How Indian Real Estate Market Will Likely Fair in 2015?

According to the National Housing Bank (NHB) Residex Index, residential property prices show an upward trend in the second half of 2014. First half had seen property prices dip, as the weak rupee and high inflation had a negative impact on spending. Needless to mention that 2015 will largely be about recovery. The RBI will most likely cut interest rates and this will see more spending in the residential real estate segment. The Ministry of Statistics Program and Implementation and PwC Analysis predict a growth of 8 to 9 per cent. Added to this, the introduction of REITs, improved market sentiment and more efforts by the government to reduce project loopholes and bottlenecks in transactions will go a long way in clearing the way for positive trends in 2015.

In India, real estate plays an important role, from affordable housing to infrastructure and generating employment. Here are some of the reasons why:

  • The Economic Survey of 2012-13 revealed housing to be the second largest industry that generates employment, after agriculture.
  • With more than 300 linked industries like steel, transport, construction, cement and brick, real estate contributes significantly to the country’s GDP share and capital formation.
  • NHB’s report places real estate as the third most impactful industry in India in terms of its effect on other industries and fourth in terms of employment generation.
  • The residential segment, comprising residential buildings, townships, schools, colleges and hospitals and other projects, makes the maximum overall contribution in the real estate industry and commands the largest part of its market share.
  • The real estate sector employs more than 35 million people, especially low and medium skilled labour
  • Directly impacts manufacturing
  • Attracts a lot of money in foreign direct investment (FDI)

Recap of 2014, its main events and economic drivers

  • According to Colliers Research, Bangalore and Chennai witnessed maximum demand and growth, while Kolkata, Mumbai and Gurgaon were unchanged. Despite this, many developers launched new projects during the end of 2014.
  • There is a backlog of unsold property. 2014 has seen delays in approvals, project clearances and targets, apart from debt commitment on property and government spending less in this area and a huge delay in finishing projects
  • Construction industry has grown 2 per cent from 2014 to 2015.

Trends in 2015

  • The Planning Commission estimates that by 2030, about 600 million people will live in cities. Affordable housing therefore is a huge demand and the industry has a large gap to meet, with shortage seen among the low income groups.
  • International agencies like IMF and World Bank predict an increase in GDP.
  • Real estate market is driven largely by sentiment.
  • First half of 2015 will be largely recovery with property markets.
  • ProjectVendor.com projects a 10 to 15 per cent increase in growth from FY14 to FY17 and 11 per cent growth in FY15. Residential and commercial projects, organised retail will contribute to this growth significantly.
  • Real estate construction market is poised to grow by 20 per cent between now and 2017.
  • Both large and specialised players stand to benefit and gain equally.
  • Real Estate Investment Trusts (REITs) and commercial real estate will make significant impact. REITs will have a huge impact in 2015. It is an internationally tried and tested strategy, especially in the USA, Taiwan, South Korea, Singapore and Australia. An REIT is a trust that buys, sells, develops and manages income-generating real estate property such as malls, commercial office spaces and more, with the main intention of attracting investors who can manage an interesting array of properties. Corporate investors benefit from tax exemptions. It largely impacts small investors and encourages proper investment channels in large real estate accounts, and is a better alternative to investing in stock, due to its higher returns and a diversified portfolio of investments. Blackstone, Xander, Brookfield and more real estate funds intend to launch REITs in the country and DLF, Phoenix and Prestige are expecting to make use of this huge opportunity.
  • The residential real estate space in India is divided into affordable housing, mid-level priced houses and the luxury segment. The onus on low cost housing is expected to put pressure on the luxury segment, but this is not significant. 2015 will focus more on recovery and clearing inventory, construction deadlines and backlogs.
  • Pricing is very important. Affordable price points will lead to higher absorption levels.
  • Easing pressure on the rupee will also impact the industry positively.