New Delhi, Dec 29, 2014 – Developers were counting on 2014 to usher in a turnaround of fortunes for the real estate industry on many fronts. In hindsight, it has been a challenging year for the real estate industry as a whole. For developers, the major challenges revolved around influencing the purchasing decision of home buyers, making houses with the right ticket size and price, and in meeting the capital requirements for projects.
The formation of the new government at the centre raised hopes about the tide turning for the industry. Developers set their sights on a rebound in market sentiment and passage of industry friendly reforms. To the government’s credit, a slew of policy announcements and bold measures to kick-start the economy were taken. Key infrastructure projects got fast tracked and real estate friendly policies such as relaxation of FDI rules in construction and real estate, implementation of REITS , a vision of creating 100 smart cities and making housing available for all have helped lift sentiment and rekindled investor interest in the industry.
However, in spite of the initiatives, the industry is yet to turn the corner. Despite strong fundamentals backing the residential real estate, sales velocity has failed to pick up and transaction volumes have not improved. The macro-economic environment of high interest rates and sluggish growth, fewer job opportunities and inflationary pressure have slowed down demand for real estate. Purchasing decision of end users and potential home buyers has been largely influenced by the high interest rates, which have dampened sales for many real estate projects in the country. Potential buyers remain in wait-and-watch mode, while developers have been going slow on new project launches across segments (residential, commercial office space, and retail).
The year also saw a drop in home sales of big ticket sizes underscoring the fact that high prices cannot sustain in an environment wherein volumes do not support them. But demand from end users as well as investors remain robust for developers offering the right product at a competitive price and on time. As a result, demand for affordable homes is witnessing a surge even though the buying activity has so far not been commensurate.
Clearly, a lot more action is needed on the ground for the industry to bounce back. As we prepare to welcome the New Year, our hopes and feelings are naturally optimistic. We hope that high interest rates, which have been the biggest bane of real estate in the current year, will soon give way to a more benign interest regime that would galvanise people into buying real estate.
Being a part of the real estate industry we also hope that the New Year will see passage of policies leading to an appreciable reduction in capital cost for both developers and end-users. Some of these could be reforms for allocation of funds to developers at lower rates, incentivising developers who are promoting affordable developments, etc. Also introduction of single window clearance system and steps towards providing infrastructure status to the industry will further benefit the sector.
We also hope to see the implementation of the Real Estate Regulatory Bill and a more streamlined and faster approval process for projects in 2015. Delay in approvals leads to cost escalation and increase in the base value of the project. Single-window clearances will help cut timelines and allow developers to scale back financing costs by 10-25%. Further, a quicker approval process will increase real estate industry’s contribution to the revenues of central and state governments and raise its share of GDP by another 1.5%. CCI Newswire
