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