By: Sachin Sandhir
Managing Director, RICS South Asia
Through the course of 2010, the realty sector evened out into a level playing field, with enough traction in the market to hold investor interest, with several on-going projects being delivered and others being launched. However 2011 has been characterised by a series of challenges both on the domestic and external front. Political instability, issues related to governance, land acquisition, delays in regulatory processes and project clearances have weighed down on aggregate demand.
Investor sentiment has been impacted due to inflationary pressures and rising interest rates in the country coupled with the on-going economic crisis in the Eurozone and US. Slower GDP growth rate projections; shortage to the tune of 85% in real estate and construction professionals available today (as highlighted by a recent RICS research) and high debt burden of real estate developers are also likely to impact investor confidence in the sector in 2012.
Consumer sentiment has also been affected as a consequence of the land acquisition issue in the Noida micro-market, which has had some impact on buying decisions in the NCR region. Overall, with interest rates rising and the cost of home loans becoming dearer, coupled with continued price escalations – oversupply has set into the residential market in certain micro-markets like Mumbai and Delhi NCR. While, markets in the South look to remain relatively stable. Additionally, with new housing stock coming into the market, some amount of price rationalisation is expected, as developers will now be able to manage their margins better, resulting in some reprieve for consumers.
Commercial property which started to loose momentum in 2011, with capital values turning negative for the first time since 2009, according to the latest RICS India Commercial Property Survey, may witness a dip in the beginning of 2012 as tenant demand and rental values dip, with prevailing over supply in the market.
Overall, the sentiment for 2012 is expected to of cautious optimism. Given the inflationary pressures that continue in the market, the RBI could once again look at increasing the interest rates which could have a direct bearing on the residential market. Also, absorption rates are likely to remain on the lower spectrum with fewer project launches expected in 2012. Retail property, on the other hand might see an uptake, now that 50% FDI in retail has been allocated. However, given the lack of political and economic consensus on the decision, international retailers may play the ‘wait and watch’ game, prior to setting up business in the country.
As we step into the new year, it is advisable that industry players focus on achieving operational efficiencies to improve construction productivity, delivery of projects in hand with the help of technological advances and commitment to improve delivery capabilities including up-skilling of existing manpower. Therefore, efficiency, innovation and cutting-edge technology such as BIM and assembly line mass housing solutions may well be the keys to success, in addition to improved project delivery and execution skills and addressing the rampant capacity constraints across the built environment.
Also, we do hope that 2012 marks the beginning of some form of regulation and providing consumer redressal in light of the soaring property disputes. The draft real estate regulation bill needs to better addressed and strengthen the mechanism to provide redressal for consumers, which will be critical for building consumer as well as investor confidence (both domestic and foreign).
