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January 6, 2009
Source:http://economictimes.indiatimes.com
It is quite clear now that after a fairly long bull run, the Indian real estate sector has begun to show signs of slowing down to a more realistic equilibrium rate of growth. In fact, the present changes that Indian economy and real estate sector is going through can also been seen as the test of the resilience of the economy and our real estate sector.
In fact, real estate sector is a vital driver of growth of our economy. It is the 2nd largest employer; it provides employment to the real masses and unskilled workers besides skilled workers, with a vast majority of them below poverty line. The sector supports multiple industries, ranging from steel, cement, paint, sanitary ware, light fixtures, glass, aluminum etc. The sector also contributes towards urban development by undertaking public private partnerships including slum rehabs and is a significant contributor to government revenue.
The present scenario of the Indian real estate sector reminds me of the challenging times that the sector faced in the mid nineties. But when we compare both the scenarios, there is a fundamental difference. Much of the demand in the early 90s was created by speculative property investors expecting their assets to appreciate in value – an ‘irrational exuberance’ over the short term, without there being a sufficiently wide and deep class of actual buyers of property.
But this time around, the demand was driven by the booming economy. In the last five years, India has grown at a compound annual rate of 8.9%. The high rate of growth dramatically improved the income level of urban Indians and the middle class today has significantly greater buying power than a decade ago. The overall economic development in India has stimulated demand for more and better housing, increase in office space, development of modern retail formats, demand for more hotel rooms and the need for improved forms of entertainment.
But unfortunately, few months ago the collapse of international financial giants due to subprime crisis & its subsequent impact on the world economy including India has. temporarily put brakes on the growth trajectory of the Indian real estate sector. The reason I say temporarily is because there is no denying the fact that if the economy has to maintain its growth momentum, the real estate sector can not be held back for long.
Even the government seems to have realized this and has started giving it the much desired stimulus by lowering interest rates on housing loans and announcing whole lot of other measures to revive the demand for housing in the country. The country still has a housing shortage of 23 million units.
Unitech treated every cyclical downturn in its over three decade history as an opportunity to increase its market share and emerge stronger. Key to managing the downturns lay in its ability to quickly adapt to the changing environment. This entailed launching new products suited to the market and having a strong direct sales focus.
I personally see a new opportunity for Unitech and the sector in the current challenges also. All we have to do is to amplify weak signals, see a pattern of opportunity and have the courage to pursue them. These opportunities could be in the form of innovative formats, new geographies, innovative business strategies, customer centric approach and improved delivery mechanisms.
Given the huge housing shortage in the country, there is an immense opportunity for developments in affordable and mass housing segment. Though demand for hi-end & luxury apartments has stagnated, but there is a huge demand supply gap in the affordable housing sector. The government’s recent measures are also an indication to the sector that they should start focusing on affordable housing or take initiatives to make houses affordable for masses.
With interest rates coming down on small loans and steel, cement prices going down it is now possible for developers like us to launch affordable housing projects. It will also guarantee assured sales and upfront cash flows in these challenging times of slowdown.
We at Unitech also have put in place a new business strategy whereby going ahead the company is now going to be focusing on affordable housingsector. The huge land bank across cities, bought at historical prices further strengthens our position for introducing housing at affordable prices. Presently affordable housing constitutes around 20% in our total residential business, but in next few years this share is likely to go up to 70%.
Whilst gloom seems to be the overriding signal coming out of the world markets, it is exactly such times which should prompt us to look at the new opportunities that are emerging and develop these themes with courage into a new world order. The present phase of consolidation which is being faced by India can in fact create new opportunities and which if identified would take the real estate sector to a higher next level. This was the overriding principle of our growth in the last two decades and we still continue to believe in the same philosophy. I am confident that this downturn too will result in a stronger Unitech.
In conclusion, now is the time that stakeholders in Indian real estate sector should put their minds together in order to understand the opportunities that are emerging despite global challenges. If we are successful in doing so, I am sure that a few years from now, many of us would agree that this phase of change and introspection was useful in its own way, and was one which allowed us to put in place the prerequisites for ensuring sustained long term growth and maturity of the real estate sector in India.
Source:http://economictimes.indiatimes.com
A curious game of 20-20 is being played out in the Indian realty sector, thanks to the government’s move to prod banks to cut interest rates for housing loans up to Rs 20 lakh.
Across the country, real estate companies are now aggressively pitching projects highlighting two-bedroom apartments available for around Rs 20 lakh, hoping to lure buyers and revive the moribund housing market.
“It is not as if there is a dramatic reduction in prices, but developers want to take advantage of the lower interest rates being offered for home loans up to Rs 20 lakh,” says Sanjeev Shrivastava, MD of Assotech Realty, a Delhi-based firm.
For instance, prices were always in the range of Rs 25-30 lakh at the Crossings Republic in Ghaziabad near Delhi, a case that illustrates Mr Shrivastava’s point.
Even when realty prices were wallowing in irrational highs, two-bedroom houses at Crossings Republic were going for under Rs 30 lakh because of the isolated location and poor connectivity.
Gaursons, Paramount, Panchsheel, Skytech Developers and Orange Properties are some of the players which have come out with advertisements for two-bedroom houses priced at the Rs 20-lakh level. However, for a prospective buyer, the catch lies in the end cost and the location.
The advertisements often conceal additional costs such as external development charges, parking fees, club membership and power back-up charges. So, a house priced at Rs 20.50 lakh may actually cost Rs 26 lakh while an apartment at the second or the third floor may cost Rs 2 lakh more.
Market analysts also point out that some of the projects being advertised are located far away from city limits, or are yet to obtain approval from lenders.
Recently, Bangalore-based real estate marketing firm Orange Properties launched big budget campaigns to attract buyers to its maiden project consisting of 800 apartments, 270 villas and 40 row houses at Devanahalli near Bangalore. It offered a 800-sq ft two-bedroom house for Rs 13.5 lakh and a 1,500-sq ft villa for Rs 70 lakh.
The offer came with added inducements — assured rental of Rs 5,000 for two-bedroom apartments for two years, and a free Mercedes car worth Rs 28 lakh for villa buyers.
“The offer was initially open for four days, but we extended it for another four days given the overwhelming response from across the country,” says Orange Group senior vice-president Pericho Prabhu, who claims to have sold at least 200 apartments in eight days flat.
Market analysts also point out that some of the projects being advertised are located far away from city limits, or are yet to obtain approval from lenders.
Recently, Bangalore-based real estate marketing firm Orange Properties launched big budget campaigns to attract buyers to its maiden project consisting of 800 apartments, 270 villas and 40 row houses at Devanahalli near Bangalore. It offered a 800-sq ft two-bedroom house for Rs 13.5 lakh and a 1,500-sq ft villa for Rs 70 lakh.
The offer came with added inducements — assured rental of Rs 5,000 for two-bedroom apartments for two years, and a free Mercedes car worth Rs 28 lakh for villa buyers.
“The offer was initially open for four days, but we extended it for another four days given the overwhelming response from across the country,” says Orange Group senior vice-president Pericho Prabhu, who claims to have sold at least 200 apartments in eight days flat.
January 5, 2009
Source:http://sify.com/finance
Before we dwell in 2009, it is pertinent to note that real estate sector has witnessed phenomenal accelerated growth from 2005 to first quarter of FY09, both in residential and commercial segments. The rationale for this spurt in demand was the incentives offered by the government to real estate.
In 2005-2006, the surge was because of income tax exemption upto to Rs 1.50 lakh on interest paid on housing loans, tax exemptions to developers who produced residential units upto a certain size, provision for repeal of Urban Land Ceiling Act, etc, were some of the important incentives. Extremely attractive interest rates and easy availability of funds for acquisition of residential units provided additional impetus for an exponential growth.
As the demand for real estate continues unabated, with a view to cool off the market, the Union Government/ RBI, intervened through certain monetary and fiscal measures such as withdrawal of the tax exemptions granted earlier, raising of interest rates, etc. This resulted in a peculiar situation. While, on one hand, there existed a demand due to unprecedented number of jobs generated by continued growth of knowledge industries and, on the other hand, the demand could not be translated into deals, mainly due to enhanced interest rates on housing loans.
The real estate sector, therefore, entered a phase of sluggishness. Deals concluded were not commensurate with the actual latent demand. Large section of the prospective purchasers preferred to wait and the situation continued till September 2008.
Since October 2008, the world witnessed the collapse of American financial system, preceded by the sub-prime crisis. The latent or the built-up demand found another reason not to surface sufficiently while the investors demand remained low in real estate; almost every segment of the Indian economy entered a slow down mode. At this point of time, the Government did intervened with encouraging measures to boost real estate demand, since it is considered to be the backbone of Indian economy and is the growth engine supporting around 240 industries. It is the largest employment generator for below the poverty line.
Starting November 2008, the Government has been taking a slew of proactive measures to boost demand for real estate with the RBI’s monetary easing is beginning to take effect with banks dropping lending rates by 50 – 150 basis points for various segments. Banks also announced softer interest rates for loans not only below Rs 20 lakh, but for loans above Rs 20 lakh also. This will not only prompt the developers to consider more construction of mid segment and affordable houses. Apart from this, tier II and tier III cities are also promising good potential options for accelerated growth of real estate in these fast emerging cities. The proactive intervention by government is a major differentiator this time and this is bound to play a crucial role in the revival of the economy.
More importantly, reasonable prices for residential apartments in tier II and tier III cities as compared to metros, is also a key factor as the bulk of demand will be seen in these emerging cities. The other good news is that the IT majors have not altered their hiring numbers much. Besides, hiring numbers for banks, insurance and some other sectors are likely to go up drastically. Job creation due to these factors should generate fresh demand for housing. The American turmoil has the potential to bring more business to Indian IT companies due to mergers and acquisitions back in the USA, and also due to an urgent requirement for American companies to cut costs in times like this.
Experts also predict that the revival of Indian economy will happen faster and sooner than anticipated, primarily due to Government interventions, unlike in the past, and that, when the revival happens, it can create jobs much faster than in the past. It would not be much if I would say that by mid of calendar year 2009 we may witness spurt in real estate sector again. All these should bring buoyancy to real estate and to the Indian economy, post 2008.
While at the time when we are looking forward to 2009 as the year of resurgence for Indian real estate sector, we would also seek the support of government in providing Industry status to real estate sector as it is the largest employment generator after agriculture in the country and a single component within the industry — housing — contributes roughly 5% of India’s GDP. The realty sector is therefore strategic to India’s economic progress. Consequently, the sector requires further impetus for continued growth.
The cap on the rebate is relatively low and needs to be commensurate with the level of existing expenditure to acquire real estate. On the cost side, stamp duty, which presently ranges between 6-16% (depending on the state in which the property is located), needs some attention. In this respect, there appears to be a need for a credit mechanism since there is a cascading effect of stamp duty right from purchase of land by the developer to sale of the property to the final buyer.
A possible solution could be an input credit system (similar to service tax) for stamp duty paid on land against the output stamp duty on sale of property. These measures will not only have the dual benefit of increasing the supply of housing for the mass segment (thereby making it more affordable) but also will provide a fillip to the real estate sector on the demand side as well.
Secondly, I look forward for providing infrastructure status for housing as mass housing involves integrated infrastructure development. Bigger township projects have long gestation period needing investment for a longer period of time like infrastructure. We are engaged in undertaking large scale urban development projects including purchasing raw land and developing it for the purpose of construction of houses, multi-storied buildings, creation of infrastructure and social facilities such as laying of roads, systems for water supply, water treatment, sanitation and sewerage, solid waste treatment and also to create educational, medical and recreational facilities as an integral part of development of satellite townships, in accordance with the elaborate rules and regulations and with the specific approval from the State Governments.
Integrated township development is almost akin to development of SEZs with complete set of infrastructure facilities. “An integrated township and group housing development on area more then 10 acres involving provision of residential, educational, medical, community, commercial or institutional buildings and creation of required facilities including roads, water supply, water treatment, sanitation and sewerage systems and solid waste treatment and management systems”.
Real estate developers need to be given incentives for creating such an infrastructure in the country. Hence, integrated township development should be accorded infrastructure status.
Reviving the concession U/S 80IB (10) to trigger affordable or low cost housing whereby income tax deduction U/S 80IB (10) was available to developers for making houses affordable to weaker sections of the population. This facility was discontinued from April 1, 2008. This concession was highly successful in triggering affordable housing but since State laws were not permitting higher densities, the benefit of it could not be realised to fullest possible extent.
Now, almost all State governments have relaxed their density norms. Therefore, if concession u/s 80IB(10) is revived now, it will give boost to affordable housing and help in reducing the prices.
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