Real estate sector: Growth starting, but no bull-run yet

Jan 04 2014, 11:21 IST
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High prices led to low sales and real estate developers had piles of unsold inventory and lack of liquidity.  (Thinkstock photo) High prices led to low sales and real estate developers had piles of unsold inventory and lack of liquidity. (Thinkstock photo)
SummaryThe real estate industry is anticipating relief in in Budget 2014-15, post elections.

on the condition of anonymity. “However there is a risk of those decisions getting reversed when the new government takes charge. Irrespective of who comes to power, the second half year will be consumed in reviewing, modifying and approving various reforms and policies. Its impact will be experienced in 2015.”

Reform impact

“The partial paralysis on the policy front has been one of the primary reasons for the slowdown,” says Anuj Puri, chairman and Country Head Jones Lang LaSalle India, a real estate consultancy. “Notoriously non-transparent, the sector certainly needed a fresh infusion of progressive reforms. The Real Estate Regulatory (RER) Bill and The Land Acquisition, Resettlement and Rehabilitation (LARR) Act are the major ones,” adds Puri.

“However, both have clauses which threaten to further escalate prices in a market craving for absorption numbers. While RER Bill raised developer’s funding concerns, the Land Acquisition Act has rendered the process costlier and more time-consuming.”

According to Anshuman Magazine, CMD, CBRE South Asia, “In principle, the LARR Act is meant to promote transparency in land titling while protecting land holders but owing to rising cost and associated risks in it, more developers are likely to opt for joint venture development.”

Another ray of hope is entry of Real Estate Investment Trusts (REITs). “Real estate is completely driven by market sentiments. REITs aim at better transparency and larger investment to further strengthen sentiment,” says Pradeep Jain, chairman, Parsvnath Developers.

Introduction of REITs in India failed earlier mainly due to economic slow-down. Capital markets regulator Sebi has released draft guidelines. However, if slow-down continues, REITs would run into trouble again. Further, if taxation issues are not resolved, the initiative may flounder yet again.

Property prices

It was a vicious circle. High prices led to low sales and developers had piles of unsold inventory and lack of liquidity. This led to over-supply in many markets. In order to offload inventory, developers began offering discounts and freebies. But even that was beyond affordable limits of buyers. Deliveries were delayed, while low demand led to cancellation of new launches. Demand for ready-to-move in spaces and resale flats shot up as buyers were reluctant to risk their money in under-construction projects The same situation of 2013 is likely to continue in most of the period of 2014.

According to a report by Colliers International, a real estate services firm, “The end users will continue to be cautious. Current oversupply will get mitigated in coming quarters as very

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