Real estate on recovery route in new year

Some pin hopes on residential property, others on Reits in commercial sector

The new year is likely to bring some cheer to the real estate sector.

While many are pinning their hopes on a recovery in residential properties, commercial real estate is expected to get a leg up if real estate investment trusts (Reits) become functional next year.

Residential
Residential demand in 2014 remained mostly subdued in 2014 due to high prices and interest rates.

The real estate inventory — the number of months required to clear the existing stock at the prevalent absorption rate — during January to September rose to 83 months in the NCR (national capital region) and 50 months in MMR (Mumbai Metropolitan Region).

Developers, investors, and property consultants are betting on improvement in economic growth and lowering of rates for improvement in the economy.

“In the next six to eight months, there will be good traction in residential properties. If interest rates come down before that, there would be immediate improvement in residential transactions,” said Rajeev Talwar, executive director at DLF, the country’s largest listed developer. While the government is batting for rate cuts, Reserve Bank of India (RBI) is yet to take call on cutting rates due to high inflation. Said Ambar Maheshwari, chief executive officer, Alternative Investment Funds, Indiabulls Group, said: “I think demand will be back by June-July of 2015. Sentiment has improved, but for that to translate into reality, people should have additional money in their hands.”

According to Anuj Puri, the chairman of JLL India, 2015 will see home buyers benefiting from reduced borrowing rates, increased developer-focus on affordable homes, largely stable prices, and better job and income prospects. On the other hand, developers will have to cut prices and focus on increasing cashflows to come out of the slowdown they have seen in the last two years, said Amit Bhagat, CEO and MD, ASK Property Investment Advisors.

“Pain in the industry will come out in the open as developers are overleveraged. They have to sell assets and tweak strategy to improve cashflows,” he said.

Commercial

While office properties market has seen a revival in 2014, experts said the growth will see further momentum in 2015 due to increased activities.

“Rents are increasing. Rents which have gone down to Rs 60 or so, have touched Rs 80 again,” said Talwar of DLF.

According to HDFC Securities, third quarter of 2013 recorded absorption of 10.1 million sq ft, which is 40 per cent up on quarterly basis and 95 per cent up on a yearly basis. According to the brokerage, this is the first time the pan India quarterly absorption crossed 10 milion sq ft.

“With improved sentiment in capital markets and corporate activity, there are several deals in the pipeline that may drive absorption levels upwards from CY2015,” said Adhidev Chattopadhyay, an analyst with HDFC Securities, in a recent report.