Real Estate

  • Abhishek Behl
  • India
  • Oct 19, 2012
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The real estate market across the country, including the hottest real estate destination Delhi- NCR, is going through one of the toughest phases – with around 15 lakh under construction houses being delayed due to a liquidity crunch

A free-wheeling chat on the real estate industry, with Vineet Singh, Business Head 99 Acres dot com, one of the leading real estate portals. 

The macro-economic indicators are not very healthy, and they are affecting the market sentiment. 

Singh: No doubt the market is tight, and growth is slow. The general sentiment across the country is that the property bubble is about to burst. Most companies are facing a liquidity crunch. The industry needs a solution to help the builders get easy loans, so that they can complete their projects in time. 

The only saviour for the real estate industry is that it is seen as the second best asset class for investors, after gold. People still keep on investing in realty, particularly in Gurgaon and Mumbai, because it has given a solid return on investment. Gurgaon attracts a different kind of buyer and investor, as compared to the other parts of the NCR.

The market conditions should provide an opportunity to buyers to get healthy discounts; but the high number of investors in the market, particularly Gurgaon, makes it difficult for builders to do so (investors make up 70% of buyers in a new project). The builders are thus forced to hold on to their inventory, and then try to increase prices at regular intervals. However, it is time to go for a balanced mix of investors and end-users.

Another aspect is that the real estate market trades on market sentiment; and the builders know that once  the economy comes back on track, and interest rates are rationalised, the sentiments will turn positive. They would then be able to sell the inventory at higher prices. So, although some discounts are possible, a major correction is not on the horizon.

While the residential real estate has still some steam in it, the commercial realty seems in the doldrums. 

Singh: It is true that with the global slowdown, not many new companies are setting base in Delhi-NCR. In fact, current IT/BPO companies are looking for cheaper options, as a result of which the vacancy has increased both in the office and retail space. Gurgaon is an expensive realty space and city to live in. A large number of malls are also empty, as tenants are not coming to lease space.

A solution to the problem, particularly for malls, is to move to a profit-sharing model, as the rent/lease model in India is not working. There are only about ten malls in the country that are profitable right now, and they are all working on a profit-sharing basis. It is important for builders to realise that with a general slowdown in the economy it would be better to have a mixed approach.

Another boost to the retail space should come from the easing of FDI in retail. Quality mall space would be in demand as organised retailing becomes the norm.

Do you think the time has come for special/specific financial instruments?

Singh: Normally complex financial instruments evolve when the market gets democratised, and information becomes easily accessible, as is happening in India. It is important to provide funds at the right rate and time, to ensure that delays in construction do not happen. There is also need to ease the FDI norms, so that foreign investors can bring in money and exit easily. In the last 4 years there have been very few profitable FDI exits in the real estate industry; it imperative for regulators to understand this problem and find a fix.

The pre-launch of projects is one such instrument that is being successfully used to generate cash, as it allows investors to put money in a project. Similar tools will evolve once the industry matures.

The property deals in the country are highly skewed in favour of the builders. How can this situation be corrected?

Singh: This situation will not continue forever, and the proposed Real Estate Regulatory Bill will bring in more transparency and accountability in the industry. The relationship between the builders and buyers will also get corrected and
more balanced. 

The conditions are ripe for bringing in this Bill, as 15 lakh houses are being delayed, and it is ultimately the buyers who will bear the brunt of this delay and cost. Despite delays in possession the buyers have to continue to pay EMIs. 

The Internet has also helped in bringing about a semblance of democratization in real estate, as information is easily accessible. Buyers can compare projects, check plans, look for expert opinions, and take an informed decision, by using portals like 99 acres.

The methods of urbanisation, change of land use, town planning models promote a rent generating economy in India. Do you think better models need to be evolved and considered to plan and develop cities like Gurgaon?

Singh: The current land acquisition act is 100 years old, and has not seen any change, though the nation has changed considerably in the last 60 years. India is a young country and urbanising very fast; as such, laws related to social demography, city development, land ceiling, and urban governance need to change with the spirit of the times. The urban local bodies, like the MCG/HUDA in Gurgaon, need to be empowered.

Another important issue is land acquisition. The builders and the  government need to understand that the farmers will go to court and bring the development process to a standstill, if they now feel short-changed.

All the stakeholders—the farmers, buyers, builders and government—must share the wealth responsibly. Money generated by the state should be used for improving the infrastructure, jobs should also be given to farmers who sell their land, and buyers should get their houses on time, even as builders make ‘responsible’ profits.


How do you see Gurgaon as a realty destination?

Singh: Gurgaon is a fantastic real estate destination, as it has given the maximum returns to investors, and also to end-users in the form of world class housing options. The expansion of Gurgaon will provide further good options to home buyers – on the Dwarka Expressway, Golf Course Extension Road, Manesar, and NH8 upto Bhiwadi.

The growth of areas within the City will depend on improved infrastructure and amenities. On the other hand Manesar, Bhiwadi and Sohna will grow only if new industries come to these parts of the urban complex.

The problem in the Millennium City is that the infrastructure is creaking, even on the surface. And I am speaking about basic services, not lifestyle services such as parks, stadiums, clubs etc. Where is the huge amount of EDC that has been collected by the government? A lot of thought and investment needs to be given, to bring this City back on track. Gurgaon has reached a stage where it is imperative for the stakeholders to start working on the infrastructure, or else people will start moving out to new destinations.

Another NCR?

Singh: National Capital Region has a beautiful balance. It has Noida, where properties are available from Rs. 25 lakhs upwards, and the average increase in capital appreciation is around 25 per cent. It is an ideal destination for end-users.

Then we have Gurgaon, where most properties are available from Rs. 1 crore upwards, and the capital appreciation is around 30 to 50 per cent. It is a great investment destination, as well as a lifestyle option for those who have the money and taste for such lifestyle.

Faridabad and Ghaziabad provide good options to end-users, as houses are available between Rs. 25 to 50 lakhs. 

NCR is still growing, and has become the biggest real estate destination, because all segments of buyers are being catered to.

What is your message to buyers?

Singh: The myth, in India, that real estate is a very solid investment, was broken in 2008. In fact, people must understand that investment in property is a big and risky decision. Before buying, buyers should check the credibility of builders, ownership of titles, plan sanctions, regulatory permissions, and location. Investors should not play the market, and basically look for long term investments. Buyers must take informed decisions, rather than second-guess the market.




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