Chairman and Managing Director (South Asia), CB Richard Ellis, Anshuman Magazine, was in Chandigarh to participate in the Realcon-2011, an exhibition and exposition on real estate construction, building material and financing, organised by the Confederation of Indian Industry. In an interaction with Business Standard, he shares his view about how real estate sector is shaping up amidst signs of uncertainty. Excerpts:
Could you brief us about the real estate scenario in the country?
The real estate market in India is better than the general perception. Basically, there is a negative perception because of two reasons — weak global sentiment and fear of Indian economy slowing down. However the trends in 2011 till now have been encouraging on all fronts be it residential, commercial or retail.
Talking about the residential sector prices, since January, has moved up on an average by 20-30 per cent, with prices rising sharply in cities like Delhi and Mumbai but in other cities the price appreciation might have not been so sharp. Similarly, the commercial space this year saw lot of activity generating with 17.5 mn sq feet area commercial area occupied this year compared to 15 mn sq feet last year. On commercial front, the main activity was generated by IT sector .On the retail front also we observed the sector performed better than last year with brands expansion taking place.
However, keeping in mind the current situation with mortgage rates firming up, sales have slowed down. If the uncertainty in the global markets persist for longer it could well impact the demand as well.
In the current environment, what is your perception about the prices in coming times?
In residential sector prices in short term are likely to sustain. There is pent up demand for the residential sector. Lot of activities are still happening in the mid- segment. Developers with good reputation are still managing to sell their properties. However, if global conditions worsen, prices are likely to soften down especially in places where prices are high.
In commercial space, particularly IT sector may see some correction if things worsen on global front, while in other commercial spaces, prices could sustain or pick up in sectors where there is good demand for commercial spaces.
In the retail aspect this year we have seen quite a lot of activity. Most of the developers now are willing to work on ‘revenue sharing model’ as against only ‘pure rental model’ which is heartening to see as it is a win-win situation both for developers as well as retailers. Prices should sustain for short term. Also any decision by government regarding FDI in retail would definitely have its impact on the retail sector.
What are your thoughts on real estate financing for developers?
Cost of debt certainly has gone up for the developers. Even real estate focuses on private equity investments. Over a period of time, the PE investment in real estate sector has come down, thereby further limiting the options of fund raising with developers. While in the years from 2005-2007, the PE funding was ranging between $12-15 billion, it fell to 0.5 billion in 2008 and is seen at just $1 billion in 2011.
What’s your comment on the upcoming real estate regulator Bill?
While the Bill is expected to bring more transparency to the real estate sector and is also expected to keep consumer’s interest in mind, it should also take care of the developers’ interest.
