Track2Realty Exclusive:
India Offices 2012
Markets remained cautious but poised for an upturn
The year 2012 began on a cautious note, in the wake of a slowdown in domestic economic growth and a tepid outlook on the performance of the world economy. So far during this year (Q1 2012 to Q3 2012), the overall performance of the office real estate market in the country remained mute compared to the same period in 2011.
Track2Realty: The real estate sector has welcomed the Union Housing Minister Ajay Maken’s move to accord infrastructure status to affordable housing on expected lines. The industry body CREDAI has nevertheless called for extending similar treatment to the entire housing sector again on expected lines. However, the market dynamics defy any dreams of mass housing or cheap housing even for the economically weaker sections.
Track2Realty Exclusive: Slow economic growth affecting housing market
The recent Indian economic growth has been hampered by several domestic and global factors, resulting in the GDP growth plunging to 3 years low at 5.3% in 2QFY13[1]. Factors such as weak global economy, high interest rates, high inflation, high fiscal deficit, and lack of reforms were the primary reason affecting the GDP growth.
Track2Realty-Agencies: Real estate industry and property consultants today hailed the RBI’s decision to cut key policy rates, saying that it is a positive step that would boost housing demand and encourage foreign investment in the sector.
Track2Realty Exclusive-Yearly Analysis: DLF is raising funds by selling non-core assets, Godrej Properties raised funds through a QIP and HDIL is generating funds by selling transfer of development rights (TDR) and floor space index (FSI) — all to lighten the debt burden. Earlier, companies were building land banks and were rewarded for it in the stock market. Now, they are conserving cash to payback creditors.
Track2Realty-Agencies: The Finance Ministry has expressed the view that the Reserve Bank should allow real estate companies and broking firms to set up banks as adequate safeguards will be there to prevent exposure of promoters to related entities.
Track2Realty: The commercial property market has slowed down, considering it has a strong correlation with global and economic factors and performance. The office segment has seen a pronounced dip, with absorption levels in the two major markets of Mumbai and Delhi-NCR seeing a year-on-year slump of 47% and 26% respectively, as per industry sources.
Track2Realty: India Ratings has revised its outlook for the Indian real estate sector to negative to stable for 2013, from negative in 2012. Demand remains subdued and EBITDA margins low, leading to weak credit metrics for companies in the sector. The agency however sees signs of improvement, in terms of stability of margins and the easing of liquidity pressures, with free cash flows turning positive since H2FY12.
Track2Realty Exclusive Yearly Analysis: Some analysts believe the economy of the scale in the business is helping the developers to hold the stock. They maintain the developer does not put in his own money in financing a project. Even though the cost of land in cities like Mumbai and Delhi accounts for 70-80 percent of the construction cost, at least 50 per cent of the projects are in joint venture with the land owner.
Track2Realty: Amidst a global economic slowdown as a consequence of the US fiscal cliff and Eurozone debt crisis, India’s growth forecasts too have been revised downward over the last three quarters of the year. Even in 2013, it is unlikely that we will see a spurt in growth given the existing inflationary pressures and large fiscal deficit which could adversely impact the scope for policy stimulus in the country.