Real estate market in 2014: Elections, RBI and US Fed hold key

 

Residential launches dropped by about 12% this year from 2012, according to a report released by property consultant Cushman and Wakefield this month. Photo: Ramesh Pathania/Mint

 

Mumbai: India’s real estate market will continue to be muted for most of next year as homebuyers and office occupiers stay cautious due to the economic uncertainties, say analysts. 

 

But a gradual revival in demand could be on the cards in the second half of 2014 following the general elections that’s due by May.

 

Developers struggling to control debt amid strained cash flows, increased input costs and low sales will see little respite next year as the economy may improve only gradually and the central bank remains cautious about lowering lending rates, say property experts.

 

Residential launches dropped by about 12% this year from 2012, according to a report released by property consultant Cushman and Wakefield this month. An estimated 172,500 apartment units were launched this year in eight major cities—Mumbai, the national capital region (or NCR, which includes Delhi), Bangalore, Chennai, Hyderabad, Kolkata, Ahmedabad and Pune—compared with about 196,846 units in 2012, according to the report.

 

The early part of next year is unlikely to be any better for real estate developers.

According to Lalitkumar Jain, chairman and managing director of Pune-based Kumar Urban Development Ltd, there is substantial stress in the real estate industry and demand has to revive for the situation to improve, but he is hopeful.

 

In the next few months, “developers will continue to focus on execution and the new launches will increase by the second half of 2014 when the market sentiments (are expected to) improve,” said Jain, also chairman of the Confederation of Real Estate Developers’ Associations of India (Credai).

Demand was also hit as the Reserve Bank of India (RBI) earlier this year curtailed certain subvention schemes, terming these as an additional risk to both banks and home loan borrowers. RBI restricted banks and housing finance companies from offering upfront disbursement of loans to developers and asked them to instead link it to the stages of completion of a project.

 

As homebuyers went on a wait-and-watch mode, residential developers banking on customer advances to begin work on new projects became squeezed for cash flows. Many developers dropped prices to boost sales. Property consultants say price increases will remain subdued at 10-12% in 2014, as it was this year.

 

“Developers’ willingness to lower prices by 10-15% gave serious local buyers a chance to get genuine bargains on their property purchases. Residential real estate capital values will increase in a subdued range of 10-12% pan-India for the whole year,” said Anuj Puri, chairman and country head at real estate consultancy Jones Lang LaSalle India, or JLL India.

 

Jain doesn’t agree, saying prices have already bottomed and will increase more substantially. “Developers are already selling at the bottom-most prices. The prices have already started rising slowly. With the demand picking, the price rise will be substantial by the last quarter of 2014,” he said.

 

Reflecting the market sentiment, the BSE Realty Index, which comprises 13 real estate companies, has declined by 31.1% so far this year, while India’s benchmark Sensex index has gained 8.47%.