Sen­ti­ment in the real es­tate sec­tor is pos­i­tive

Mint Asia ST - - Otherviews -

SMANTAK DAS How do you ob­serve the cur­rent res­i­den­tial real es­tate mar­ket?

I think the real es­tate sec­tor in India has gone through the most im­por­tant re­forms in the last 6 months to 1 year and these re­forms are phe­nom­e­nal in my opin­ion. These re­forms are go­ing to give medium- to long-term ben­e­fit to the sec­tor. If you go by sen­ti­ments on the sup­ply side—the fi­nan­cial in­sti­tu­tions and de­vel­op­ers—def­i­nitely they are more into align­ing them­selves in the new era of real es­tate. Cus­tomers are still in the wait-and-watch mode and they are def­i­nitely watch­ing more from the an­gle of con­fi­dence and the an­gle of trans­parency. That’s ex­actly what the cus­tomers are look­ing for­ward to be­cause of these re­forms. But for the de­vel­op­ers, this is re­cal­i­bra­tion of the busi­ness model be­cause it’s a new era for them. In my opin­ion, this is a new par­a­digm for the real es­tate sec­tor. So sen­ti­ments are slightly con­fused. Def­i­nitely both the con­sumers and de­vel­op­ers have a very pos­i­tive medium- to long-term out­look. But cur- rently, it is slightly in a state of con­fu­sion.

What do you mean by a pos­i­tive out­look in medium- and long-term?

For the de­vel­op­ers, the pos­i­tive out­look will be to in­crease the sales vol­ume be­cause, as you know—for ex­am­ple in Na­tional Cap­i­tal Re­gion (NCR) and Mum­bai Metropoli­tan Re­gion (Mmr)—the sales vol­ume have come down dras­ti­cally, by 50% to 70% from the last peaks of 2010 and 2011.

I’m sure that they are not look­ing at any price es­ca­la­tion. Of course, there will be some nor­mal price es­ca­la­tion that is def­i­nitely war­ranted. But they are not look­ing for a sud­den jump in price as it used to hap­pen 3 or 4 years back.

From the cus­tomers’ side, there are more of con­fi­dence is­sues be­cause they have to get the prod­uct that they in­vested for. They have to get the prod­uct on time and should get all the ameni­ties that were promised. I think, that is the ma­jor prob­lem from the de­mand side, i.e., the con­sumer side. From the con­sumer side, the ex­pec­ta­tion is that the res­i­den­tial sec­tor should be much more trans­par­ent, they should have good re­course to any fail­ures of com­mit­ment.

Is there a mis­match be­tween de­mand and sup­ply in real es­tate?

I don’t think there is much of mis­match now. Back in 2008, just af­ter the fi­nan­cial cri­sis, af­ford­able hous­ing was just a name. There was no real steam in it. Now we are get­ting full sup­port of the gov­ern­ment—and the gov­ern­ment has a fo­cus on af­ford­able hous­ing. For in­stance, giv­ing it the in­fra­struc­ture sta­tus and the Pradhan Mantri Awas Yo­jana.

So, there is not much mis­match now be­cause even in cities like Mum­bai we are see­ing some good launches of rel­a­tively af­ford­able houses. Of course, in other places also there will be a lot of ini­tia­tives in this type of af­ford­able hous­ing, which is good be­cause pre­vi­ously there was a ma­jor mis­match (be­tween what the sellers of­fered and the buy­ers wanted). Now that gap is slowly re­duc­ing be­cause of this af­ford­able hous­ing ini­tia­tive by the gov­ern­ment and the fo­cus from de­vel­op­ers.

Yes, the mis­match is still there prob­a­bly in the con­fi­dence, in the time­line of com­ple­tion; that we have to still wait and watch be­cause RERA (Real Es­tate (Reg­u­la­tion and De­vel­op­ment) Act, 2016) is in place in most of the states and prob­a­bly that will bring a match. So two things: price mis­match (which in my opin­ion is now com­ing to a con­ver­gence) and the mis­match to­wards the con­fi­dence (the time of de­liv­ery) should get mit­i­gated in the medium to long term.

Is there a pos­si­bil­ity of fur­ther cor­rec­tion in prices or is it go­ing to stay sta­ble?

We have an­a­lysed most of the cities and we have seen that for the last 3 years, if you see the con­sumer price in­dex (Cpi)—that is the retail in­fla­tion growth—i think in most of the cities your house prices has in­creased less than that, even in a city like Mum­bai. So I would not say that there would be a price cor­rec­tion as such, be­cause time cor­rec­tion has al­ready hap­pened and prices have been stag­nant for the last 3 to 4 years.

So what I would say is that the type of up­sides that we used to see in real es­tate in­vest­ment, like price doubling in 3 or 4 years, those things are all his­tory now. Be­cause you have to un­der­stand that the real es­tate as an in­vest­ment av­enue will com­pete with other in­vest­ment av­enues.

So I don’t think I will see in the next 5 to 10 years that prices are doubling in 3 or 4 years, which was a very nor­mal norm in real es­tate—at least that’s what we saw in 2008-09, and even in 2011.

We saw a lot of price ap­pre­ci­a­tion, but then again it has stag­nated. So that sce­nario is gone, that’s his­tory now. The up­side in price of real es­tate will be very nor­mal up­side, which has to now com­pete with other in­vest­ment op­tions.

Ash­wini Ku­mar Sharma

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