REAL ESTATE SLUMP AND SOLUTIONS
At a Realty+ gathering in Mumbai, the industry experts shared their thoughts on the financial structures, initiatives, current status and best options for real estate players
TEXT: RUSTAM SINGH
Through a variety of tax exemptions, boosts to infrastructure development and special focus on middle income group housing, the budget 2019 was touted as a promising financial plan for real estate sector. Benefiting both buyers as well as commercial and developers, the budget had pointers intended to be favourable to the market.
The real estate leaders believe, that the fault for the current tough times for realty lies not only with developers but also with the financial sector and the government agencies as well. The budget has been able to rectify, but only partly, the wrongs of the past. Expressing the sentiments, Sanjay Dutt, Managing Director & CEO, Tata Realty and Infrastructure Ltd said, “Like many sectors real estate has gone through its own tumultuous journey with the down cycle for the sector being rather prolonged starting from 2011. Now the financial crisis and NBFC setback has created deeper impact on the market.”
Indeed, a variety of factors have brought the current stagnancy in the real estate industry. Pankaj Kapoor, Founder & MD, Liases Foras was of the view that year 2005-2015 was an asset price driven real estate market, where prices were growing. The inefficiencies started coming out thereafter and thus, the current financial crunch was to be anticipated.
Agreeing to Kapoor’s statement Ambar Masheshwari, CEO, Private Equity Funds, Indiabulls Asset Management Company Limited added, “While this slump was expected nobody expected it would last this long. Residential real estate is the only sector where volumes have come down, compared down to consumer electronics, automobiles, telecommunications, and lifestyle purchases. That presents a serious dichotomy. Buyers are no longer looking at real estate for investment but, for their self-use. The gap created by high home loan interest rates and decreasing rent rates is another major reason for realty slump.”
Chetan Shah, Vice Chairman, Marathon Realty felt that the reason for slow sales or buyers disinterest is also because the developer’s products do not match the end user consumption demands. “Real estate in top tier cities and their suburbs only cater to the top 10% income groups. In addition, more than 25% of revenue go towards government taxes.”
EMERGING ASSET CLASSES TO RESCUE
Recent data reflects India instead of growing as a migration driven economy is moving towards an urban morphing society. This means, people prefer to move to close-by urban centers instead of the large economic cities.
After the introduction of Affordable Housing Scheme, there has been some revival in real estate sector. The tax rebates and GST cut has encouraged the public interest towards affordable housing. However, physical infrastructure and connectivity will have to reach areas with low cost land parcels for affordable housing to be successful.
The current issues with residential sector has also driven the real estate business to newer asset classes, in peripheral areas of main cities. Elaborating on the fact, Anshul Singhal, Founder & CEO, One Industrial Spaces said, “The instant gratification based buying behavior inspires larger shelf space; hence the demand for warehouses across the country. In the industrial space, the situation is completely opposite to residential segment. There is more demand than supply – rents have risen massively, because consumption of products has risen. More so due to immediate consumption by E-commerce sector for large warehouses and commercial spaces.”
THE CONSPICUOUS TRENDS
Real estate developers, regardless of stature are foraying in affordable housing, once a less favored segment.
Developers across cities are reducing the product’s size to bring affordability.
NBFC crisis has put an entirely new spin towards real estate demanding strong interventions from the Government and RBI.
Commercial real estate has remained the most buoyant sector with Co-working as its poster boy.
Tier 2 & 3 cities have played a significant role in retail and budget hospitality segments, growth story.
Warehousing is driving the economy of peripheral areas of urban centers and is the most successful asset class.