Indian Real Estate Flexible in Hard-Times

The residential segment in the real estate sector has delivered high scale of investments. The investments are mainly appears to be from the on-going projects by reliable developers adhered to time bound completion of projects.

India’s Economic Signs
For the first quarter of financial year 2013-14, India’s GDP was 4.4 percent and the Reserve Bank of India (RBI) estimates to achieve a GDP of 5 percent by the end of Fiscal Year 2013-14. The reason behind the slow growth in the country’s GDP is regarded as the low industrial production and high interest rate situation. To control inflation by this fiscal end RBI has reduced the present credit. By the end of this fiscal year, the Wholesale price index (WPI) inflation is likely to reach 5.3 percent against the current 6.5 percent. The present quarter, the 4QFY2013-14 probably demonstrates the enhance drive in the agricultural and industrial sector. It is also expected that the general elections in May would bring some tremendous changes in Indian economy in 1HCY2014, as the post election in 2009 brought Rs.9,000 Crore (USD 1.5 billion) from which, the government used only Rs.2,100 for election purpose.

The Shifting Phase in PE
During the zenith of 2005-2008, the private equity players mainly focused on real estate sector and invested in the commercial office sector, but presently the asset towards the commercial office sector is down as investments are focused mostly in pre-leased assets or operational assets with robust occupancy stage.

Now, the PE players have shifted and spurred their investments towards the residential sector because of the Global Financial Crisis (GFC) as they understand that the returns are quicker in this sector. 

With the urbanization and improvement in infrastructures PE players are also interested to invest in Tier II cities, earlier as they focused only in Tier-I cities.

PE players are playing safe now in order to preserve their principal assets, because of the recession period during which their investments turned into illiquid assets.

Since April 2012, roughly around USD 500 million would have been heaved from PE funds.  Also, funds from autonomous firms from various deals are estimated. About 45-50 percent of the funds raised are invested till date and by 2Qof 2014, the remaining amounts are likely to be invested.

Presently, Mumbai, NCR, Pune, and Bangalore have engrossed most investments and it is determined that demand from end-users is the drive.

Modification of costs in housing sector
With more number of unsold units in the housing sector, the developers were left with no choice other than to alter the cost of the property. The price correction depends on certain factors that include the demand-level, buyers and other aspects.

In 4Q of 2012, around 80,000 new units were launched, but it reduced to 50,000 in 3Q of 2013.  The average prices of newly launched units reduced by 15-25 percent.

In summary
The real estate of India is for sure undergoing its own share of mayhem, and has outcome as resilient and is developing irrespective slow growth in country’s economy. With its own ups and downs, it is anticipated that the Indian Real estate market will give its best in the coming year.

Indian Real Estate News - The New Land Acquisition Bill & Its Impacts

The recent Land Acquisition Bill, though addresses many concerns, is not without loopholes, say industry experts. However, property litigation issues are expected to come down to a great extent.

The bill has incorporated changes to the inclusion of irrigation projects into the Social Impact Assessment and existing compensation policies. The unfair compensation paid to land owners has been one of the prime reasons for real estate related disputes in India.

The bill also states that it is impossible to dispossess people from an area without paying all dues and allocating another area. And, according to the new bill, seeking permission of Gram Shaba or rural authorizes is the first step in acquiring a land in such areas. If the acquisition is for private or PPP ventures, consent of 70 and 80 percent of land owners becomes imperative.

The bill also puts forward the option of 40percent profit sharing with the owner in case of a sale price more than the compensation amount.

However, on the whole, you would get to see two contradicting changes through the bill. It is certain that there will be a reduction in real estate crimes across the nation. However, the bill would also lead to high costs leading to a burden for real estate developers. The high-costs in real estate, one among the prime areas in India’s growing economy would have a direct impact on the nation.

In view of the enhanced attempts of urbanization, the high-costs going to come out of the bill, could hinder such attempts. There could be delays in project completion in case of lack of sufficient funds. Such discrepancies might prevent public firms from collaborating with the Government for new ventures.

The land acquisition clauses mentioned in the bill are applicable to 50 acres of urban land or 100 acres of rural land. Therefore, commercial and residential buildings out of this limit would not be abiding by the bill.

Also, if planning to implement all the clauses mentioned, certain amendments in the existing system might become necessary.