A stable Modi sarkar! What's in store for the real estate sector

Date : May 18, 2014

By Anuj Puri

An improvement can definitely be expected in the near-term investment sentiment. Our day-to-day interactions with various investors clearly suggest that domestic money is in the search for good investment options; investors are eager to strike a deal at attractive valuations.

However, foreign money has been waiting in the wings and awaiting political stability before entering India. In that respect, a clear majority is the best possible scenario.

Most investors are comfortable with a government with minor alliances as long as there is a clear agendas and strong voice dictating those agendas. What investors are looking for in a ruling government is clear goals and the will and strength to achieve them. With the BJP winning by an overwhelming majority, there now a clear sentiment that this has indeed been achieved.

Over the past few months, we have already seen improvement in the real estate investment scenario. Currently, at least USD 1.8 billion worth of funds are in the process of getting raised. With the BJP now in the driver's seat, we expect the space to see a lot more traction and various investors to enter into the country.

Immediate Turnaround?

No government has a magic wand which can solve all problems at once. Reforming the economy is a gradual process, and we need to be patient. A stable government at the centre has potential to boost the sentiments and in return, attract foreign money. However, we cannot expect property prices to display the kind of sharp upward movement that were achieved before the Global Financial Crisis ( GFC). Any such movement - or reduction in cap rate -  is, as we believe, at least 12-18 months away.

Affordable Housing

India's housing shortage is legendary, and the Indian government has always kept low-cost housing in the focus. However, most developers have shied away from focusing on this space because affordable housing is a relatively low-margin business; and in high inflationary scenario, profitability remains a key concern. Equity participation by PE funds has also been limited in the budget housing space.

The new Government may look at helping on quicker land acquisition, faster approvals, easy and low cost funding availability and better infrastructure to make it a more interesting proposition for developers and investors. In Gujarat (the home state of Mr. Narendra Modi), the government has been extending a helping hand to developers who construct low-cost homes, although availability of cheap capital, lengthy approval process and affordable land availability continue to remain challenges.

GST

There is no doubt that adopting GST will be a major point on the new government's agenda. The key challenge is to convince State authorities who currently feel threatened over their tax autonomy. The biggest beneficiary of GST would be the logistics and warehousing sectors, as they would become more organised and could achieve the desired economies of scale. This has strong and favourable implications for real estate in India. Developers can expect streamlining of taxation process as GST would free them from disparate levies such as stamp duty, electricity duty etc.

FDI Policy

With a view to protect the interest of small and medium retailers and SMEs, the new government's manifesto has more or less conveyed its resistance to opening up FDI in certain sectors.

Retail is in the negative list as per the manifesto; however, if the country has to welcome FDI and international investors, it might need to consider the number of international retailers waiting on the side-lines in wait-and-watch mode. A few retailers have already announced their plans to go ahead with the cash & carry model of operation in India, therefore kick-starting a new cycle of investment in retail. The overall FDI policy will be conducive, as the new government is committed to promote FDI in other sectors and also to reforming the Foreign Investment Promotion Board (FIPB) functioning to make it investor-friendly.

Hospitality Sector

We foresee healthy growth of the hospitality sector in the medium term, as the new government has a clear mandate to uplift tourism across various circuits and regions. Its focus is to build 50 tourist circuits with provision of affordable hotel amenities. Even in developed cities like Mumbai, budget hotels or serviced apartments, and midscale hotels together account for not more than 17-20% of the total room inventory. This category, therefore, is poised to witness significant growth.

Infrastructure

With increased focus on shifting a portion of the commuter traffic from road and rail to inland and coastal waterways, the productivity of existing road-rail infrastructure will improve.

New rail corridors such as Agri-rail and tourist rail networks will create newer opportunities in the warehousing, cold storage and hospitality sectors, which definitely benefits real estate. All industrial corridor development plans envisaged but not implemented by the previous government are likely to be fast-tracked.

National Land Use Policy

On the lines of the existing National Land Use Policy, the new government is committed to streamline the process of acquiring non-cultivable land. The policy framework will be governed by the National Land Use Authority and will have to work closely with its factions at the State level and, also possibly, at the district level.

Source And Courtsey By :- http://economictimes.indiatimes.com/opinion/comments-analysis/a-stable-modi-sarkar-whats-in-store-for-the-real-estate-sector/articleshow/35204595.cms?curpg=2