After nearly a year of lull, Indian real estate is fighting back to its lost glory, driven by steadily increasing consumer demand for houses. But many things can still spoil the party, including a tendency to hike prices, and the still-to-pick-up demand for office spaces. A new real estate regulator is also coming to the scene, which can prove to be a real game changer. Where is India’s real estate market headed? Here are several hints from India’s hottest markets like Mumbai, NCR-Delhi, and Bangalore, on the direction.
Lehman Not Around for this Year’s Festivities
Navaratri to Diwali to Christmas is the time when real estate developers register over 30% of their annual sales. Starting from late September and extending till late December, this is the time that many Indian households consider as auspicious to buy a new apartment or villa. Except for last year, when Lehman Brothers collapsed, and pulled with it a slew of global banks, and even India’s credit markets. For the country’s already overheated realty market, the Lehman collapse was the proverbial last nail in the coffin. This time around, there seems to be no more Lehmans to fear – most of them are already buried or have resurrected powerfully in new avatars like Mahindra Satyam & Maytas Infra. The only thing that prevents this year’s festival season better than 2007’s – the best ever till date – is whether developers will hike prices or not.
Luring Pent-up Luxe Desires
What disappeared from realty markets – even faster than jobs - were luxury features. When everyone from columnists to bankers to policy makers blamed developers’ appetite to dish out unaffordable luxury features for the realty crisis, many developers – not all of them – had scrambled for cover by launching affordable projects. But with credit returning, stocks booming, and sectors like IT, banking etc again in growth mode, developers are again resorting to wooing customers with luxury features. They can’t be blamed too with customers with pent-up desires lapping up luxury projects like anything. The 65-storeyed Indiabulls Sky, Primero by Lodha, and Terraces by South Mumbai specialist Orbit Corporation are all witnessing strong demand according to these developers. A recent launch of 1250 luxury homes by DLF in NCR was also a quick sellout, even if it used an army of brokers to pre-sell before the launch.
Northwards or Southwards is the Real(ty) Question
Where are prices headed is the million dollar question. Some say prices will hold up to Diwali, some say up to Christmas, and some say it won’t, and it all depends upon what these developers are selling – new or stalled projects. Developers like Niranjan Hiranandani has put up a reasonable stand that prices may not go up for the next six months, while many others like DLF head Rajiv Singh has opined that it will be determined by pure market prices a.k.a. demand. A lot also depends on whether the projects are new or ongoing or re-launches. Most developers are expecting a 15-30% hike on new projects, while some like DLF are already claiming a 50% hike in select projects.
Land is Getting Freed Up, Again
In the country’s economic capital, it is more a question of where to build. That question has lately started getting game-changing responses with corporate houses like Hindustan Unilever, ICICI Bank, Mafatlal, and many others putting up coveted properties for sale. Deals have started finalizing with some of the biggest names like DLF & Unitech waking up to the opportunity, as well as many medium sized builders. But the one fear from this development is whether it will provide a natural excuse for hiking up final product prices, as the valuations for these corporate properties are already sky high. There are already feelers in the market that many of these properties are only fit for commercial development, if at all. But it remains to be seen how commercial development is feasible in an already oversupply situation of offices in Mumbai.
Realty Competition is About to Change
Last time many conglomerates missed the real estate bus. The boom that rode from 2003 to 2008 changed the entire corporate landscape of India with two development firms even entering the list of 30 most valuable companies – the BSE Sensex. But this time, many in India Inc are not willing to let go of this opportunity – of opening a real estate division. Following Godrej Properties and Mahindra Lifespace models, corporates like Raymond, Bombay Dyeing, & Century have recently forayed into the sector with mega residential projects. Expect the Hiranandanis and Nahars to compete with the Singhanias and the Wadias. And the new entrants are playing the game to the book, complete with Hafeez Contractor designs for the first Raymond project. First movers Godrej and Mahindra are also gearing up for the challenge.
RBI Monitoring Real Estate?
What has Reserve Bank of India (RBI) got to do with real estate developers? Everything, if recent directives from the country’s Central Bank are any indication. Jokes apart, Reserve Bank is zeroing in on those banks that have a flourishing business with realtors. First RBI came up with a directive for such banks to ensure that all publicity material from associated realtors should carry clear indication whether the property has any lien with the concerned banks. Quick on it heels, RBI has also come up with a detailed directive on preventing real estate projects becoming NPAs, and in case they do, what to do about it. This is a welcome move as RBI was largely credited with preventing Indian banks from following suit of Western banks during the recent financial debacle.
Foreign Money Flowing, Despite Poor Transparency
India’s biggest three realty firms, DLF, Unitech, & Indiabulls, and dozens of others are attracting serious investments from US institutional investors. Listed property companies have attracted $3.5 billion in foreign investment this year, despite the fact that Unitech stock has multiplied 95 times within 52-weeks and Indiabulls is still to complete their first project. The reason is simple. A recent report puts India’s housing demand to cross 75 lakh units within the next 5 years.
Project Specific Escrow Accounts Arrive
In many western countries this was the norm, industry body Assocham recommended it for all developers not too long back, and Bangalore based developer Lalith Gangadhar Constructions Ltd (LGCL) has become the first in the country to offer a project where the customer money for developing that project will be kept in a separate escrow account that can be utilized only for constructing that project. LGCL promoter Girish Puravankara is implementing this for LGCL Ashiar, a 63 villa luxury project at Bangalore. LGCL has attracted investments of around Rs. 50 crore from Kotak Realty Fund. Many developers are expected to follow suit soon as diversion of customer funds for non-construction purposes, land buying, and completion of older projects, has been a major cause of dissatisfaction with customers, banks, and other stakeholders.
And Finally, a Real Estate Regulator
The draft bill to establish the much-awaited real estate regulator has come, and developers and their industry associations like CREDAI have not taken kindly to its terms. Which is a good sign to start with, as it shows that the draft bill would have addressed many of the longstanding customer concerns. At the same time, developers shouldn’t be squeezed too much, as they already have to obtain close to 30 permits to build. The proposed terms in the regulator bill include registration of the project with the regulator, documentary proof of land ownership, preventing collection of advance before sale deed, a 5% bank guarantee by the developer, provision for full refund with interest in case of failing to meet deadlines, provision for taking over the project by the regulator in case of default, prevention of cancellation of allotment, and many more. The complete verified details of each project will also be available from the regulator’s website. It seems that the principal aim behind the draft bill is to prevent a US style housing bubble that can take the Indian economy itself to its heels during the next boom.