Market slowdown proving to be a boon for organised developers

Despite the sluggish market, organised developers are expanding their footprint by buying more land parcels to increase their market share. It seems like a good time for them to buy land and launch projects in the second half of the FY 2015-16, thereby cutting construction costs. Let’s take a closer look at how established developers are making the most of the market slowdown.

According to a recent report by Kotak Institutional Equities Research, organised developers saw a 14 per cent growth in the value of their total sales during the quarter ending September 2015, as compared to the same period a year ago. For instance, Godrej Properties sold Rs 1,480 crore worth of office space during the quarter. HDIL added Rs 200 crore of sales in its residential segment. Meanwhile, organised developers in Bangalore are ruling the charts.

As per findings by Kotak Institutional Research, developers in Bangalore sold more area during the quarter Jul-Sep 2015, as compared to the preceding quarter. Prashant Nath, Associate Vice President, Veez Capital says, “The Digital India campaign has led to tremendous growth in the city. An increasing number of start-ups are shifting base to areas in and around Bangalore.” In addition, leading developers including Oberoi and Indiabulls Real Estate recorded a dip in net debt during this period.

Increased private equity investments and buyer’s trust and confidence in established developers has propelled their growth in the sluggish times. “Improved sales for many organised developers are a result of increased investment by private equity firms,” elaborates Nath. In fact, the dull market is proving to be a blessing in disguise for organised developers across the country.

Under the uncertain times, buyers are adopting a cautious approach and are preferring to stick with less risky investment options available mostly with the organised developers. This is evident from the fact that many among these continued to gain market share during the quarter ending September 2015. On the other hand, new or unorganised developers are likely to exit the market or scale down during a period of inactivity.

According to another report by property research firm Liases Foras, residential sales in top eight metros registered 17 per cent growth in Jul-Sep 2015, as compared to the same period a year ago. Residential sales scaled up in the last quarter as improved sentiments led more buyers to finalise deals on the assumption that the market has bottomed out, explains the Liases Foras report. Repo rate cuts and subsequent reduction in home loan interest rates have also positively impacted the end-user offtake, say experts.

Article by: 99acres.com

Real Estate Sector to See a Turnaround in 2015

By all indications, 2015 will be a turnaround year for the Indian real estate industry.

 As the early days of 2015 coast along, it is clear that the Indian economy is finally turning the corner. With GDP growth pegged at 5.5% this fiscal against 4.7% in the previous financial year, reports indicate that hiring in various sectors will gather traction this year, leading to better job and income prospects for salaried employees. All this augurs well for the Indian realty industry, which was beset with muted sentiments since the feel-good factor had been missing during the past few years. 

The turnaround in sentiment actually began with the election of the NDA Government via a clear mandate in May 2014. Thereafter, a series of incremental reforms and announcements augmented the feel-good factor across India, which benefits Indian industry as well as the real estate sector. Some of these measures include the incentives announced by RBI for infrastructure financing, the reduction in interest rates on home loans, incentives for affordable housing (with Rs4,000 crore being allocated for this), announcement of a framework for REITs (Real Estate Investment Trusts) and relaxation of norms for foreign direct investment in construction. 

The Government’s initiative in relaxing complex FDI norms will help boost sentiment, leading to higher foreign inflows and more liquidity. Cash-strapped developers will find their liquidity problems easing in 2015. One factor consistently contributing to tepid end-user and investor interest in realty offerings has been the high interest rate regimen, which RBI Governor Raghuram Rajan steadfastly refused to lower last year, despite repeated requests from various stakeholders. But with inflation dropping to record lows in recent months, the RBI will finally take a call on reducing interest rates during the first quarter of this year.    

 Considering this scenario, developers are likely to come up with more offerings in the mid and affordable housing segments, rather than focussing purely on premium projects, where the margins are higher but off-take has been slower. These developments will help arouse buyer interest and trigger better sales in residential units compared to previous years. Despite sales picking up in the days ahead, prices will continue to remain stable since high inventory levels need to be reduced. Besides the above, there are other upcoming factors that will spur demand in the days ahead.

With SEBI (Securities and Exchange Board of India) notifying new norms for REITs in September 2014, this year should see the actual launch of REITs in India. REITs will help retail investors put down their money in realty ventures via a safer avenue for returns, while also helping developers improve liquidity even in testing market conditions. There are expectations that REITs could ultimately attract funds worth $20 billion. Whatever the inflow levels, REITs will help facilitate better demand.

The other real estate booster is the Ordinance on the Land Acquisition Act, which has relaxed many of the stringent norms on the consent, rehabilitation and resettlement clauses that had made land acquisition cumbersome and well-nigh impossible. This singular reform possesses the potential to spur new project developments in real estate and other industries. Another legislation awaiting Parliamentary approval is the Real Estate (Development and Regulation) Bill, pending for quite some time.

As and when finally approved, it will foster greater transparency in the sector, facilitate foreign investments and ease problems in raising capital from banks and other financial institutions. Finally, given the Government’s focus on affordable homes for all by 2022, the creation of 100 Smart Cities and infrastructure development across India, the real estate industry has much to look forward to in 2015.