The Real Estate Regulation and Development Bill, can be seen as a positive change towards a more organized and transparent approach to real estate in India. But with elections coming up, the fate of the Bill and its current form faces an uncertain future, says Sunder P, CEO and Co Founder of HomeShikari.com. In a free-wheeling interview, Sunder provides the Real Estate forecast in 2014. Excerpts:
JM: What were the key external factors impacting the residential real estate market in 2013?
SP: The year 2013 saw a lot of key external factors affecting the residential real estate market. RBI guidelines, revisions on FDI, the draft Real Estate Regulation and Development Bill and a volatile economy are among a few.
JM: Will the proposed Real Estate Regulation Bill create any positive impact on the Real Estate horizon in India?
SP: The Real Estate Regulation and Development Bill, can be seen as a positive change towards a more organised and transparent approach to real estate in India. But with elections coming up, the fate of the Bill and its current form faces an uncertain future.
JM: Has the RBI guidelines on funding created a negative impact on builder cash flows?
SP: The change in RBI guidelines on the 20:80 funding has had a serious impact on builder cash flows. Most builders have highly leveraged balance sheets and the slowdown in demand has led to a serious pile up of inventory in most cities.
JM: What are the other deterrents for overseas investors in shying away to foray into Indian market?
SP: Transparency issues and associated risks with the residential real estate market too act as a deterrent for foreign investors. The REIT market for commercial real estate is just beginning to see some action. In the current scenario, organised bulge bracket investors see commercial real estate more favourably than the residential market.
JM: According to you, which category will see the highest demand in the outlying and newer areas of the city?
SP: The budget homes category will witness the highest demand in the outlying and newer areas of the city, especially because there is a good deal of price flexibility that developers display. The locational preferences are based on factors of affordability, followed by urban and social infrastructure to support living. Yet, within each of these sectors, price is still seen as the largest pain point amongst buyers. The investment market will therefore see less traction than the end-user market.
JM: Do you think the foreign investments into the commercial sector are likely to increase any time soon?
SP: Yes, foreign investments into the commercial sector are likely to increase with the formation of REITs. Commercial office spaces with long term lease agreements are going to attract more such investments. Growth is expected to be muted until a new Government is formed at the Centre after elections. Cities with large pile up of inventory like Mumbai, NCR and Chennai are likely to witness a slow down. Some pockets within NCR like Greater Noida may do well. Bangalore, by far is expected to outperform all other markets in 2014. Pune is expected to do reasonably well. Hyderabad has witnessed lackluster performance in 2013 due to the political uncertainty over Telengana row, but may see some renewed buying as things become clearer and since the market has almost bottomed out.
JM: How about the luxury and super premium segments?
SP: In the luxury and super premium segments where buyers are not D-I-Y is where middlemen (the professional firms) can play a role in assessing the needs and finding a good fitment. It may also work with the speculative investor class.
JM: What according to you is the cardinal problem in the Indian Real Estate arena?
SP: The key problem in the Indian real estate segment is the lack of accurate information to make an informed choice. The middlemen while having relatively better information are also handicapped. The only information that they probably have better access to, is availability. The rest is a matter of reverse bidding and price discovery, which middlemen do more efficiently than end users.