic stress coupled with high real estate costs and constrained FDI policies. Considering the economical and political instability, investment outlook does not look all that much brighter. But as the capital and rental values are expected to remain stable on weak sentiment, retailers could well utilise this opportunity to consolidate and further expand their businesses.
Looking ahead, much of the realty revival in 2014 will depend on how well we get over prevailing political and economic uncertainty. We can expect any worthwhile improvement only in the second half of next year with a strong and stable government at the Centre, capable of taking forward crucial reforms like liberalisation of FDI in real estate and the real estate regulatory bill; and granting industry status to real estate.