global economic turmoil means the Indian real estate sector is bound to be affected in the short to medium term. Will this offer good opportunities to those who are flush with cash to invest in the property in India? Some Industry experts give there views.

Cushman & Wakefield
Executive director of global realty consultancy firm, Cushman & Wakefield, Kaustuv Roy said that 2012 will have to be year for the real estate sector due to some factors which will have a far reaching impact.

Tight liquidity
The developers’ tight liquidity position will cause stress not only to the consumers, but also to the banking sector as their exposure is huge. Because of the tight liquidity condition, developers may find it difficult to deliver on time to the buyers.

Uncertainties in the job markets
At the same time, because of the turmoil in the economy, there will be uncertainties in the job markets too. This may discourage the young buyers, who play an important role in the residential realty market. Therefore, Roy said, in the residential sector, there will be high dependency on the Indian corporate performance, and if the economy is slowing down, demand may dry up, which is likely to lead to residential prices softening.

Jones Lang LaSalle India
These developments will not only dry up the future demand but also lead to tightening of liquidity in the sector. In that case, developers will not go for fresh launches. “The absorption rate – meaning the ratio of sales over inventory in the market – is likely to be low, and the incidence of new launches will decline,” said head, Research & Real Estate Intelligence Service, Jones Lang LaSalle India, Ashutosh Limaye.

Further interest rate hikes by the RBI
“Because of the prevailing uncertainties in the global market and the likelihood of further interest rate hikes by the RBI in the early part of 2012, sentiments in the residential market will remain cautious over the short term,” said Limaye.

Cautious optimism
Roy also said that overall, 2012 will be a year of cautious optimism with the hope that the Indian economy is suitably insulated from the western economies. However, he felt, for the sector 2011 has turned out to be a mixed year. The first half of the year was extremely good, but by August, the market sentiment underwent a change, depicting more caution in the air.

High Mumbai real estate prices, can’t be sustained for long and already sales are beginning to slow. Is the Mumbai real estate bubble about to burst or is there more growth?

To give you a more informed view here are the views from Navyroof.com and some leading property consultants in India.

View from Navyroof.com
Overall we feel Mumbai real estate needs to slow as prices are unsustainable in the medium term. If some heat is not taken out of the Mumbai market soon with “a soft landing”, we could see a large Mumbai real estate correction. With a large amount of speculation and high cost of land, prices up over 50% since January. Anyone who has made these quick gains would be well advised to bank them now as this rally cannot continue for much longer at this rate without those investors last to the party getting burnt first.

View from HDFC Securities
“We estimate the current unsold inventory of residential property in five major cities at 250 million square feet. The absorption of m Mumbai residential space in key cities has dropped in the last couple of quarters,” Llyod Cardoza, analyst with HDFC Securities, wrote in a note to clients last week. “According to our analysis, this is due to seasonal effect and possibly the run-up in residential rates.”

View from Jones Lang LaSalle India
Sanjay Dutt, CEO of Business, Jones Lang LaSalle India, wrote in a note: “There is yet another reason for the concern over a bubble building. All developers who had ventured to buy land overseas or across India are now buying only in their primary cities. Mumbai developers are concentrating on acquiring land solely in Mumbai, and the same is happening in Gurgaon.
“Investments are now chasing these tier one markets — and if this continues, there is certainly the probability of a bubble in Indian residential property by the end of the year.”

View from DTZ International
Ambar Maheshwari, head, investment advisory, DTZ International Property Advisers, said residential prices have gone to levels that are unsustainable. “Bulk level housing and commercial projects that were launched in the higher range are not getting enough clients at that pricing.There is a lot of euphoria at this point with the markets doing well, but there has been a huge increase in prices and there will be a correction pretty soon; the driver could be anything from a double dip in the US or a European economy not faring well. Even registration numbers at present are less than what they were at the beginning of the year.”

View from Cushman and Wakefield
Akshay Kulkarni, executive director of Cushman and Wakefield, concurred. “We do not expect a drop in prices. Even if we believe that sales are investor-led, they are coming in because they see value here.”Some developers say land prices are to blame for the predicament.

Whats your view? please post below

Another sector of the Indian real estate market is coming back in vogue. After Indian realtors focused on the affordable housing space, where demand remained reasonable when market prices crashed two years ago, they are now launching luxury homes as the segment is witnessing early signals of an upswing in demand.

“Now that the job market is looking up, consumers are once again regaining the confidence to put money in swank projects,” said Shravan Gupta, executive vice chairman and managing director at Emaar MGF.

Aimed at high net worth individuals
Luxury homes in India are targeted towards high net worth individuals and the price range of such apartments varies from city to city. While in metros such as Mumbai and Delhi, the cost of such Luxury homes can begin from 2 crore, in tier-II cities they can be around 1 crore and above. Builders in this category focus on fully-embellished apartments , which can be further customised to the individual buyer’s preferences.

Investors looking for green properties
More than expensive and stylish interiors and fittings, today consumers are looking for more property in India with environmental-friendly features which are becoming luxuries for a better quality life and they are ready to pay for them.

Luxury prices moving above 2007 levels
Anurag Mathur, MD at real estate services firm Cushman & Wakefield, said: “Prices of luxury homes in India general has touched the peak level of 2007, while in some places such as property in Gurgaon and property in Mumbai, prices have exceeded the 2007-prices .” As per estimates of Cushman & Wakefield, over 8,000 residential units in the luxury segment are expected to be ready by 2013. The total supply expected this year will be 85,000 units of which about 14% will be luxury projects.

Commercial real estate is hoping for a bounce back in 2010. For 2009 though, the year is ending with a 29% decline in space absorption compared with last year, according to the annual year-end report by real estate consultancy Cushman & Wakefield.

The total absorption of commercial space across major Indian cities stood at 26.3 million sq ft in 2009, compared with 37 million sq ft in 2008. This dip was primarily because of a conservative leasing approach by the IT/ITeS sector which accounts for majority of commercial office space taken up (60%) in the country.

But the outlook for the coming year is positive. “With the gradual recovery of the economy, the demand for office space is likely to increase by the second half of 2010,” said Sumit Rakshit, executive director, occupier services at Cushman & Wakefield. Corporates have been cautious about expansion in 2009, both because of the recession and also falling office space rentals. Across India, there has been about 4.6 million sq ft of pre-commitments for space due to be absorbed over the next two years. Of this, Bangalore alone accounts for 2.7 million sq ft. This indicates the revival of the IT/ITes segment, which is the mainstay in Bangalore. IT companies are starting to get new contracts which is pushing them to commit to new real estate costs.

Most micro-markets across the country witnessed 15-25% decline in rentals in 2009 over last year. The last quarter though has seen rentals stabilising, except in few locations such as Mumbai’s Lower Parel which saw the highest fall in rentals by 40% in the past year. Even Delhi saw a rental decline between 3-26% during the year. Because of an acute over supply situation, Gurgaon is expected to see a further fall in rentals. Though 2009 saw a drop in expected supply, major cities recorded 51.8 million sq ft of new office space supply. With corporates starting to relook at leasing large spaces, this new supply is expected to be absorbed in the coming year. “Clients are starting to talk positive,” he added. Cushman & Wakefield sees a revival of rentals across all markets.

“Corporates, too, are realising this. This is the right time to buy or lease property as rentals and capital values are still at their lowest,” he said. On the developer’s side, the positive news is that stalled commercial office projects are being restarted. “2009 was a tenants market. In the coming year, things will start to turn.”

Indian office rentals are still in demand in Ahmedabad, the city has registered the lowest vacancy of 5-6 per cent in a recent study by Cushman and Wakefield, but Chennai suffers.

According to the report, vacancy levels had remained largely consistent to last quarter with most IT/ITeS destinations witnessing high vacancy levels. “The lowest vacancy was recorded in Ahmedabad at 5-6 per cent due to limited leasing activities and no new supply in the market. Also many companies moving into the area with the Nano plant coming on in Sanand.

Mumbai office rentals recorded a vacancy of approximately 11-12 per cent while vacancy levels in NCR and Delhi office rentals stayed at a manageable 8-10 per cent. Chennai’s peripheral location (Rajiv Gandhi Salai) recorded the highest office rentals vacancy of approximately 42 per cent while the city average was at approximately 18 per cent.

“The first quarter of the year can be termed as the weakest so far in terms of commercial office take up across major cities in India as compared to a similar period for the last 2/3 years. As evident, markets moved towards an over supply situation mostly in response to plummeting demand from the key sectors such as BFSI and IT/ITeS. Re- negotiations and migration to more cost effective locations has been the norm for the cautiously advancing corporate sector,” said Kaustuv Roy, executive director of Cushman and Wakefield.

Also, rentals across all markets saw a downward trend with a further softening bias in Q1 2009. In terms of new office space supply, while Bangalore office rentals witnessed highest supply of approximately 2.81 million sq ft, Hyderabad and Ahmedabad saw no addition to the current stock.

In NCR, Gurgaon office rentals saw a correction of approximately 19 per cent in first quarter of 2009 due to influx of supply but restricted demand. CBD – Prime in NCR witnessed a correction of approximately 17 per cent largely due to occupants opting for more cost effective options. Markets like Pune, Kolkata and Hyderabad where growth was essentially driven by IT/ITeS and BFSI back office operations, saw a slump in uptake of space leading to rental corrections ranging from 5 –20 per cent. Bangalore market remained the most dynamic through Q1 2009 with restricted corrections in the range of 3- 7 per cent largely due to a decline in demand for SEZ properties.

It is reported the Indian government plans to change foreign ownership rules in the Indian property sector.

This would be achieved by lowering the minimum area requirements for residential and commercial projects that have overseas investment according to a report reviewed by Mint.

“The proposal is under discussion stage. It has not been sent to the cabinet yet,” a senior commerce and industry ministry official confirmed.

New Delhi’s move marks the third effort in recent times to change foreign ownership rules in three different sectors. The first has been in insurance, where the government is seeking to increase FDI to 49% of a company’s equity. The second is in airlines, where it is considering a similar ceiling. The current cap on FDI in insurance is 24%, and no FDI is allowed in airline firms.

In 2005, the government relaxed FDI norms in the Indian real estate sector by allowing up to 100% such investment in companies. Until then, only non-resident Indians (NRIs) and persons of Indian origin were allowed to invest in the sector.

Current foreign direct investment (FDI) norms set the minimum area for serviced housing plots with such overseas ownership at 25 acres and, for construction development projects, a built-up area of at least 50,000 sq. m. The government is considering reducing the mandatory norms to 10 acres and 10,000 sq. m.

Foreign investors, other than NRIs, were allowed to invest only in development of integrated townships either through a wholly owned subsidiary or through a joint venture in India along with a local partner until the 2005 decision. After that change, 100% FDI was allowed under the so-called automatic route in townships, housing and construction-development projects.

Many involved with Indian property believe the proposal to reduce the minimum area for FDI, if it is approved, will have a positive impact on the real estate sector, but only in the long term.

Cushman and Wakefield (C&W) predicted a huge impact on constructed properties, especially in city centres. Sandeep Singh, ED (investment services) at C&W India, said, “The minimum built-up area requirement is so large at present that to build such projects, you would need 6-7 acres of land and you don’t get that kind of land within the cities.”

If this proposal comes through, it will be a part of the several measures that the government has taken in recent times to stimulate the housing and commercial real estate demand. The government has permitted external commercial borrowings for the development of integrated townships under the automatic approval route, reversing a May 2007 decision of the Reserve Bank of India (RBI). In December, RBI also pared the short-term lending rate to 6.5% from 7.5% and the overnight rate at which it borrows from banks to 5% from 6%. The central bank also recently allowed banks to restructure loans taken by developers for commercial real estate without classifying them as non-performing assets.

The demand for timeshare products in India is likely to grow at approximately 16% per annum from 2006 to 2015, facilitated by supply growth of approximately 12% per annum over the same period according to a report released by Group RCI and global real estate consultants, Cushman & Wakefield.

The report indicates the average unit sale for a typical timeshare development which is likely to grow at 3% per annum from 2006 to 2015. The average unit cost per day for a consumer is likely to grow at approximately 4% per annum from 2006 to 2015, compared to approximately 5% to 8% for a pure hotel product. However, with an estimated 41,600 pure product hotel rooms across major 9 cities that will be furnished over the next four to five years, the markets are likely to see a drop in occupancy rates and rationalization of average room rates in the long term.

Akshay Kulkarni, Director of Cushman & Wakefield Hospitality in South Asia says, “Over the last few years we have seen a keen interest as people had a growth in disposable income and saw value in investing in these alternative assets. With changing economic conditions the focus will shift from profitability to sustainability. Various products will emerge, which will be hybrid models of pure real estate products and transient accommodation models. This will allow end users to not just physically use their investments but also see some appreciation in values over a period of time.”

Do you think this will be a major trend or a fad in Indian property?

leave a response below and share your opinions

Indian developers such have lagged behind by 54 per cent in their target to open retail space even as retailers’ vacancy climbed to 16 per cent in 2008, according to a study. Cash-strapped real estate developers failed to deliver 11 million sq ft of retail space in 2008, according to a study released by Cushman & Wakefield. Out of the proposed 74 malls in key eight cities at the beginning of 2008, only 34 were delivered through the year, the study showed. Developers in the National Capital Region (NCR) lagged the most with a supply of 4.7 million sq ft compared with the earlier target of 7.1 million sq ft. Developers may continue to restrict their supply, or go slow on retail space by a similar amount in 2009 across key major cities, the study showed.

Rajneesh Mahajan, director of retail services at Cushman & Wakefield explained the reason for the shortfall was the mismatch between the potential and actual occupancy. The Indian organised retail sector grew at 25 per cent in 2007. Anticipating the growth of retail sector at above 35 per cent in the coming years, developers had announced big retail projects. However, owing to economic slowdown, the growth of the retail sector has come down to 15 per cent in 2008, resulting in developers deferring their projects for 12-24 months. “From the projected supply of 20.8 million sq ft space in the first quarter of 2008, we will see a spill over of about ten million sq ft development in 2009-10. Lack of funds leading to construction delays and cautious expansion by retailers have resulted in slow absorption of retail space in malls,” said Mahajan.