Stress in market during 2013; yet realty moving in right direction

By: Rahul Gaur, CMD, Brys Group

Track2Realty Exclusive: To say that the year 2013 has been stressful for the Indian real estate would be like stating the obvious. A major reason why the sector could not perform up to its true potential this year is the negative market sentiments. This, of course, is not just due to macro-economic slowdown or high interest rate; rather the challenges before the sector are multiple-ranging from policy uncertainty to liquidity crisis and over and above that is ever increasing consumer expectations and media scrutiny that again affects the buyers’ psyche.

I am not saying that delayed project delivery or piled up inventory is not a reality, but there are reasons behind that. Often the eco system in which we developers operator is so business-unfriendly that despite of our best of efforts it takes the project out of our hands. The sector has already been witness to the stage where there is hardly any room for the fly-by-night operators and only the developers with genuine intention and track record have been able to withstand the challenges in the last 4-5 years.

I would maintain that right product for the right market is one loud message coming out of the year 2013 and the developers who have done this research are doing well despite of the impending slowdown. I am hopeful that the year ahead will be better than this year, especially in the second half of 2014 when post the General Elections there will be lot more clarity from both political and economic standpoint. A lot is expected out of the next Budget as well and I feel the market sentiments will start changing thereafter.

What makes me see 2014 as the year of real estate maturity is the fact that post the elections REIT, FDI in retail and a number of other funding options for the sector will actually be put in place. Real estate, after all, is as game of market sentiments and if those sentiments are bullish our economic fundamentals and market demand can be revived within a few months. Even the foreign investors maintain that Indian economic fundamentals are worth a look, but the worry is the policy ambiguity that deters the serious investors.

I would also maintain that despite of being a stressful year the real estate in the country is moving in the right direction. My confidence is a reflection of the fact that the policy makers will be forced to take cognisance of the contribution of the sector to the Indian GDP. Now whether that happens with the next budget or post the elections is to be seen. But what can be vouchsafed is that managing the shortages is not the solution any more. The government has to take investment-friendly steps to create surpluses now.

From buyers’ point of view this is the right time to buy, even with higher interest rate, due to two reasons: first and foremost is the fact that prices across the major markets have bottomed out and then keeping in view the RBI’s tough posturing to tame inflation interest rates are not coming down in the next one year at least. So, any fancy expectations of a price crash or correction is an argument that defies merit.

As a matter of fact, the global investors’ sentiments, which is one of the key indicators of gauging the prospects of the market, have gone up and hence the PE investments in the sector during the period Jan-Sep has gone up by 26% which is quite remarkable in today’s financial climate. Since majority of the PE investment have come into the commercial real estate, chances of revival are pretty high. Then we have Real Estate Investment Trust (REIT) coming into effect and that will also bring the quality investment into the sector.

In retrospection I must again add here that the developers who are offering the right product in the right market are not facing inventory hangover. For instance, while many of the luxury projects have not taken off well in markets like Mumbai and Gurgaon where there is over-supply in the segment, we have been seeing genuine interest level for our luxury project in Noida market since our research made us realise that the market has actually been waiting for the iconic project.

The year 2013 has also taught the developers that instead of shifting focus on the land bank and more launches, it is better to focus on the timely execution of the project in hand. I think this realisation will do a genuine image makeover to the sector. In terms of raising funds also, this year the developers who have maintained a good track record and reputation have been able to raise funds at a reasonable interest rate.

Looking forward, the first half of the year 2014 may not be much different than 2013, but the second half promises to change the market dynamics and while the policy makers have no option but to address our issues & concerns if they are serious with the growth of the GDP, the developers also seem to have learnt their lessons with trial & error of 4-5 years ever since the slowdown started hurting our business. I think collectively this indicates a turnaround year ahead and create a win-win situation for all the stake holders-the developers, buyers, investors as well as the economy of the nation.