Developers optimistic of revival in realty sector in 2014

With high property prices and costlier borrowing hitting real estate, developers are hoping for a reversal of the slowdown in the new year and sales picking up post general elections.

Low demand for flats, subdued commercial leasing, huge unsold housing stocks, buyers' protest against delays, limited launch of projects and debt-ridden developers clocking lower revenue-net profit numbers marked the year for real estate.

Amid these negativities, there were two major government initiatives in form of new land acquisition Act and proposed real estate regulatory bill that would go a long way in making the real estate sector more transparent and accountable.

Developers, however, kept complaining that the provisions were pro-farmer and consumer-friendly, leading to further delay in development of projects and price escalation.

Cash-strapped industry, however, cheered market regulator SEBI's draft guidelines to allow Real Estate Investment Trusts (REITs) and Commerce Ministry's proposal to relax FDI norms as it felt that these steps, once implemented, will help revive the global investors interest in a sluggish property market.

The year also saw some some big-ticket deals. Mumbai- based Lodha Developers acquired iconic Macdonald House in central London for over 300 million pounds (over Rs 3,000 crore).

Realty major DLF sold its wind turbine projects in Gujarat, Rajasthan, Karnataka and Tamil Nadu in phases for about Rs 800 crore. It also exited from insurance venture by selling 74 per cent stake in the joint venture DLF Pramerica Life Insurance to DHFL for an estimated Rs 250-300 crore.

"It was one of the worst years in last two decades not only because of slowdown, but weakness of governance at all level from central to state to corporation levels," CREDAI, the apex realtors' body, Chairman Lalit Kumar Jain told PTI.

Noting that market improved during December, Jain said: "2014 would be year of revival. Revival has started, the visible change would be seen from second half".

While reviewing yearly performance, property consultant Jones Lang LaSalle India said: "Over the last four years (from the trough of Q2-2009 up to Q3-2013), taking into account the period of economic slowdown, apartment prices have risen by over 50 per cent on an average across India.

"As a result, absorption remained subdued during 2013 (until Q3, 2013), falling further from the already tepid levels observed during the same period last year".

Poor housing demand meant that developers had to sit on a huge unsold stocks and postpone new supply, as reflected in 12 per cent drop in launch of new projects during 2013. Still average housing prices rose by 10 per cent across India.

With investors shying away from the housing market, it was a buyers market this year but they largely chose to wait and watch for prices to correct and interest rates to ease.

By end of the year, both did not happen. While developers kept holding on to their prices citing rising input costs, the Reserve Bank of India did not get enough elbow room to reduce interest rates because of high inflation.

Developers┬┐ strategy to focus on execution of the existing projects and selling the non-core assets to improve cash-flows continued even during 2013.

Demand slowdown was not limited to housing. Leasing of commercial spaces remained muted as corporates were cautious in expansion amid weak global economic conditions.

According to Cushman & Wakefield, the net office absorption fell by 25 per cent in 2013 to 23 million sq ft in eight major cities. Office space supply also declined by 14 per cent to 34 million sq ft.

Attractive valuation of rental-yielding commercial assets did provide a golden opportunity for private equity players whose investments in the realty sector grew by 26 per cent to Rs 4,716 crore in the first nine months of this year.

Government did try its bit to improve the market. In the beginning of this year, tax sops were offered in Budget to boost demand for affordable housing, but luxury homes were made expensive to compensate.

An additional interest deduction of Rs 1 lakh to first home buyers for loan up to Rs 25 lakh was announced. Not only that a Rs 2,000 crore Urban Housing Fund was set up, the outlay for Rural Housing Fund was increased to reduce housing shortage estimated at about 19 million units.

On the flip side, a TDS of 1 per cent was levied on the value of the transfer of immovable property valued over Rs 50 lakh.

During second half, new land acquisition law was passed in Parliament. It stipulates consent of at least 70 per cent for acquiring land for public-private-partnership projects and 80 per cent for acquiring land for private companies.

Amid buyers┬┐ complaints of delay in project completion, government also introduced the Real Estate (Regulation and Development) Bill 2013 that seeks to protect consumers from fly-by-night operators and unfair practice.

Developers were up in arms against this proposed law saying that Regulatory Bill does not cover all stakeholders involved in the real estate development like the government authorities, which gives projects approval.

Ministry for Housing and Urban Poverty Alleviation tried to convince builders that the Bill is not anti-industry but to no avail. Finally, the Centre assured that the Bill would be suitably modified if necessary.

The year 2013 also saw the concept of branded homes catching up. Supertech tied up with Italian fashion brand Armani group for interior designing of 100 super luxury residences in one of its project at Noida. Lodha partnered US-based Trump Organisation to develop Trump Tower in Mumbai.

The year also saw some fund raising activities. DLF mopped up Rs 1,863 crore through issue of over 8.1 crore fresh shares to institutional investors, enabling the company to dilute promoters stake to 75 per cent in line with SEBI's minimum public shareholding norms.

Godrej Properties, realty firm of Godrej Group, raised Rs 700 crore through rights issue.

Despite some of these actions, property market largely remained dull throughout the year and now the developers and property consultants hope hinge on the next government.

"Consumer confidence will remain subdued during the first two quarters of 2014 owing to uncertainties surrounding the general elections and macroeconomic condition (both global and domestic). However, post the election, fence-sitting investors are likely to become active," JLL India Chairman and Country Head Anuj Puri said.

Increase in absorption of residential units would help reduce the currently large inventory holdings of developers, he said, adding that "Pan-India residential real estate prices are likely to grow at 10-12 per cent year-on-year, factoring in input-cost inflation and a gradual pick-up in demand".

Giving outlook for 2014 on office segment, CBRE South Asia Chairman and Managing Director Anshuman Magazine said: "Recent indications of revival in the global and domestic economy should contribute to better performance and improved economic prospects towards the second half of 2014."

Going forward, he said the RBI may be expected to maintain stability or reduce base rates. "All in all, a positive signal for the investment climate in India's realty sector; and a likely indication of a gradual economic recovery".

The commercial office segment of top cities is expected to see fresh supply addition of about 140-150 million sqft by the end of 2017.

On the retail front, potential resolution of various policy issues and sustained attractiveness of the consuming class will help boost the interest of global retailers in the new year, experts feel.

On FDI, Puri of JLL said: "... 2014 may not be significant in terms of FDI inflows because, while it is mandatory for international retailers to be in joint venture with domestic retailers, finding a suitable partner is difficult.