The Real estate sector in India experienced plenty of heart-burns during the year 2013. In terms of absorption, Delhi, Mumbai and Pune registered a decline during most part of 2013. The story may not be very different for the rest of 2014 either mainly because of inventory overhand and weak off take in most of the major markets.
Yet, going forward, the scenario can rapidly change towards the turn of 2014 and beginning of 2015. Among other factors that are expected to aid the growth of the real estate sector in India, is the establishment of REITS.
Why REITS can be a game changer?
SEBI has already announced its guidelines for setting up REITs. Real estate investment trusts have been in operation elsewhere in the developed world but is being introduced in India for the first time. Similar to mutual funds, REITs will work as a new investment vehicle and the money collected from investors will be invested in rental assets thereby offering the investors an opportunity to diversify portfolios and invest in property. Units received by investors will be listed on exchanges providing the liquidity that is needed. However, it could take the better part of 2015 before investors can really access the REITs units. Under its constitution, dividend payout is compulsory for REITs units and the mandatory limit is often closer to 100%. This should make the REITs units even more attractive.
Commercial space bound to grow at a slower pace
The growth in commercial space segment is far from encouraging and this trend is likely to spill over into 2015. Bold initiatives from the government in the form of tax breaks or other soaps can tilt the balance in favor of the developers and aid better occupancy levels. Over-ambitious pricing is another factor that will act as a drag on commercial space offtake. Presently, there is a tendency to price comparable commercial space in relation to offshore markets and present a pitch that Indian commercial space is still cheaper. This argument may not cut ice with the target customers and the developers may be forced to redo their maths.
Malls and supermarkets – do they represent the right retail model for the Indian market?
Although many national and international malls and supermarkets have opened up shop in different parts of the country, their performance so far leaves a lot to be desired. As opposed to the consumption driven economy in the US, Indian economy is more savings oriented. Impulse buying an essential ingredient for Malls and supermarkets to thrive and this is demonstrated by the fact that traditional storefronts have survived the aggressive positioning by the Malls and supermarkets. Middle class Indians will continue to be conservative and their shopping habits are unlikely to witness a paradigm shift any time in the near future.
Housing is one segment that can breathe fresh life into the Indian real sector over the coming years. Demand for affordable housing in the sub 30 lakhs category is bound to grow in Tier I and Tier II cities. However, title certification continues to be a major hurdle in attracting fresh investments, particularly foreign direct investment into this sector.
Although the path of the Indian real estate sector over the next 5 years is riddled with ifs and buts, a strong government with positive attitude is expected to lend significant strength to this segment.