2014 Real Estate: High Interest Rate Kept Buyers Away

The General Election in 2014 consumed most part of the year. Industries, consumers and investors waited for the result to throw up a decisive and stable Government. And with the emergence of a stable government, the investor sentiments improved considerably but macroeconomic indicators were still not favourable. Inflation and interest rate were high and GDP growth declined. However, the New Government took a slew of measures to boost sentiments with focus on infrastructure, real estate and manufacturing; the outcome of which will be visible in the next 6-9 months. The crude oil prices, too, saw a steep decline which prompted the Government to reduce retail fuel prices and make up for its bloated fiscal deficit.

Towards the end of the year, the leasing activity in the commercial space began to rise and residential space also witnessed some uptick. But still far away from any level of comfort for real estate companies. The unanimous view amongst the developer community has been to reduce interest rate. The borrowing cost for both developers and buyers is high and the prevalence of such a scenario for a long period of time can erode company’s profitability and keep buyer’s away from the market. A lot of demand in commercial and residential space has been coming from tier II and III cities including non-metros, like Lucknow, Chandigarh etc. These markets have evolved over the years and opportunities in the service sector have been immense which has resulted in higher aspiration value for better living. These cities offer skilled manpower and therefore developers are positive about these markets.

2015 looks positive. Most of the steps taken by the government is expected to show results from the second quarter. Interest rate, too, is expected to be cut in RBI’s next policy. The Budget will play a crucial role in defining the Government’s vision for the economy and the way in which it envisages to achieve its goals. The Housing for All by 2022 mission of the Government along with policy on Smart Cities augurs well for real estate sector. Besides, at the State level, too, the infrastructure execution has to be quick. Quick addition of people to the workforce have put tremendous pressure on Metropolitans and its imperative that State Government take the onus on developing hubs for provision of basic social and physical infrastructure and employment opportunities to reduce migration by becoming self sufficient.

Mohit Goel | CEO, Omaxe Limited

Optimism Returning To Real Estate

The macroeconomic indicators may not point towards complete revival of the Indian economy with growth slowing down to 5.3 per cent in July-September quarter but zero WPI and declining CPI inflation points towards better things in the coming quarters. This has built pressure on the Reserve Bank of India to cut interest rates in order to keep investment and spending cycle moving. One sector that will immensely benefit from this will be the real estate sector. 

Real estate continues to be one of the major contributors to India’s GDP and employment. But in the last few years, there has been a continuous decline in demand with imbroglio on land bill and policy indecisions. However, since the new Government took over in May, many policy decisions have been taken in favour of the real estate and infrastructure sector, which the government believes once sees an uptick will drive the economy. The Government is also faced with its commitment of providing “Housing for All by 2022” and its initiatives are directed towards fulfilling this objective. 

 

The RBI raised the ceiling of loans under affordable housing to Rs 50 lakh for house priced at Rs 65 lakh in metros and Rs 40 lakh for house priced at Rs 50 lakh in other centres. The affordable housing segment was also granted infrastructure status. The Investment limit under Section 80C was also hiked to Rs 1.5 lakh from the current Rs 1 lakh, while also increased housing loan interest rate deduction limit to Rs 2 Lakh. During this period, the Government also introduced REIT that will not only allow buyers to invest small amount in real estate but also enable developers to access cheaper funds. 

The Government also eased FDI in construction; reducing minimum built up area to 20,000 sq. mtr. and capitalization requirement of $5 million. Recently, the Government also did away with three year lock-in period. Foreign firms have shown keen interest and domestic real estate companies too have been eager to partner and execute projects. The idea of Smart Cities and a budgetary allocation towards it is yet another important initiative of the Government which we believe is critical for our smart cities. A few countries like Singapore and Japan have shown interest and agreed to partner India in developing Indian cities.

While these measures are positive for real estate, interest rate reduction in the short run is imperative to spur demand. The industry has been demanding a reduction and the same was reiterated by Finance Minister Arun Jaitley recently, acknowledging that higher cost of capital was impacting real estate and manufacturing sector. 

Today, the cost of capital is really high for real estate companies. Above this, the interest cost, too, has gone up leading to erosion of bottom line. It is here that RBI and Government must step in to ease financing to real estate sector. Foreign investors have been upbeat about India and the new Government; and CBRE report states that around $4.5 billion have been invested by institutional investor into the real estate sector during January-September, 2014.    

The impact of all this has not significantly impacted real estate but yes, the commercial real estate segment has seen a surge in leasing. However, due to high rentals, Delhi and Mumbai have been losing out to other centers, points JLL India.

The residential space has witnessed a spurt in enquiries and this trend is across geographies from both domestic homebuyers and NRIs. Demand from end users in the tier II and III markets have been steady.

Uttar Pradesh, Punjab, Haryana, Madhya Pradesh have been important market for us. These States have seen significant economic growth in the last few years and add to it the political stability, rising disposable income and job opportunities. Omaxe has a strong presence in these States and based on past delivery record, earned trust and affordable but quality and smart homes have seen the company rise on the preference radar of homebuyers. Cities like New Chandigarh, Lucknow, Indore, Ludhiana, and Faridabad have huge potential. With metro cities witnessing slowdown in demand, these cities have emerged as a strong alternative besides possessing their own inherent strength by way of brisk infrastructure development, job opportunities and aspiration of a better lifestyle. Reports have stated how luxury and retail brands are eying tier II and III cities as their next big investment destination. 

Omaxe is executing dream projects in these cities. A world class integrated township “Omaxe New Chandigarh” in New Chandigarh, a mixed land use development “Omaxe City Centre” in Faridabad, a slew of futuristic projects in the most strategic locations of Indore, luxury offerings in Ludhiana and group housing & retail spaces in Lucknow.

These are challenging yet exciting times for the real estate sector and Omaxe is geared up to be the front runner.

Mohit Goel | CEO, Omaxe Limited

New Chandigarh is a perfect example of Smart City

Ever since New Chandigarh was conceived by the Punjab Government as the first eco-town of Punjab; well planned with better amenities and infrastructure; the basic work and foundation of it is beginning to be seen on the ground. And today those challenges and opportunities is a reference point for the creation of 100 Smart Cities proposed by the Central Government.

Taking a leaf out of its experience from Mohali and Panchkula, the Punjab Government said in the Budget document that New Chandigarh will be a self-contained city and will not be a satellite town of Chandigarh. The city is being developed on an area of 15,000 acres on the concept of smart city. The Budget even allocated approx. Rs 1200 crore.

The availability of modern social and physical infrastructure, civic amenities, lifestyle facilities, residential and commercial spaces and technology driven service delivery will define Smart City and New Chandigarh has laid the foundation for all these.

The plotted residential development under GMADA, Ecocity is the upcoming Ultra modern Township in New Chandigarh. Besides this, private developers like Omaxe and DLF have been doing good work in New Chandigarh by making available various options of residential living like plots, floors, bungalows, villas etc. along with office and retail spaces. 

A 300 acre Medicity, 1700 acre Education City, a state-of-the-art Cricket stadium and Metro Rail have been proposed. In fact, the foundation for a Cancer Hospital has already been laid. More service driven industries like IT and ITeS, tourism, healthcare etc will be facilitated to provide job opportunities and better lifestyle. New Chandigarh is planned and is being developed not as an alternative to Chandigarh but as a self sustained Intelligent Smart City with no overhead wires and cables, low carbon emission, lake and waterfront, golf course etc. Apart this, the natural beauty of the Shivaliks will add to the desirability of a peaceful and Smart life in New Chandigarh.

Connectivity and accessibility, too, are being enhanced to create New Chandigarh as self sustainable entity that is well connected to nearby cities. Besides, sectoral grid roads are also being widened.

-Mohit Goel | CEO, Omaxe Limited