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New Year, real hopes

K.A. MARTIN.
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The movers and shakers of the real estate sector believe that 2013 holds promise, writes K.A. MARTIN.

Where dreams are made:At the Marine Drive, the heart of commercial property development in Kochi, where big realty brands have entered in a big way.— Photo: Thulasi Kakkat
Where dreams are made:At the Marine Drive, the heart of commercial property development in Kochi, where big realty brands have entered in a big way.— Photo: Thulasi Kakkat

Homebuyers and real estate developers will be eager to leave behind a rather difficult 2012 and usher in the New Year with renewed hopes.

While the buyers, buffeted by high interest rates on home loans, will hope for easier access to low-cost funds in 2013, builders are eager to see a surge in sales. “The real estate business has definitely improved growth prospects for India, especially for Kerala,” Sunil Kumar, builder and convener of the recently concluded CREDAI Property Expo 2012 in Kochi, says.

The financiers share his optimism, foreseeing buyers coming back to the market in large numbers.

Interest rates

One of the key factors that will decide the prospects of the sector in 2013 is the interest rate, which hinges on inflation.

V.A. Joseph, Chairman and Managing Director of the Thrissur-based South Indian Bank, is hopeful that inflation will come under control during 2013, prompting the Reserve Bank of India to cut the policy rates. “The banks then will follow suit,” he told The Hindu .

The question of affordability weighed on the minds of the buyers during 2012, keeping them from investing, market analyses say. One of the metrics that determines affordability is the interest rate.

“Buyer-shyness may become a thing of the past,” Antony Kunnel, builder and president of CREDAI Kochi, says. Even during 2012, property prices had not appreciated substantially, though the cost of inputs such as labour, steel and cement went up, he told The Hindu .

The builders, he said, have held the price despite the significant rise in input costs. The labour charge has increased by about Rs. 200 over two years; the cement prices hover around Rs. 350 a bag and the steel prices threaten to be volatile even now.

Mr. Kunnel felt that the buyers would recognise the market conditions and invest in real property.

The factors that will go into deciding real property prices during 2013 include the proposed Real Estate Regulation and Land Acquisition Bills; improvement in information technology and its enabled service business during the year; performance of the rupee primarily against the dollar; and the recent decision by the government to allow foreign direct investment in multi-brand retail.

The Real Estate Regulation Bill has been pending despite a draft being put out for suggestions from the public nearly a year ago.

Once the law is in place, each State will be able to work out its own codes for the builders, making the industry more transparent and organised. New regulations will build investor confidence as well as weed out fly-by-night operators, who have taken customers for a ride during the past.

“Besides,” Mr. Sunil Kumar says, “the Kerala government has been able to push through reforms in the existing building rules in the State.”

“Government initiatives, especially in building more IT infrastructure, are going to be key factors that will drive investment in real estate in the State during the coming years.” Mr. Kumar said that decisions by the Union government to allow foreign direct investment in multi-brand retail and the government’s commitment to raise the cap for such investment in the insurance sector would have a positive impact on the market.

The sluggishness of the market in Ernakulam district, which has seen dizzy action during the property boom, is best indicated by the volume of loan disbursals by public sector banks during the past year. Banking industry sources says the loan offtake till September-end stands at Rs. 5,888 crore. This is a minor improvement over the Rs. 5,760 crore disbursed in the previous financial year.

Analysts have pointed to an increased demand for commercial property, especially in relation to FDI in multi-brand retail which will push up demand for such property in semi-urban areas with potential for fast growth.

They point to the current stock of commercial property, which will be well utilised because of an expected boom in demand. There is some apprehension on the rental front given the sluggishness triggered by the worldwide economic recession.

The builders have pointed to policy missteps and political paralysis at the Union government-level for a lack of business confidence and investments during 2012. However, the willingness shown lately by the government to push ahead with reforms has given rise to a lot of optimism.

The Asian economies have already weathered the global downturn and will enter 2013 in a comparatively good shape. Risk levels appear manageable, domestic policy selling remains highly accommodative and the global outlook has begun to stabilise. 

One crucial variable that will determine the decisions of NRI investors is the possibility of the rupee getting stronger during 2013. A senior official of an old-generation private sector bank told The Hindu that the Indian currency was likely to get stronger.

The builders had pinned their hope during 2012 on the weak rupee as a rallying point for the NRI population. With the rupee depreciating, the NRI buyers were getting their new property at about 25 per cent cheaper than the price the residents had to pay.

Houses for poor

Though foreign investments in real property have slowed down, Kerala is witnessing a slew of luxury projects with leading Indian brands entering the field.

While affordability continues to be a big question, big brands have come to Kochi promising luxurious apartments to buyers who can afford to pay upwards of Rs. 1 crore each.

2013 may see some thrust on the affordable housing sector with the Housing and Urban Development Corporation, a premier housing and infrastructure agency in the country, planning to enter the retail housing sector in a big way.

‘Government initiatives, especially in building IT infrastructure, will be a key factor.’


1

  • Laws to make the industry more transparent and organised.



  • 2

  • Better IT infrastructure to drive investment in real estate.



  • 3

  • FDI in multi-brand retail will have an impact on the market.


  • Inflation

    The worst may be over, giving RBI space.

    Interest rates

    The RBI may cut policy rates if inflation eases.

    Exchange rate

    The rupee may get stronger against the dollar.


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