Tag Archives: New Year

2015 in review and gazing into 2016

Posted on by Track2Realty

By: Anuj Puri, Chairman and Country Head at JLL India

2016, New Year, NRI investment, NRI property, Indian diaspora, Indian real estate news, Indian property market, India real estate newsmagazine, Track2Media Research, Track2Realty, Property market forecastToday, the world sees India as a land of opportunity for business and investment. RBI head Raghuram Rajan said in mid-September that while fellow BRICs have deep problems, India appears to be an island of relative calm in an ocean of turmoil.

This scenario continues; as per recent government data, economic growth reached 7.4% in the second quarter of the current financial year, riding on a spike in manufacturing and a pickup in investment demand.

Globally positioning India as an investment destination and improving India’s diplomatic and trade relation, Prime Minister Narendra Modi’s foreign jaunts have helped India attract more FDI.

From the nations he visited during the financial year 2014-15, India received FDI of USD 19.78 billion. Moreover, foreign direct investment (FDI) in India increased by 27% in 2014-15 to USD 30.93 billion.

In other fronts as well, it is time to retrospect on how 2015 was for the real estate sector, and to crystal-gaze into 2016.

Commercial real estate

India’s office space absorption during 2015 stood at 35 million sq ft – the second-highest figure in the country’s history after 2011. The demand for office space in 2011 came from occupiers taking advantage of low rents after the global financial crisis. This time, however, it was the result of corporates implementing their growth plans.

While pan-India vacancy still stands at 16%, realistic vacancy actually stands around 8-9% – the total vacant supply is not always relevant for corporate occupiers. This is because most of them do not consider Grade-A buildings that are strata-sold or located in areas with inherent disadvantages and connectivity issues, or have been vacated from recent occupier exits and no longer match Grade-A requirements.

Cities such as Pune, Bangalore, Hyderabad and Chennai have a vacancy rate of just 5-10%, prompting the need for fresh supply to meet growing demand. Developers have been shying away from commercial projects because, though land and construction costs have been rising, rents have not reached a point where developers can get about 20% IRR. However, as rents climb faster, developers will start constructing – at least in the good markets.

Rents rose across Indian cities in 2015. The pace was faster in the secondary business districts (SBDs) and certain peripheral business districts (PBDs) of tier-I cities than in the established central business districts (CBDs). The micro-markets seeing more leasing activity in different cities in 2015 will continue to see action in 2016, while lesser-preferred locations will see a higher vacancy rate. As and when supply dries up and vacancy drops further, occupiers will start taking up spaces in these locations, as well.

In 2015, office space demand was mainly driven by IT/ ITeS, e-commerce, start-ups and large consulting firms. Players in many other sectors like FMCG, BFSI (front office), manufacturing, telecom and pharma did not come into the market – however, this should happen in 2016 and 2017.

Next year will also see demand for built-to-suit (BTS) properties, especially from the larger IT occupiers. While the absorption in 2015 is similar to 2011, it is distributed across new and old buildings; previously, it was largely in newly completed buildings.

Demand will remain consistent over most of 2016, with occupiers showing a positive bias. Given the low supply and continued demand for commercial spaces, corporate occupiers will continue to firm up their expansion plans. While 2016 will bring continued demand for leased spaces, quality supply will be lower. This means that unmet demand will reflect in higher occupancy of Grade-B office spaces.

After the opening up of real estate sector to FDI, the profile of developers, as well as ownership patterns, will start changing. This will lead to a drop of ownership requirements by Indian developers and a rise in ownership by PE funds and MNC developers.

Real estate capital markets

2015 has been an interesting year for capital market activities in real estate. While the PE focus continued to remain high on residential and office projects, entity-level investments and platform-level deals also came into the limelight, indicating increase in investor confidence.

In terms of asset focus, residential projects attracted a considerable share of funding; however, equity investment in this space is still insignificant. Income-yielding office projects attracted a majority of equity investments. In terms of the geographical spread, focus was restricted to tier-I cities with NCR, Mumbai and Bangalore attracting a majority of investments (73%); reflecting learnings from past experience.

While residential and office will continue to attract a majority of investments in 2016, retail is expected to start seeing better traction. Investors will remain focused on the top seven cities. Over the past few months, we have already seen interest from Chinese and Japanese investors to bring long-term money to India next year.

Overall, the stage is set for a superlative show next year. In fact, 2016 may well bring the kind of investment activities that were seen in 2007 – the previous peak year which saw investments of more than USD 8 billion into Indian real estate.

Residential real estate

2015 did not bring the hoped-for growth in residential real estate. However, the silver lining is that the bad days seem to have bottomed out; sales have picked up in a few cities like Mumbai, Hyderabad and Bangalore.

Launches have reduced in cities like Mumbai, slightly lowering the inventory. Developers’ initiatives like offering attractive schemes and deal terms, coupled with lowering of interest rates by the Reserve Bank of India (RBI), have activated fence-sitters.

The challenges of demand-supply mismatch and high unsold inventory across the country remain, but the signs are nevertheless encouraging – cities like Mumbai, Bangalore, Pune and Hyderabad are slowly but surely crawling back to positive growth. 2016 may well bring an end to the long and painful journey this sector has had, and signal an upward growth trajectory. It will definitely mature further into an organised industry in which some lesser-organised players become casualties.

Retail real estate

The year 2015 saw hardly any quality retail space come in. Apart from that, the two big trends observed were:

1.     Consolidation of retail real estate by brands and retailers who focused on their profit-making stores and closed down loss-making ones, and

2.     The entry of institutional investors. Thanks to relaxation of sourcing norms, single-brand retail companies will find more reason to explore the Indian market and also be able to undertake e-commerce business independently.

In 2016, more mature investors will come in and buy built-up retail spaces. Once they have the relevant experience and foothold in India, they will start investing in ‘greenfield’ assets. Retailers are maturing as competition heats with the entry of bigger brands into the country.

Stronger players will successfully attract private equity (PE) investments over the coming years. PE may also go into select mall investments, especially in under-represented markets or for mature assets’ buyout.

Quality mall space is coming up with strong pre-commitments, indicating that retailers remain bullish about India’s long-term consumption story. Retailers will start experimenting with formats and sizes for the same brands, adapting to markets as they start moving up the value chain.

2015 saw food and beverage (F&B) emerge as a strong category, and this will continue in 2016. Entertainment options will also improve, and technology-led retail will start entering in the single-brand retail store category.

However, 2016 will see a continued dearth of quality retail spaces. Retailers will have to revisit their real estate strategy and have a flexible approach, customised to different micro-markets. Investments by both home-grown and international brands will strengthen in tier-II and tier-III markets as they expand beyond tier-I cities.

Industrial & warehousing

2015 saw the wheels in motion for the industrial / manufacturing sector to get seriously rolling in 2016. Under the ‘Make in India’ programme, states can come up with advanced policies, which will help them fuel their industrial growth.

Maharashtra, Gujarat and Andhra Pradesh have historically been front-runners in attracting industrial investments. Under the ‘Make in India’ initiative, states like Punjab, Haryana and Karnataka are also taking bold steps towards better industrial policies. Online, time-bound approvals are expected to further improve the ease of doing business in India.

The warehousing sector is reaching an inflection point and will take a huge leap forward once the goods and services tax (GST) is rolled out next year. Apart from GST, e-commerce is expected to significantly drive the demand for warehouses in India in the near future. With nearly 25% of all warehousing absorption being driven by e-commerce players, it is currently the biggest demand driver for the sector. This industry is expected to invest an additional USD 2-3 billion into warehousing over the next 2-3 years.

Indian warehousing is seeing a higher supply of organised Grade-A and B warehouses than in the past. In 2015, the cumulative warehousing supply (Grade-A and B) across eight Indian cities stood at around 97 million sq ft, as against 79 million sq ft last year.

This supply is expected to reach 116 million sq ft in 2016. With industrial corridors like Delhi-Mumbai industrial corridor (DMIC) and the expansion and improvement of road network, things are indeed looking up for the industrial and warehousing sectors.

Hospitality

India’s hotel real estate sector landscape is evolving from being largely development-driven to becoming more transaction-driven. Early signs of improvement in hotel operating performances seen in 2015 – following a six-year period of intense economic downward pressures exacerbated by steady hotel supply increases – have rendered the hotel real estate market ripe for acquisition and consolidation.

2015 alone saw nine hotel transactions (excluding partial equity stake buyouts or refinance) equal to the combined number seen in the last two years. Most of these were in the luxury and upscale hotel segments – a major change from previous years. Another key highlight of year 2015 was the transaction of eight operational hotels (nearly twice the number of 2012, the next-highest year.)

The year 2015 stands out due to the nature of deals recorded. The year 2016 is expected to carry on from the momentum garnered in the year 2015 predicated on the U-shaped recovery in the economy and the current state of the hotel sector.

Healthcare & education

The education and healthcare sectors in India are presently facing a huge shortfall of supply which is may soon be met by various international and national players. This will boost the growth of relevant real estate in the time to come.

Growing and emerging residential nodes will enable growth in the healthcare and education sectors, with downstream investments likely come into both sectors from domestic as well as international players.

The education industry, which crossed USD 70 billion by 2015, will require an additional 16 million sq ft of relevant real estate in the next four years. It is poised to see major growth in the future, as India will have the world’s largest population in the 18-24 age group and second-largest graduate talent pipeline globally by the end of 2020.

2016 is likely to bring various new transactions in the education space across the country, primarily related to elementary and K12 schools, and technical institutes.

The healthcare sector is expected to nearly double in value from the current USD 144 billion to USD 280 billion by 2020. More than 150 hospitals could start operations in the next four years, and this will by itself account for about 22.5 million square feet (i.e. 45,000-50,000 beds) of healthcare-related real estate.

Currently, the bed-to-population ratio in India is 0.9 beds per thousand populations, which is way below the global standards of 4.0 beds per thousand population. India requires 600,000 to 700,000 additional beds over the next 5-6 years to meet the demand for healthcare facilities, apart from improvement in quality of existing beds.

Given this demand for capital, the number of transactions in the healthcare space is expected to witness an increase in near future.

Regulatory framework

A lot of groundwork has been done with the central government’s initiatives:

  • Once ‘Housing for All by 2022’, the Smart Cities mission, Atal Mission for Rejuvenation and Urban Transformation (AMRUT), etc. begin to roll in earnest, we will see significantly heightened activity in infrastructure and related sectors.
  • Norms for FDI in the real estate sector have been eased. The government has relaxed FDI norms in 15 sectors including real estate, defence, single-brand retail, construction development and civil aviation. Under these new rules, non-repatriable investments by NRIs as also PIOs will be treated as domestic investments and not be subject to foreign direct investment caps.
  • In order to attract larger investments which are only possible through incorporated entities, the special dispensation of NRIs has now been also extended to companies, trusts and partnership firms which are incorporated outside India and owned and controlled by NRIs. Henceforth, such entities owned and controlled by NRIs will be treated at par with NRIs for investment in India.
  • Licencing norms have been relaxed in states like Haryana, which will help release land for affordable housing. Currently, unavailability of land is the biggest challenge to affordable housing.
  • The Indian Parliament is likely to pass the Real Estate (Regulation and Development) Bill soon. This will bring efficiency, transparency and accountability into the real estate sector, as will the introduction of new financing instruments that have immense potential to improve India’s transparency.
  • Despite REITs opening up late last year, not a single REIT got listed in 2015. In the current real estate taxation environment, there are not enough attractive returns available retail investors. However, 2016 may see some REITs to get launched on the back of reduced interest rates and rise in rental income from office real estate.

Looking forward

India is an underserved economy in terms of real estate requirements. There is a wedge between demand and supply of housing, largely as a result of information asymmetry. However, with increased market transparency, this demand/supply mismatch can offer immense opportunities for developers and investors alike.

The real estate industry is maturing. Until 2014, it was unregulated, fragmented and highly inefficient. Though 2016 will bring in regulation, it will remain fragmented and moderately inefficient. We could see it become a well-regulated, consolidated and moderately efficient industry by around 2020. Growth in the Indian economy will definitely see favourable reflection in the real estate sector, as well.

Realty hopeful of turnaround in 2014

Posted on by Track2Realty

By: Ravi Sinha

New Year, India real estate news, Indian realty news, Property new, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Track2Media, Track2RealtyTrack2Realty Exclusive: While the Indian real estate has been on a copy & paste mode in the last three years where not much support has been extended by the market or the policy makers, there is a strong optimism within the built environment that 2014 would be a turnaround year. Though nothing much has changed in terms of issues & concerns of the sector as another year comes to the end, some of the policy decisions in the last six months indicate the sector is finally on the road to recovery.

To add to it, the last budget before the General Elections also promises to take cognisance of the fact that it is the real estate in general and housing in particular that can put the economy on the track. Collectively, all this make the sector believe that worst is behind and the year ahead is a year of revival.

Critics may question whether there is any reason why the sector should look forward to revival in 2014. After all, it will be an election year where all the approval processes may slow down, the Reserve bank of India (RBI) Governor hawkish on the sector to tame inflation and no clarity over the next government at the Centre forcing the economists to keep fingers crossed for reasons beyond real estate as well. However, the market fundamentals & political compulsions of the government do not support this pessimism any more.

Surprisingly, the sector has its own reasons to believe that the year ahead will pave the way for smooth ride. The sentiment by and large has been that the sector has weathered the crisis post global slowdown and it is time to leave the worst possible behind. There is a strong feeling in the sector, and many economists agree to it, that the government has no option but to heed to the legitimate needs of the sector if they have to revive the economy for face saving before the General Elections. So, the next Union Budget 2014-15 is eagerly been waited for the beginning of the revival of fortune within the sector.

Rahul Gaur, CMD of Brys Group asserts that the first half of the year may be confusing prior to the elections but post the elections the market sentiments in general will be stable, if not bullish. Of course, the prospects of an unstable government is something that everyone within the built environment, including the banks and financial institutions, is keeping the fingers crossed, yet he maintains that the investment fundamentals of the sector are so strong that once the confusion with the next government is over things will fall in place.

“The PE investment in Indian realty has already registered 26 per cent up in the first three quarters of 2013. The prospects of Real Estate Investment Trust (REIT) becoming a reality next year would open another funding option for the sector and also benefit the retail investors who can otherwise not afford to buy a property. If the REIT is allowed in the country without additional taxation issues defeating the purpose, it will also help the sector become more transparent and professional in its functioning. Moreover, post the elections I feel retail FDI will also start attracting sizeable investment,” says Gaur.

With the regulator coming in the sector, expected sometime in the 214 itself, it will give the Indian real estate a much-needed image makeover before the global investors who are apprehensive with the sector due to opaque functioning and lack of corporate governance. Similarly, the Land Acquisition Act aims to ensure fair market compensation to the land owners and put an end to the trust-deficit, protest and in some cases judicial intervention leading to stalling of the project.

Sachin Sandhir, Managing Director, RICS South Asia says what can be vouchsafed is that the year 2013 has been fruitful from policy and governance standpoint; the same can not be said from sales perspective. Having said this, in a slow moving economy where the RBI’s focus has been to tame the inflation and not encourage excess liquidity in the market, if the sales are still happening, it shows there exists a right market at the right price point.

“I feel the time has come when the government, irrespective of which government comes to power post elections, has no option but to give the housing sector its due. Real estate has the potential to revitalise the Indian economy and hence I am very optimistic that the turnaround will start happening with the next Union Budget itself,” says Sandhir.

More importantly, it seems the slowdown has taught the developers a sound lesson that they have to define the demand before any new launch. Right product in the right market at right price point is the mantra ahead. Even in 2013 the developers who have done this are selling the projects amidst overall slowdown. What can be a better testimony than the fact that the developers who did their research to define demand have actually been selling more luxury projects?

So, the experiment and learning in the Indian real estate post global economic slowdown has led the sector to the road of recovery. Since the realty market is by and large sentiment driven, it seems the change in sentiments after next budget and the General Elections will change the sales velocity of the market as well. Reforms oriented measures like REIT can further fuel the market with liquidity and hence 2014 is largely seen as the year when maturity of the realty market will be recognised by the investors, policy makers and end-users alike.


2013 year to pave way for long-term reforms

Posted on by Track2Realty

By: Ravi Sinha

New Year, India real estate news, Indian realty news, Property new, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Track2Media, Track2RealtyTrack2Realty Exclusive: Real estate gains are not always short-term but often long-term from investment point of view. The same can be said about 2013 where despite of an outside view dismissing the year 2013 for low sales velocity, piling inventory, liquidity crunch and policy ambiguity, added to the country moving to the General Elections in 2014, the sector has managed to pave the way for long term reforms.

This has been an year where from policy standpoint a lot has happened which promises to reshape the fortunes of the sector once the elections are over and the economy revives. Last, but not the least, the focus of the developers this year has shifted from more launches to project execution and that shows the paradigm shift in the way the sector has been operating.

Sachin Sandhir, Managing Director, RICS-South Asia agrees that in the last six months, whether it was Land Acquisition Act, whether it was Regulator Bill, whether it was REIT guidelines, suddenly there was plethora of activities and buzz happening in the Finance Ministry and also about the measures that can be taken to get the economy back on track. So, from sales perspective it has been what it was, but looking ahead from the policy perspective there has been some measures which at least give you some element of hope that post elections depending on which way it pans out there would be some progress. He believes some of these developments have the ability to change the market dynamics significantly.

“I think from an activity perspective, particularly with respect to policy, a lot has happened. I can not say the same about the market because the market wise sales velocity has come down significantly. In the last three quarters sales have been down quarter-on-quarter. Mumbai and Delhi-NCR region have been severely affected. But market aside from the policy perspective there has been a clear realisation within various circles that the housing sector needs to be propelled through various mechanism for investment to go into the sector, jobs have to created if the economy has to get back to the growth trajectory of 8-9 per cent and for that housing has to play a significant part,” says Sandhir.

This raises a fundamental question whether the year 2013 has moved forward in terms of policy advocacy in a direction that promises market revival? Neeraj Bansal, Partner, Real Estate & Construction, KPMG maintains from policy perspective there has been a number of initiatives, both at the Central and the regional level, like policy on affordable housing or land pooling. But what has gone wrong is that it has not been cohesively done by taking together all the stake holders. So, the government is sending the mixed signals to the market.

“Even for the REIT guidelines, have they consulted all the stake holders adequately? Are we communicating rightly in terms of what is to be done and what are the pros and cons? So, there is some momentum from the policy side, but the communication is not clear to the market and so it is leaving lot of grey areas which should already have been covered with. You go to the ministry they have their own concern; you go to the consumer forum they have their own concern and there is no proper communication which is actually impacting the market, says Bansal.

Navneet Bhadla, Director, Brys Group agrees that there is a terrible disconnect between the government, the developers and industry bodies, and they are not working in tandem. So, in the year ahead a connect has to be there and it has to researched before making any regulation. According to her, nobody has researched what is the requirement and need of the market.

“We did some research last year and two things we found out: One is the luxury market where the consumer in the segment is not affected by any market slowdown and is buying it as per his needs. But this segment has to be catered very carefully as it is a taste-conscious market. Secondly, there is no dearth of the developers to offer mass housing. But when the policies of the government don’t support them, I feel the role of the developer should be more important in the decision making. The government needs to recognise us and make us part of the decision making process. I think then only we will move in the right direction,” says Bhadla.

Gaurav Gupta, Director, SG Estates says the good part of the year 2013 has been that prices have not gone up in 2013, at least in the last six months. There has been inventory piling up. From the policy side, RBI has become more stringent. A breather that the developers were having with the subvention scheme, that breather has been taken. So, 2013 has not been encouraging year for the developers and the industry bodies have been trying their best to the government but with election year ahead the government had their own methods to do the things.

“On the one hand we say that India needs housing as we are 27 million shortage of housing and on the other hand you are creating such an environment where the land in urban areas would not be available. Second thing, you talk of Real Estate Regulation Bill which again has been brought in so hurry that it does not involve all the stake holders. We need more of a facilitator than a regulator. As for the developers, 2013 has been a very stagnant year where the prices have also been stagnant,” says Gupta.

PK Tripathi, President, Unitech gives a different perspective when he says in 1980s when there was a Licence Raj there was a clear demarcation of mis-trust between the bureaucrat and the industrialist by and large. And today that mis-trust has started again if you look at it closely. In the 1990s it had started changing and now it has come back.

“Where is the channel of open discussion to understand each others’ concerns? I feel the channel of open dialogue is lacking. In this case what happens is that the government agencies listen to some of the demands of the industry bodies and frame the regulations the way they feel is right. It is not good for business and this is what precisely the problem is with real estate policies,” says Tripathi.

The sector by and large agrees that all the pending issues have been done without a proper thought process and suddenly since nothing has been moving for such a long period of time, all these issues have been brought to the table with the hope that things will turn around. The RBI is doing the right thing by control inflation but some of these policy initiatives don’t augur well from sentiment perspective, as real estate and economy in general is sentiment driven. High interest is thus impacting the buyers’ sentiments.

Coming back to the policy since they have not been thought about properly they are impacting the sentiments and overall there is sentiment of ambiguity. So, people are on a wait and watch and that is impacting the market. So, while the year 2013 has been a busy year from policy perspective and promises to reform the sector, it has also hurt the sentiments of both the buyers and the developers and hence everyone is keeping the fingers crossed on the eve of 2014.

2013 holds promise of getting out of vicious circle

Posted on by Track2Realty

New Year, India real estate news, Indian realty news, Property new, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Ravi Sinha, Track2Media, Track2RealtyTrack2Realty Exclusive-Yearly Analysis: The biggest question for the realty sector today is whether 2013 will help them get out of the vicious circle, which came disguised as the pipeline visibility over the years. Many believe everyone is getting ready with own respective strategy and the year ahead holds promise. Some of the leading companies are already selling their land bank at discounted prices to turn the tide.

For instance, the market leader DLF that had plans to expand across India with footprint in around 28 cities, now seems to be reviewing its strategy. In some cities its planned projects remain plots of land on which the company is in no hurry to build. In some cities it plans to sell the land parcel.

Sunil Dahiya, Sr Vice President of industry body NAREDCO philosophises the situation when he sums up the year in just one word, “Bach Gaye” (We have been saved). According to him the worst is over and whosoever has been able to survive through 2012, the year that promised to collapse many dreams, are serious players in the ring and able to sail through the business ahead.

“Going forward, all the stake holders, including the government, are getting serious and some formula will soon be evolved to take the business to the next level so that housing shortage does not become a political issue. Towards the end of the year, we saw a major reform ‘FDI in Retail’ being given as a year-end gift to the sector. The Year 2013 looks to hover around preparing the house warming for this major boost of ‘FDI in Retail’. A complete investment climate is coming to shower boom on the sector with investments chasing logistics hub, warehousing hub, contract farming etc coming to the sector. The Land Aquisition Bill being deferred to the winter session will see probably the same action as the result of FDI in Retail saw, says Dahiya.

However, statistics suggest alarm bells are still ringing in the sector. In 2007 DLF paid about 7o2 crore rupees for a plot in Mumbai to build 5 million square feet of luxury homes in a city where its only other presence is a minority stake in a project with Hubtown. The company eventually sold Mumbai land for 2,700 crore in August, 2012 to help pay down debt.

This has been the biggest realty deal in the country this year. With loans of about Rs. 22,500 with average interest rate of 12.5 per cent, the company was left with little choice. From a peak in early 2008, DLF shares took a beating, down 82 per cent, valuing it at $6.5 billion.

The financial analysts though maintain the valuation of DLF’s land has been lower when compared with Indiabulls’ deal in 2010 for 8.39 acres of NTC land for Rs 1,580 crore when DLF got Rs 1,227 crore for 17 acres. In 2010, Lodha made an even bigger deal in Wadala when it bought a 25,000-square metre plot for Rs 4,050 crore. Analysts maintain for the five million square feet of saleable floor space at Worli, the DLF deal could have been valued at Rs 5,000-5,500 per sq ft. Other property in the area retails were around Rs 30,000 per sq foot – nearly five to six times the price paid by Lodha.

DLF, however, had an urgency to sell, given its pile of debt. On 30 June, 2012, its debt was as high as Rs 22,680 crore and the largest developer just about managed to get an honourable tolerable deal from Lodha. As DLF’s Senior Executive Director Sriram Khattar says, “We are pleased with the transaction. There is a price discovery in large deals and whatever best price you find you go ahead.

However, not all the developers have the luxury of large land bank, and even those who have it are not sure whether land bank has turned out to be land liability. For instance, Unsold land-banks forced some Mumbai-based developers to ask recruiters to get them fund managers who will help them sell the tracts. Property sales across top micro markets in the country have plunged due to higher interest rates and hardening of real estate prices.

Realty looks ahead of desperate times-II

Posted on by Track2Realty

New Year, India real estate news, Indian realty news, Property new, Home, Policy Advocacy, Activism, Mall, Retail, Office space, SEZ, IT/ITeS, Residential, Commercial, Hospitality, Project, Location, Regulation, FDI, Taxation, Investment, Banking, Property Management, Ravi Sinha, Track2Media, Track2RealtyTrack2Realty Exclusive-Yearly Analysis:During the boom, many developers dreamt of transforming the urban landscape with millions of square feet of homes, offices and malls and set off on an aggressive expansion financed with debt that at 6 per cent interest was cheap by Indian standards. When the going was good, they went overboard with over ambitious big-ticket projects in various cities, many of which still remain stalled.

Though the year 2012 saw even leading developers exit from several projects, many of the developers failed to understand that property tends to be a local business in India and successful developers stick to home markets, where they own land and know the bureaucracy. But the sprawling ambitions of many nouveau riche realtors ultimately failed them and resulted in more debt and lesser cash flows.

Despite the fall in sales, property prices till date have been rising modestly in most of the cities. Gurgaon saw the maximum rise of 32 per cent over previous year, while prices in MMR remained flat. As a result of a drop in sales, new launches have slowed down too. Across the country new launches are down between 30 per cent (Bangalore) to 42 per cent (Pune).

The biggest worry, for such developers is piling debt and for some of them company’s cash flows haven’t been enough to meet the interest cost of the debt. Some of these companies pay over one-fifth of its revenue to service the debt. It has become difficult for them to alleviate the problem due to adverse economic factors like high interest rates, paucity of funds and subdued volumes as buyers defer purchases.

Anshuman Magazine, Chairman and Managing Director, South Asia, CBRE says real estate companies are now moving back to their core areas and are now less-diversified versions of their earlier avatars. They have cut down their land holdings and focusing on their core business areas. According to Magazine, this has been driven by the market, liquidity crunch and learning, which the companies had, from their earlier launches.”Last five years, we have seen this changing” says Magazine.

The year 2012 has seen slower business in the real estate markets but there is still some demand being driven in certain micro markets. “The year 2013 will be critical for the sector – as it will be the year when the companies in the sector would actually get into bigger trouble if the situation doesn’t improve”, says Magazine.

Home sales in Delhi-NCR and Mumbai Metropolitan Region fell over 50 per cent and even the Bangalore market which is said to be steady saw 18 per cent drop in sales in the first half of the year 2012. Mumbai and Gurgaon have seen the sharpest fall in absorptions during the period with MMR seeing a drop of 58% and NCR with a drop of 57%.

A report by the broking house Jefferies says that property volume has declined by 32 per cent year-on-year. The report points out that rising prices and high interest rates are the main contributor to the slowdown. Jefferies expects weakness in the sector to continue for some more time. The bigger worry however, is raising inventory.

Low sales kept the morale low for most of the leading realty companies and new launches were few and far between. With a piled up inventory from the past and long delays in delivering projects, the real estate sector is going slow on new launches this year. However, that — sadly for the consumers — has not meant a drop in the property prices.

As per the Confederation of Real Estate Developers’ Association of India (CREDAI), the number of building plans sanctioned over the past 10-15 months has drastically come down. Delay of realty projects, it says, is to be blamed on multi clearances and approvals numbering over 40 by various departments of the government.

“There are hardly any new launches that have taken place in the last few months. And, in the near future also, the scenario does not seem very favourable. Right now, it is only in states like Bihar, Gujarat and Andhra Pradesh, where real estate development is taking place in full swing. The government policies in these states are real estate developer friendly,” said Lalit Jain, President, CREDAI.

Indian developers are beset by a faltering economy, weak home sales in key cities, and high interest rates, prompting them to scale back or put on hold projects planned during the boom years of 2005-2007. The accumulated debt of Indian realty companies is estimated to be around Rs. 50,000 crore. The combined debt of six listed companies only stood at Rs 35,425 crore in the March 2012 quarter. Several real estate companies had approached banks for a restructuring package, in the wake of the economic slowdown, post the Lehman crisis as they were unable to pay their loans.