Building optimism for India’s property market in the new year

Date : Jan 12, 2014

Source & Courtesy : .thenational.ae

India’s property market appears to be set to pick up later this year after facing a slew of challenges in 2013, analysts and developers say.

Demand for homes in India faltered last year amid slowing economic growth and steep interest rates.

“High interest rates, spiralling vacancy levels and lower margins arising from inflationary pressures too, led to a slowdown of construction activity leading to a drop in new launches, and also delayed project delivery by several months,” says Shishir Baijal, the chairman and managing director of Knight Frank India. “Developers with exposure to residential projects are particularly worried, with slowing sales leading to a situation of oversupply in many parts of the country.”

The unsold stock of homes in Mumbai, for example, had reached about 130,000 units towards the end of last year, resulting in developers reducing prices by up to 25 per cent, data from Knight Frank shows.

But underlying factors in the sector remain positive, according to Mr Baijal.

“The Indian real estate story continues to be tremendously attractive,” says Mr Baijal. “While, there is a sort of saturation in the Tier I cities, the good news is that Tier II cities have started growing with the IT and industrial sectors investing in such places.

“Thus, Indian real estate is poised for a boom, taking the rest of the economy with it. The notion that Indian real estate is expensive is based more on the cost of undeveloped land, which is becoming a scarce commodity, than finished residential or office space, which is still available at reasonable prices in most places. The momentum remains positive, if we can get the investment story right, lower the fiscal deficit and have more progressive monetary policies being drafted by the [Reserve Bank of India], there’s nothing which can refrain us from coming back on the growth track by the second half of 2014.”

Jones Lang LaSalle (JLL) predicts that demand for property is likely to pick up in the second half of the year, leading to a 10 per cent to 12 per cent rise in capital values across the country this year.

The first half is expected to remain subdued, however, JLL says. Uncertainty created by impending general elections, which are expected by May, means that many buyers are waiting on the sidelines to see the outcome of the polls before purchasing property.

“Consumer confidence will remain subdued during the first two quarters of 2014, owing to uncertainties surrounding the general elections and macroeconomic conditions - both global and domestic,” says Anuj Puri, the chairman and country head of JLL India. “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. A recently observed trend of a gradual fall in supply in response to the subdued demand will only reverse with a lag, helping prices to strengthen gradually in the second half.”

In New Delhi, home prices in the April to June quarter fell 1.4 per cent from the previous quarter, while prices in Mumbai declined 0.4 per cent, according to data from the National Housing Bank. Residential prices in Hyderabad fell 4.5 per cent over the same period, while home prices in Kolkata slipped 4 per cent.

“As of now policymakers and industries are delaying their decisions in the run up to the general elections,” says Hariprakash Pandey, the vice president of finance and investor relations at HDIL, a property developer based in Mumbai. “This has resulted in a slowdown of activities, which typically happens on road to Indian elections. After the general elections, activities will pick up speed and the conclusion of the election will help improve demand for housing.”

He predicts that residential property prices should increase by 10 to 15 per cent in this year. More Read Log In :-http://www.thenational.ae/business/industry-insights/property/building-optimism-for-indias-property-market-in-the-new-year