Year 2013 will be a game changer for realty sector if Parliament passes regulation, land acquisition bill

Year 2013 is going to bring cheer to home-buyers. Rohan D'Silva , the national director of Knight Frank India, says: "The silver lining for all those who missed the boat, both developers and consumers, is that 2013 will start a fresh innings. In a country that has an acute housing shortage there will always be takers provided the offerings are enticing."

Pranab Datta, the chairman of Knight Frank India, said 2013 is going to be a game changer in terms of policies and regulations, as most of the bills that have been pending for the last few years are expected to be passed in Parliament in the coming quarters .

Especially, in the case of real estate, the passage of two crucial bills, Real Estate Regulation Bill and Land Acquisition Bill, will boost the sentiment of all stakeholders, Datta says.

Parliament's recent approval of FDI in multi-brand retail will attract foreign investment , which will not only benefit the retail industry but also boost the demand for commercial real estate. It also showcases the government's seriousness in introducing reforms in India and this is just a preview of things to come.

Additionally, the RBI can be expected to lower interest rates in the coming months, which will benefit developers as well as consumers.

The change in sentiment on account of the above measures will have a positive impact on all the segments of real estate, whether it is retail, office or residential and will certainly make 2013 a much better year in comparison to last year.

Rohan D'Silva also says that the global financial crisis has brought about a striking change in the attitude of investors. This change in expectation on investment returns, growth and risk does not single out any one asset class but applies to most of the assets, whether they be equity, debt, commodity or real estate.

D'Silva said real estate as an asset class is the foremost example that will see a challenge , particularly in this tough economic scenario.

Even within real estate as an asset class, the judgment on investment outlook on commercial real estate and residential real estate cannot be a unified one.

The dominant factors that drive investment returns for both these are diverse, and divergent, to a great extent. It is believed that with the slowdown in the economy, demand for commercial real estate will slowdown. But whether this will impact the demand for residential real estate, which is always in short supply, is to be seen.

DTZ, a consultancy firm, says in a report that subdued economic growth on the domestic front and persistent concerns about the economic outlook in the US and the Euro Zone moderated business confidence among office space occupiers in 2012. As a result, seven major cities in India saw restrained office space take-up in 2012.

The total office space take up across the seven major cities was recorded at 27 million sq ft, a drop of 23%, compared to 2011.

Additionally, it was also the lowest take-up recorded since 2010. Amongst major office space hubs, the Delhi NCR and Mumbai saw the steepest moderation in take-up , which dropped by 30% and 35% respectively, the report said. Even as transaction activity was broad based, limited take-up from IT sector resulted in low take-up levels in these cities.

Take-up levels in Bangalore and Chennai also shrunk, but at reduced pace of 9% and 13%, respectively.

The DTZ report said lower than expected economic growth on the domestic front will keep transaction levels in check over the short term.

However, the current policy reforms by central government , the DTZ report says, are expected to improve business confidence amongst occupiers and result in an uptrend in take-up levels over the next six-nine months.

Additionally, high availability levels and large forthcoming supply will keep rental values across most markets under downward pressure. As a result, rentals values are expected to remain largely stable.

As the economic condition is likely to improve in the New Year, the mood of home-buyers will also start turning upbeat. D'Silva says that consumers are wary of the markets and what it offers. Their buying decision was not only based on the product but also on what the general market sentiments were.

Despite the fact that 2012 was a challenging year for economic development, Cushman & Wakefield India's latest report says that India's residential market has seen a rise in capital values in most micro markets across major cities.

While there was an average price increase of 10% year on year in mid-end properties, high-end properties grew by 12% in the same period.

According to the report, the NCR saw the highest average growth in values of high-end segment at 22%, followed by Pune at 20%.

Both the cities have seen the launch of a number of luxury projects with premium prices that are attracting interest from NRIs, and HNIs from other cities as well.

The report says that price rise was not a measure to improve profitability of developers alone. The report says that since input costs have been rising, new projects are being launched at higher rates though overall ticket sizes may be smaller.

Overall , for all the major cities, their economic base is broader and not solely dependent on the IT-ITeS sector, giving these cities stability against adverse economic conditions affecting any particular sector, which could affect the demand-supply situation.

All locations in the NCR, across categories , saw increase in capital values, compared to 2011, with the exception of the mid-end properties in south-central Delhi.

The NCR's high end category recorded an average increase of 22% year-on-year while mid-end category recorded an appreciation of 15% over the last year.

The highest price increase was recorded for Gurgaon's luxury category , at 42%. Gurgaon's high-end and mid-end properties recorded an increase in the range of 15-35 %, mainly on account of higher demand and the growth of forthcoming locations like Dwarka Expressway and Southern Peripheral Road, Golf Course Extension, etc. Due to high demand for luxury projects, the prices for these projects are also expected to have an upward trend.

Sanjay Dutt, executive managing director (South Asia) of Cushman & Wakefield, said developers have consciously reinvented themselves by launching new projects, which would appeal to customers in the current economic environment and sentiments .

However, given that most aspects of development like construction cost, development cost, cost of land, time taken for approval, and cost of debt have all been on an upward tangent, developers have not been able to lower prices. Thus, many developers took to innovative marketing and pricing strategies to ensure better responses, Dutt says.

"Many markets, mostly traditionally established residential locations, have achieved their peak prices and have therefore levelled off, keeping the values either stable or at best have seen small percentage appreciation due to limited activities in such areas.

Investor activities, however, have been strong in the residential market, many viewing this as the right time to enter the market with the much needed capital for developers. This has been the primary reason why most markets across categories saw a rise in values and mature markets, which rose quickly, saw cautious movement," Dutt says.

Source: http://articles.economictimes.indiatimes.com