Outlook
Time to match demand with relevant supply: India’s gripping urbanization
growth story has been fascinating global investors so far, an underlying truth
gradually emerged in 2013 - economic growth, the consumption story and property
prices may not rise consistently, and there could be intermittent hurdles or
growth risks. The presently cautious market sentiment is likely to continue, as
headwinds to growth will prevail till the first half of 2014. However, the
second half is likely to witness gradual revival in absorption. Residential
real estate capital values will increase in a subdued range of 10-12%
year-on-year pan-India for the whole year. Affordability will drive growth in
2014. An emerging economy is never short of opportunities, and it is time that
the Indian residential real estate industry realizes where the opportunity
lies. To date, the shortage of homes in India stands at around 19 million
units, and 95% of this housing shortage is in the economically-weaker section
(EWS) and low-income group (LIG) categories. In India, housing for EWS is
defined by the Technical Group on Estimation of Housing Shortage as having a
carpet area of 21-27 square meters; LIG housing includes units of 28-60 square
meter carpet area. By the government's definition, EWS housing falls in the
range of INR 4-10 lakh. This means that development of affordable housing will
have to penetrate into the deeper suburbs of our cities, where such price
points are feasible. The TATA Shubh Griha project (popularly known as Nano homes;
completed in 2011) in Boisar near Mumbai was a splendid example of successful
identification and auctioning of such opportunities. The project had 1,300
units, which received applications from 3,500 households. A recommendation to
the government by the technical group to incentivize such projects by subsidized
land, tax rebates, grants per supply of dwellings, etc. could help developers
in improving the feasibility of such projects. Redevelopment activity to
increase With scarce availability of land in the urban agglomeration,
redevelopment will emerge as another growth driver in a scenario the
cost-and-time-intensive complexities with regards to land acquisition brought
forth by the LARR 2013 amendments. Indian cities present an exceptional opportunity
for developers in this respect -- as per the latest available census data
on households, only 50% of the residential units are in good condition, while
the remaining are either merely livable or in dilapidated condition.
So,
the 2013 may have been the year when both the developers as well as the lenders
were waiting for policies like the REIT to roll out as well as other cost &
benefit analysis. However, the direction in which the market is heading to,
added with the new funding sources being cleared by the government, it seems
the turnaround of the financial fortunes is just ahead in 2014.
