Investor sentiment in the Indian real estate sector is becoming increasingly positive with the prospects getting brighter for the formation of a stable government in New Delhi in the post-poll scenario.

“A change of government in New Delhi after 10 years of rule by the United Progressive Alliance led by the Congress looks almost a certainty and we hope the next government’s economic policies will be key drivers to reviving the growth in the real estate sector,” said D.K. Aggarwal, chairman of SMC Real Estate Advisors, a leading financial services provider in India.

Aggarwal, who was in Dubai to take part in the Indian Property Show organised by Magicbricks.com, said the last three years have been a period of sluggish growth across all sectors in India. The drastic slowdown in economic growth rate from a high of nine per cent to below five per cent, the fall in the value of Indian rupee, and above all the policy paralyses of the government, have had a negative impact in the inflow of foreign institutional investments, or FIIs, and foreign direct investment, or FDI, which in turn had adversely affected all asset classes in the real estate sector.
Aggarwal said there is a new sense of hope among developers. Leading players are optimistic of a government under BJP strongman Narendra Modi in post-poll scenario. All the delayed tax reforms, including the goods and services tax, India’s ambitious indirect tax reform plan, will be enforced, and this would certainly have a major positive impact.

Correspondingly, the much-awaited Real Estate Investment Trust, or Reit, regime is also now closer to becoming a reality, with the banking regulator keen on approving changes to attract foreign investments. Reit, which is a single company or group that owns and manages real estate properties on behalf of investors, much like shareholding in a company, will also open the door to foreign and as well domestic retail investors.

“I believe, while 2012 and 2013 were not the best years for the Indian realty market as the slowdown impacted all asset classes, the coming years would see dramatic revival in the real estate. However, I think things will start looking up only in the second half of 2014, after the general elections, when a new stable government is hopefully in power to revive the stalled reforms and woo back FIIs and FDIs,” said Aggarwal.

According to most real estate experts, the year 2013 was a drag for the Indian economy, with poor macroeconomic conditions. Slowing income growth, sustained weakness in the rupee, sky-rocketing inflation and high borrowing rates combined to make consumers vary of spending.

Realty consultant Jones Lang LaSalle India (JLL) said consumer confidence is expected to remain subdued in first two quarters of 2014 due to uncertainties surrounding general elections and macro-conditions.

“However, after the elections, fence-sitting investors are likely to become active. The increase in absorption of residential units will help reduce the currently large inventory holdings of developers,” said Anuj Puri, chairman and country head of JLL. Residential prices are expected to raise 10-12 per cent during 2014.

Experts are of the view that with a new regime in saddle, a clearer vision on infrastructure would help make the market more buoyant as any such development initiative will certainly drive up the value of real estate assets in the immediate vicinity.

“The key factors currently at play on the Indian real estate are unsold inventory, absorption and interest rates. It is unlikely that these factors will change immediately post polls, regardless of which party wins. Over the longer term, what will matter most to the real estate sector are a hard re-look at FDI in housing, Reit legislations and the effective implementation of the Real Estate [Regulation and Development] Bill,” wrote a property expert.

Shishir Baijal, chairman and managing director at Knight Frank India, was quoted as saying: “We expect residential to experience traction in terms of sales volume and launches at the start of the second half of 2014 and there would be an upward pressure on prices. The office segment is driven more by economic rationale and as a result, the uptick is likely to take place with a quarter lag.”

The real estate sector is likely to see an improvement in demand and absorption over the next one to three years as economic conditions in the US and Western Europe show signs of stabilising.
“Improved economic conditions in the West will spur the revival of outsourcing business that will result in improved performance of the office sector,” experts argue.


Source: Khaleej Times