By: Jackbastian K. Nazareth, Group CEO, Puravankara Projects
Track2Realty Exclusive: The current economic environment is indeed one of the most challenging in recent history. The headwinds of inflation, interest rates, construction costs, and subdued consumer demand have constrained real-estate growth in many micro-markets across the country. Economic volatility aside, I am optimistic about long-term real-estate sector prospects. My optimism is founded in irrefutable realities – the rapid urbanization of India, burgeoning segment of upwardly mobile Indians, limited availability of urban residential housing and unabated aspiration of home ownership.
A home ranks at the top of the hierarchy of purchase and remains an emblem of vocational success, for the majority of Indians. Ironically, home ownership is seen as a bankable security, in the face of economic uncertainty.
While domestic housing demand remains largely stable, NRI demand is on the rise because of rupee-dollar fluctuations. The depreciating rupee has rendered properties in India almost 20 to 30 per cent cheaper for NRIs. Consequently, the value of NRI remittances has risen over the last 5 years, amounting to nearly $70 billion in 2012, 2 to 4 per cent of which was apportioned to real-estate purchase. The NRI market contributes around 35 to 40 per cent of the total real-estate investment in India; I expect that trend to continue in the coming years.
With that said, elections are a time of ambiguity and trepidation across many sectors. But housing is unique in that it is a long-term purchase, therefore consumer decision making is unlikely to be overly influenced by the near-term political scenario. As such, I envision stable growth of residential real-estate, irrespective of the election year.
On the other hand, the impending elections could have a bearing on business-planning and decision making of developers. Political stability and proactive reforms are pivotal to real-estate sector growth. Important regulations such as the Land Acquisition and Real-Estate Regulatory Bills which are yet to come into effect and could be impacted by the elections.
Retail and commercial real-estate sectors may also become circumspect, in view of the political climate. As an illustrative example, the government has liberalized FDI norms, but foreign retailers have deferred their India plans due to looming elections, among other considerations.
But residential real-estate, which accounts for over 80 per cent of sector revenues, should be relatively indemnified from the unfolding political dynamic.
The southern Indian states, specifically Andhra Pradesh, Tamil Nadu and Karnataka, have been the major drivers of economic growth over the last decade. These three states collectively account for about 22 per cent of India’s GDP.
Despite the economic downturn, residential real-estate in the south has been relatively stable. The market is predominantly end-use driven, mitigating the incidence of re-sale and enabling steady price appreciation. Furthermore, the south is an affordability-driven market, developers having adopted cautious pricing strategies following the economic slowdown of 2008. Over 80 per cent of new launches in the last two years were priced below Rs. 4000/sqft. Prudent pricing and streamlined supply have led to a steady rise in absorption rates. As a result, the south has been relatively resilient compared to markets such as Mumbai and Delhi-NCR.
The Bangalore market has resisted the impact of the global turmoil and remains stable, with ticket sizes ranging from Rs 50 lakh to 2 crore. Evidently, demand for mid-end homes is the popular trend, with a slew of launches in the Rs. 25-50 lakh price band.
On a parallel path, the upper mid-end and premium housing markets in the city have gained momentum. Several new project launches are priced upwards of Rs. 7.5 crore, fuelled by demand from first generation entrepreneurs, IT/ITeS sector honchos and NRIs. Higher ticket prices, despite macro-economic sluggishness, bear testament to the vitality of the Bangalore market.
Similarly, the Chennai market is dominated by end customers rather than speculative investors. Therefore, residential prices in the city have kept pace with sales. Significantly, the city has witnessed an upsurge in infrastructure development, which bodes well for residential and commercial real-estate.
